Trump Campaign Data Consultants Cambridge Analytica Took 50 Million Facebook Users' Data

Cambridge Analytica, a data analysis firm that worked on President Trump’s 2016 campaign, and its related company, Strategic Communications Laboratories, pilfered data on 50 million Facebook users and secretly kept it, according to two reports in The New York Times and The Guardian. The apparent misuse of Facebook data—and the social media giant’s failure to police it—leave both companies with plenty still to answer for.

Facebook has suspended both Cambridge and SCL while it investigates whether both companies retained Facebook user data that had been provided by third-party researcher Aleksandr Kogan of the company Global Science Research, a violation of Facebook’s terms. The suspensions were announced just hours before The New York Times and The Guardian published stories Saturday morning describing how Cambridge Analytica harvested data on 50 million US Facebook users, a number far larger than the 270,000 accounts Facebook initially cited. Facebook says it knew about the breach, but had received legally binding guarantees from the company that all of the data was deleted.

“We are moving aggressively to determine the accuracy of these claims. If true, this is another unacceptable violation of trust and the commitments they made,” Paul Grewal, Facebook’s vice president and general counsel, wrote in a blog post Friday night. Facebook is also suspending Kogan, as well as Christopher Wylie of Eunoia Technologies, the whistleblower who led to stories in The Guardian and The New York Times.

In a statement, a spokesperson for SCL denied the claims. “Cambridge Analytica and SCL Elections do not use or hold Facebook data,” the statement read. (Cambridge is an independent company in the United States that was spun out of SCL.)

And yet, following Facebook’s announcement Friday night, sources close to Cambridge confirmed to WIRED that this data was still accessible as recently as last year. According to one source, a trove of Facebook users’ personal data was visible on Cambridge’s internal databases in 2017, despite SCL’s current denial and past promises to both Cambridge employees and Facebook that it had all been deleted in 2015. The data included Facebook IDs, and responses to personality surveys that had been administered by Kogan in 2015. Another source close to the company recalled seeing a database called “Kogan-import” in Cambridge’s system, which was only visible to a small number of staffers in data science, engineering, and IT. The source says the database was tightly controlled in terms of who could edit or delete it.

Asked to confirm whether this database existed, an SCL spokesperson said, “We did a system wide internal audit to verify that all GSR data had been removed before we signed an undertaking to Facebook.”

The data in question was gathered using an app called thisisyourdigitallife, created by Kogan, that offered Facebook users personality quizzes. Those who downloaded the app voluntarily turned over reams of personal data about what they like, where they live, and in some cases, depending on individual privacy settings, who their friends were.

Though Facebook says just 270,000 people downloaded the app, a loophole at the time apparently allowed Kogan to collect vastly more information. Until 2014, apps could also collect information on every users’ entire friend network. Facebook shut down that capability for app developers in mid-2014, but offered some apps that were already up and running a small grace period before cutting them off. That timing roughly lines up with Kogan’s research. Of the 50 million accounts Kogan had data on, the New York Times and Guardian reports say, 30 million had complete enough profiles that Cambridge could create psychographic profiles of them. Different than demographic profiles, these describe people based on their personality types.

Kogan passed the survey results on to SCL and Cambridge. Facebook learned about this violation in 2015, removed the app, and requested that Cambridge Analytica, Kogan, and Wylie certify that they had destroyed the information. In a statement, an SCL spokesperson said the company deleted the data as soon as they found out it violated Facebook’s policies.

Cambridge Analytica has spent years denying this exact sort of association with Kogan. In a 2016 WIRED interview, I asked Nix about a 2015 report in the Guardian, which described how Cambridge Analytica had amassed data from Kogan’s app. Nix called the article “unfounded,” and said, “We do not hold any data from third parties, whether it’s the person you mentioned or anybody else, and we certainly do not hold any data from third parties that hasn’t been properly licensed or purchased through channels.”1

That doesn’t square with what SCL’s own statement on Friday, which maintained that the company commissioned Kogan for a “large scale research project in the US” in 2014, and only deleted the data after it realized it had been obtained against Facebook’s terms and conditions.

Under this suspension, none of the involved companies will be permitted to buy ads or manage their clients’ Facebook accounts. The Trump campaign hasn’t worked with Cambridge since the 2016 election, according to a source close to the campaign.

For Cambridge Analytica, this represents the nadir of what has been a steady downward spiral since election night 2016. Earlier Friday, David Carroll, a professor at the New School, filed a legal claim against SCL Group under British data protection law, seeking disclosures for how his data was used in the 2016 election and whether that US voter data was processed illegally overseas. The legal proceedings come in the midst of an ongoing investigation by the UK’s Information Commissioner’s Office into Cambridge Analytica’s role in the Leave.EU campaign, which advocated for the United Kingdom to break with the European Union in the 2016 Brexit vote. Cambridge officials had spoken publicly about working for Leave.EU, but CEO Alexander Nix has since denied it in testimony before Parliament.

On Saturday, the ICO issued a statement saying it continues to investigate how Facebook data may have been illegally acquired and used. “We are continuing to invoke all of our powers and are pursuing a number of live lines of inquiry. Any criminal and civil enforcement actions arising from the investigation will be pursued vigorously,” the statement said.

Nix also became a key figure in the investigation into Russian interference in the 2016 election, after news broke that he had contacted representatives for Wikileaks founder Julian Assange in the run-up to the election, seeking information about hacked emails Wikileaks had received. Nix has confirmed initiating this contact. This apparently prompted the Trump campaign to issue a statement seemingly designed to distance the campaign from Cambridge Analytica, a firm which had already amassed doubters and critics even before the 2016 election. Long before Cambridge even began working with the Trump campaign, Republican strategists accused the company of inflating its capabilities.

Now, it appears even Cambridge is working to place rhetorical distance between Nix and the company’s work in United States elections. In a statement provided to The New York Times, the company said Nix “never had any strategic or operational role” in an American election.

The chaos has led to a mass exodus from the company’s nascent US political team. Nearly all of the staff that worked in the Trump campaign’s San Antonio digital office are no longer at Cambridge, and sources say its political business within the United States has dwindled. Once feared by Republican digital firms as a threat to their business and by Democrats as a threat to democracy, Cambridge has steadily ceded influence since its 2016 highs.

“The defanging of Cambridge is about just colossal fuckups over and over,” one source close to Cambridge said.

Losing Facebook as an advertising platform, the source said, should further destabilize the already declining company. “There’s no way this doesn’t have a substantial impact on their business,” another source familiar with Cambridge said.

The weekend’s revelations don’t paint Facebook in a positive light, either. After two years in which Facebook has struggled to explain how Russian propaganda and fake news proliferated on the platform, it now must explain one of its fundamental flaws: Facebook offers unprecedented data to its paying clients, but has next to no controls in place to ensure that data will be handled properly.

In a statement Saturday morning, Facebook’s Grewal said, “We will take whatever steps are required to see that the data in question is deleted once and for all—and take action against all offending parties.”

And yet, Facebook shares some of the blame. The company’s executives have repeatedly been brought before Congress to testify about how the platform was used and abused during the 2016 election. The fact that the company discovered a major data breach by a vendor to the Trump campaign seems worthy of public disclosure well before three years have passed. “Facebook never comes forward with information until their backs are against the wall,” said Jonathan Albright, research director at Columbia University’s Tow Center for Digital Journalism. “This is a mess.”

Facebook can, of course, punish entities that violate its policies, as it is doing with Cambridge and SCL, and it may have grounds for legal action. But the damage has already been done.

Digital Campaigns

1Update 3/17/2018 2:25pm ET: This story has been updated to include part of a 2016 WIRED interview with Alexander Nix.

Electronic Arts Will Not Sell ‘Loot Crates’ in Star Wars: Battlefront II

Video game maker Electronic Arts announced Friday that it will overhaul the progression system in the game Star Wars: Battlefront II, and that all player upgrades will be earned through gameplay. EA’s plans to sell in-game upgrades for real money, in randomized packages known in the industry as ‘loot boxes’ or ‘loot crates,’ produced a massive outcry last Fall, severely damaging the game’s financial performance.

The backlash came from both gamers and, eventually, regulators and legislators. For players, upgrades purchasable for real money seemed certain to destroy the sense of healthy competition in the primarily multiplayer game. Lawmakers and activists saw an even bigger problem, comparing the purchasable loot boxes, in a game likely to have a large audience of minors, as akin to encouraging children to gamble.

EA initially responded by hastily removing the in-game loot system, but it was unclear whether it might return, and in what form. Now EA says that items impacting gameplay “will not be available for purchase” at all, instead being rewarded to players through in-game accomplishments. Other items which don’t impact gameplay, such as character costumes, will still be purchasable with real money, and those purchases will be direct rather than randomized.

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EA’s pullback may have been influenced as much by lawmakers as consumers. Authorities in Belgium, for instance, have reportedly considered classifying video games with purchasable loot crates as forms of gambling. One Hawaii state legislator began pushing for a ban on such systems. EA’s removal of gambling-like elements will likely take some steam out of those regulatory efforts, despite less egregious versions of the idea being widespread.

Gamers’ rage, though, has already had a devastating impact. Battlefront II fell dramatically short of its sales targets, selling less than half of the 1.72 million units it was expected to in its first month. Even before that dismal performance was clear, the controversy had chopped more than $3 billion from EA’s market value.

Battlefront II’s overhauled progression system will be released on March 21st.

YouTube Kids Has Been Promoting Conspiracy-Theory Videos

YouTube Kids, an app that is purportedly more well-policed than YouTube’s own website, contains videos promoting debunked and frightening conspiracy theories. Business Insider discovered that the app, whose users are presumably mostly children, has been suggesting the videos based on otherwise innocuous search terms.

For instance, searches for “moon landing” returned videos arguing that NASA had faked that event. A search for “UFO” led to videos by David Icke, a veteran conspiracist who claims that the Earth is ruled by a secret race of “lizard people.”

The potentially devastating impacts of showing such material to young children were illustrated back in 2009, when conspiracy theorists began circulating the idea that an invisible planet called “Nibiru” would collide with the Earth in 2012, and destroy it. A NASA astrobiologist reported receiving multiple inquiries from young people who were so terrified by the theories that they were contemplating suicide.

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According to Business Insider, YouTube, which is owned by Google, removed specific videos that it highlighted to them, but many similar videos remain accessible through the app. In a statement, YouTube said that “sometimes we miss the mark” on content curation.

But in fact, YouTube Kids seems to quite faithfully following the well-worn path by which YouTube itself has grown. A recent study found that the content-suggestion system on YouTube’s main site consistently promoted more extreme takes on topics users searched for, often including conspiracy theories and fabricated stories.

6 Signs You're About to Be Fired

?No matter how hard you work, there’s a possibility you may someday be laid off or fired, often without much warning. However, after your boss has delivered the bad news, chances are you’ll be able to look back and think of a few warning signs.

But what if you could know in advance that the hammer was about to fall? Those who have been fired multiple times often report similar experiences in the hours, days, and even weeks before they were let go.

Here are a few signs that you may need to dust off your resume.

1. Your boss warns you.

Your boss likely won’t give you an exact date and time of your firing in advance, but many employees do get warnings. The first indication is likely your performance review, which will contain valuable insights into how your boss thinks you’re doing.

Beyond that, you may receive verbal or written warnings about certain behaviors that could put your job at risk. If you ignore those warnings and refuse to make changes, your supervisor may feel there’s no other choice but to terminate.

2. You commit fireable offenses.

Not every fired employee is guilty of an offense, but there are things you can do that will increase your risk. If you’re chronically late, for instance, you could end up on the chopping block.

In fact, in a 2017 CareerBuilder survey, a whopping 41 percent of employers said they’ve fired an employee for being late. You’ll also put a target on your back by having an affair with a coworker or client, blabbing about your company on social media, or behaving inappropriately.

3. The job is a bad fit.

When you landed the job, it may have been the right fit at the time. Or perhaps it was always a bad match, but you needed the money. Whatever the situation, if your job is no longer right for you, you may not be the only one noticing it.

Consider edging your way back into the job market by networking and keeping an eye out for opportunities that are a good fit. Otherwise, you’re not only risking termination, but you’re wasting time in a job that won’t further your career.

4. You’ve been ostracized.

It usually takes a while for employers to fire someone, especially if HR brings pressure to document everything to avoid legal issues. During that time period, any employees who know the termination is imminent can tend to distance themselves from the person. You may notice people have difficulty making eye contact or you are shut out of important meetings. If you start to feel as though people are avoiding you, it might be time to get your resume ready.

5. Your boss’s behavior has changed.

In the months leading up to a termination, an employee often finds his or her boss has a sudden change in behavior. I’ve seen this run in extremes. At one job years ago, not too long before I was let go, my boss began clamping down on me, micromanaging my every move. I’ve also seen it where a soon-to-be-fired colleague found themselves completely abandoned by the boss. Either way, this type of sudden behavior change isn’t usually good news.

6. Your company has changed.

Layoffs and terminations often occur as a result of a company-wide change. It could be something as simple as losing a big client, cutting the business’s income. Mergers and acquisitions also prompt unexpected staff changes, sometimes impacting large groups of people at once.

It’s important to realize that not every company change will result in terminations. However, employers will usually expend a great deal of effort reassuring employees nothing will change, only to turn around and make changes soon after.

As a journalist and employee of television and radio stations, I saw this situation repeatedly because of the ever-changing media landscape and the layoffs that came with it over the years. You sometimes get a little too familiar with that feeling of dread that pops up before an expected layoff. The best remedy for this is to always keep your resume up to date.

Firings often catch people by surprise, even if there were warning signs. But if you begin to feel uncomfortable with your work situation, you can always meet with a recruiter or begin networking in your industry to make valuable connections. Once you are ready to begin looking for a job, you’ll be in a position to quickly move on to something else.

Hybrid cloud file and object pushes the frontiers of storage

Use of public cloud services have been widely adopted by IT departments around the world. But it has become clear hybrid solutions that span on- and off-premises deployment are often superior, and seem to be on the rise.

However, to get data in and out of the public cloud can be tricky from a performance and consistency point of view. So, could a new wave of distributed file systems and object stores hold the answer?

Hybrid cloud operations require the ability to move data between private and public datacentres. Without data mobility, public and private cloud are nothing more than two separate environments that can’t exploit the benefits of data and application portability.

Looking at the storage that underpins public and private cloud, there are potentially three options available.

Block storage, traditionally used for high-performance input/output (I/O), doesn’t offer practical mobility features. The technology is great on-premise, or across locations operated by the same organisation.

That’s because block access storage depends on the use of a file system above the block level to organise data and provide functionality. For example, snapshots and replication depend on the maintenance of strict consistency between data instances.

Meanwhile, object storage provides high scalability and ubiquitous access, but can lag in terms of data integrity and performance capabilities required by modern applications.

Last writer wins

There’s also no concept of object locking – it’s simply a case of last writer wins. This is great for relatively static content, but not practical for database applications or analytics that need to do partial content reads and updates.

But, object storage is a method of choice for some hybrid cloud storage distributed environments. It can work to provide a single object/file environment across locations with S3 almost a de facto standard for access between sites.

File storage sits between the two extremes. It offers high scalability, data integrity and security and file systems have locking that protect against concurrent updates either locally or globally, depending on how lock management is implemented. Often, file system data security permissions integrate with existing credentials management systems like Active Directory.

File systems, like object storage, implement a single global name space that abstracts from the underlying hardware and provide consistency in accessing content, wherever it is located. Some object storage-based systems also provide file access via network file system (NFS) and server message block protocol (SMB).

In some ways what we’re looking at here are a development of the parallel file system, or its key functionality, for hybrid cloud operations.

Distributed and parallel file systems have been on the market for years. Dell EMC is a market leader with its Isilon hardware platform. Also, DDN offers a hardware solution called Gridscaler and there are also a range of other software solutions like Lustre, Ceph and IBM’s Spectrum Scale (GPFS).

But these are not built for hybrid cloud operations. So, what do new solutions offer over the traditional suppliers?

Distributed file systems 2.0

The new wave of distributed file systems and object stores are built to operate in hybrid cloud environments. In other words, they are designed to work across private and public environments.

Key to this is support for public cloud and the capability to deploy a scale-out file/object cluster in the public cloud and span on/off-premise operations with a hybrid solution.

Native support for public cloud means much more than simply running a software instance in a cloud VM. Solutions need to be deployable with automation, understand the performance characteristics of storage in cloud instances and be lightweight and efficient to reduce costs as much as possible.

New distributed file systems in particular are designed to cover applications that require very low latency to operate efficiently. These include traditional databases, high-performance analytics, financial trading and general high-performance computing applications, such as life sciences and media/entertainment.

By providing data mobility, these new distributed file systems allow end users and IT organisations to take advantage of cheap compute in public cloud, while maintaining data consistency across geographic boundaries.

Supplier roundup

WekaIO was founded in 2013 and has spent almost five years developing a scale-out parallel file system solution called Matrix. Matrix is a POSIX-compliant file system that was specifically designed for NVMe storage.

As a scale-out storage offering, Matrix runs across a cluster of commodity storage servers or can be deployed in the public cloud and run on standard compute instances using local SSD block storage. It also claims hybrid operations are possible, with the ability to tier to public cloud services. WekaIO publishes latency figures as low as 200µs and I/O throughput of 20,000 to 50,000 IOPS per CPU core.

Elastifile was founded in 2014 and has a team with a range of successful storage product developments behind it, including XtremIO and XIV. The Elastifile Cloud File System (ECFS) is a software solution built to scale across thousands of compute nodes, offering file, block and object storage.

ECFS is designed to support heterogeneous environments, including public and private cloud environments under a single global name space. Today, this is achieved using a feature called CloudConnect, which bridges the gap between on-premise and cloud deployments.

Qumulo was founded in 2012 by a team that previously worked on developing the Isilon scale-out NAS platform. The Qumulo File Fabric (QF2) is a scale-out software solution that can be deployed on commodity hardware or in the public cloud.

Cross-platform capabilities are provided through the ability to replicate file shares between physical locations using a feature called Continuous Replication. Although primarily a software solution, QF2 is available as an appliance with a throughput of 4GBps per node (minimum four nodes), although no latency figures are quoted.

Object storage maker Cloudian announced an upgrade in January 2018 to its Hyperstore product which brings true hybrid cloud operations across Microsoft, Amazon and Google cloud environments with data portability between them. Cloudian is based on the Apache Cassandra open source distributed database.

It can come as storage software that customers deploy on commodity hardware, in cloud software format or in hardware appliance form. Hyperfile file access – which is Posix/Windows compliant – can also be deployed on-premise and in the cloud to provide file access.

Multi-cloud data controller

Another object storage specialist, Scality, will release a commercially supported version of its “multi-cloud data controller” Zenko at the end of March. The product promises to allow customers hybrid cloud functionality; to move, replicate, tier, migrate and search data across on-premise, private cloud locations and public cloud, although it’s not that clear how seamless those operations will be.

Zenko is based on Scality’s 2016 launch of its S3 server, which provided S3 access to Scality Ring object storage. The key concept behind Zenko is to allow customers to mix and match Scality on-site storage with storage from different cloud providers, initially Amazon Web Services, Google Cloud Platform and Microsoft Azure.

Microsoft women filed 238 discrimination and harassment complaints

SAN FRANCISCO (Reuters) – Women at Microsoft Corp working in U.S.-based technical jobs filed 238 internal complaints about gender discrimination or sexual harassment between 2010 and 2016, according to court filings made public on Monday.

FILE PHOTO: The Microsoft logo is shown on the Microsoft Theatre in Los Angeles, California, U.S., June 13, 2017. REUTERS/Mike Blake/File Photo – RC177D20CF10

The figure was cited by plaintiffs suing Microsoft for systematically denying pay raises or promotions to women at the world’s largest software company. Microsoft denies it had any such policy.

The lawsuit, filed in Seattle federal court in 2015, is attracting wider attention after a series of powerful men have left or been fired from their jobs in entertainment, the media and politics for sexual misconduct.

Plaintiffs’ attorneys are pushing to proceed as a class action lawsuit, which could cover more than 8,000 women.

More details about Microsoft’s human resources practices were made public on Monday in legal filings submitted as part of that process.

The two sides are exchanging documents ahead of trial, which has not been scheduled.

Out of 118 gender discrimination complaints filed by women at Microsoft, only one was deemed“founded” by the company, according to the unsealed court filings.

Attorneys for the women described the number of complaints as“shocking” in the court filings, and said the response by Microsoft’s investigations team was“lackluster.”

Companies generally keep information about internal discrimination complaints private, making it unclear how the number of complaints at Microsoft compares to those at its competitors.

In a statement on Tuesday, Microsoft said it had a robust system to investigate concerns raised by its employees, and that it wanted them to speak up.

Microsoft budgets more than $55 million a year to promote diversity and inclusion, it said in court filings. The company had about 74,000 U.S. employees at the end of 2017.

Microsoft said the plaintiffs cannot cite one example of a pay or promotion problem in which Microsoft’s investigations team should have found a violation of company policy but did not.

U.S. District Judge James Robart has not yet ruled on the plaintiffs’ request for class action status.

A Reuters review of federal lawsuits filed between 2006 and 2016 revealed hundreds containing sexual harassment allegations where companies used common civil litigation tactics to keep potentially damning information under wraps.

Microsoft had argued that the number of womens’ human resources complaints should be secret because publicizing the outcomes could deter employees from reporting future abuses.

A court-appointed official found that scenario“far too remote a competitive or business harm” to justify keeping the information sealed.

Reporting by Dan Levine; Additional reporting by Salvador Rodriguez; Editing by Bill Rigby, Edwina Gibbs and Bernadette Baum

AT&T & Time Warner: Prepare For The Worst

When news broke that AT&T (T) was purchasing Time Warner (TWX) in a cash and stock deal valued at $107.50 for Time Warner holders I felt very confident that the move would improve AT&T’s profitability and widen its moat. AT&T was (and remains) one of my largest positions, so the news was welcome as I previewed the prospective ecosystem where premium original content and provider flowed seamlessly together permitting AT&T to leverage both as a compelling consumer package.

AT&T has a lucrative history marketing ‘bundle deals’ via DirecTV/U-verse, phone and internet. Adding Time Warner’s content to the mix was like adding another weapon to their arsenal. The move would fortify their position in an era where content is king and the average American residence has nearly 3 TVs per household.

With more and more customers embracing OTT services like Netflix (NFLX) and ditching cable, AT&T recognized the writing on the wall and (potentially) acquired Time Warner to help mitigate the impact and diversify them away from their reliance on legacy telecom services.

Perhaps it was not only adding a weapon to their arsenal but adding a shield to insulate them from the evolving landscape. I credit the management team led by CEO Randall Stephenson for their proactive approach getting ahead of the curve.

Obviously Time Warner’s stock popped immediately on the news while AT&T’s gyrated as investors digested the antitrust risks and whether or not AT&T overpaid.

Let’s take a look at those risks now.

Did AT&T Overpay?

The buyout offer did not come cheap ($85B) and some analysts groaned that while Time Warner was a nice asset, it came at too high a cost. But obtaining regulatory approval would be no walk in the park and AT&T knew they were in for protracted litigation. Let’s look at the EPS and Revenue numbers for the last two FYs for Time Warner:


You will note that on an EPS basis, Time Warner jumped about 9% year over year from $5.86 to $6.41. Time Warner grew EPS over 20% the year before that. When the $107.5 price tag was initially applied to the prior 4 quarters of earnings in October 2016, the P/E ratio stood at approximately 21.

That did look a bit steep.

However, the deal has not closed and when applying today’s earnings to the buyout price, the P/E ratio dips to 16.7. That looks much healthier. You have to tip your hat to AT&T’s management here since they had the prescience to realize that while the initial premium to Warner shareholders seemed lofty, it allowed them to garner unanimous approval from both boards by offering a rich enough premium to Warner holders while not seeming reckless to AT&T holders.

Stephenson and company knew earnings would continue to rise for the content king and before (IF) the deal closes, they will look like geniuses as earning would have grown into the multiple applied at the time of the offer.

Regulatory Risk

And that brings us to the elephant in the room: whether AT&T can out-litigate the DOJ in their pending antitrust case. President Trump has been vocal in his opposition to the buyout and may see it as fulfilling a campaign promise to defeat the deal. But Trump will not have the final word, it will be adjudicated in the courtroom not the political arena, however you would be naïve to believe that those worlds don’t intersect despite our system of checks and balances.

In the interim, AT&T has tried to curry favor with the Trump Administration by announcing bonuses to its employees and lauding the President for the tax bill. Nevertheless, the antitrust team is pushing ahead with bluster and bravado to paint the government as underdogs thwarting corporate strong-arming.

In November of last year I penned a post in the immediate aftermath of DOJ filing suit recommending purchasing shares of Time Warner during the turmoil called, “Time Warner: Heads I Win, Tails You Lose”. In just two days TWX share price plummeted from $95 to below $87. I quickly logged into my brokerage account to pick up shares of Time Warner in the $80’s.

In the post I explained why the volatility generated a perfect arbitrage opportunity, in summary:

This remains mostly true today, however Time Warner’s share price has since rebounded near $95 thereby shrinking some of the potential returns if the buyout is approved. While I have contacts within the antitrust division of the DOJ from my Washington days, they are not at liberty to speak about the case and therefore I know only as much as the public announcements trickling out on a daily basis.

And it is my opinion that the deal looks less likely to succeed now than it did 4 months ago when I wrote that post. But that reminds me of a saying by Clive Davis:


Prepare To Take Action:

During the previous dip, I was on vacation with my wife refilling the gas tank when I checked the market news to find out that Time Warner was selling off. We waited at that pit stop probably longer than she preferred so I could buy shares since I knew that the dip was an overreaction and would not last.

This time, I am planning ahead by placing limit buy orders at $85 and below that are good-til-cancelled in the scenario where the DOJ wins and/or impactful news hits the stock causing a knee-jerk reaction. In essence the hypothetical case looks like this:


In the portion of the chart above circled, you will see a red candlestick where news adversely impacted a stock sending it cascading into free-fall. But you will also notice the rapid rebound where the stock recovered quickly above that price.

The window to pounce and take advantage of the dip was small. That is why I am preparing to maximize the opportunity if it presents itself again. I believe that owning Time Warner shares at $85 and below provides a margin of safety if the two parties are forced to go their separate ways.

Time Warner Flying Solo?

Will I be saddled with overvalued shares of Time Warner purchased at $85? I doubt it. Here’s why:

Growth for Time Warner shows no signs of abatement as each operating division increased revenue and profits in the latest quarter (yet again). HBO’s subscription revenues increased 11% and its unparalleled show Game of Thrones is not due back until 2019. I expect an even larger increase in the months building up to the premiere.

Additionally, on the heels (pun intended) of Wonder Woman’s success, and in the backdrop of the #metoo movement, I believe Warner Bros. has incentive to continue to produce content with powerful heroines. HBO produced an amazing women focused hit with Big Little Lies and it’s due back for a second season featuring Meryl Streep. HBO made a savvy move by riding the coattails of Reese Witherspoon’s success.

On the cable news front, CNN was rated the #1 network in primetime and total day viewership among young adults and tops in digital news as well (from their 4Q earnings release). Whether you believe the treatment of the Trump Administration is favorable or not, it has been favorable to the bottom line of CNN.

And those are just a few samples of the many reasons why I remain bullish on Time Warner.

No one knows for certain how the trial will shake out, but I am positioning myself for success no matter the outcome.

Disclosure: I am/we are long T, TWX.

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

Are You Thinking Of Buying Berkshire Hathaway? Consider Baby Berkshire Instead

Source: Berkshire’s annual letter

A few days ago, Berkshire Hathaway (NYSE:BRK.A) (BRK.B) released its annual report. Markel Corporation (MKL) has not published it yet, but it released its full year results.

As the readers of Warren Buffet’s letters already know, in 2015, he decided to slightly change the comparison criteria he had been using to evaluate Berkshire’s performance. He had always just compared BH’s book value appreciation against S&P 500 appreciation.

Since 2015, he has been taking into account also Berkshire stock price appreciation. The official reason for the change was that book value could not completely reflect the intrinsic value of the company (arguably, when we also consider good will and intangibles), but the real reason was that, for the first time in history, S&P 500 total return in the previous 5 years had surpassed Berkshire’s book value total return, whereas its stock price delta still performed better.

What is remarkable now is that, in the course of the last 10 years, as reported in its last annual report, even Berkshire stock price total return was beaten by S&P 500, a milestone in the company’s history.


Annual percentage change Berkshire

Annual percentage change S&P 500































Compounded annual gain



Source: Berkshire’s annual letter

The reason is quite clear: Berkshire is too big!

Why Berkshire’s best years are not in sight

That’s right. Berkshire is too big; its huge capitalization of about half trillion dollars makes it what I usually call an index company. Its stocks are good for index ETFs and funds, but not so good for individual investments.

In fact, there is a sort of physical limit to stock growth. If a company is very big, it could be hard to find substantial space for business growth. It could be even harder to do it against the will of the anti-trust entities.

Personally, I rarely own shares of companies exceeding a double digit billion-dollar cap. I would prefer to buy an ETF to avoid risks as well as hours of due diligence, therefore, saving time and energy.

With Berkshire we have an additional problem, which is not solvable, because it is linked to the inner structure of the company.

Berkshire is basically an insurance company that uses its float to invest in the equity market

Since Warren Buffett credo is value investing, he never owns more than a dozen companies for 90% of his publicly quoted companies’ portfolio. Now, this is where it gets tough: let’s say you have a $100B budget and you are committed to using no less than 10% of that budget for each purchase, then your hunting territory will be limited to a tiny fraction of the companies that are listed in the public stock exchanges. If you don’t want to overpay your shares, on average, you will need to only bet on the very fat guys. It could be hard to find value out there.

The same goes with acquisitions. It is increasingly difficult for Berkshire to find private companies to buy. I think that, in the near future, we will witness Berkshire implementing the same suggestion W. Buffett gave individual investors several times: 10% bonds and 90% cheap index ETF.

Ten years from now, Berkshire Hathaway will be a huge holding company, with some insurance companies in its pocket, no more and no less. Its biggest competitive advantage will eventually vanish. Given the lack of investment opportunities, it will most likely even start to pay dividends in order to deploy its enormous cash.

This last option could sound good for some investors, but it is drastically against Buffettology itself.

Now let’s talk about Markel

Although Berkshire is likely to be on the path of giving up its terrific long-term performance in the years to come, there is another company that will continue to grow at the same pace, using the same business model structure as Berkshire’s, but enjoying a relatively low capitalization. I am talking about the so-called baby-Berkshire: Markel Corp.

Markel’s intent is not a secret to anyone and that is to copy the Berkshire Hathaway business model. In other words, using the float of a solid insurance business (which yields an underwriting profit 80% of the time) to acquire private companies or to invest in securities. They even hold their annual meeting at the Omaha Hilton Hotel, just a day or two after Berkshire Hathaway’s annual shareholders meeting in the same town.

The company is co-managed by Tom Gayner: a Buffett fan and smart disciple.

Actually, for being a copycat, Markel performed very well. Here is a direct comparison between the two companies during the course of the last 10 years:

Source: Yahoo Finance

Berkshire vs. Markel

In this table, I put some key figures for the two companies, data in billion dollars, collected as of Dec. 2017:






Equity Securities



Fixed Inc Maturity Securities



Cash and Short Term T-notes



Intangibles and Goodwill



Total Assets



Source: Berkshire Hathaway and Markel official filings, Author’s elaboration

We can note that Markel’s float is about 28% of total assets, compared to 16% for Berkshire. That reveals Markel’s bigger exposure to its insurance business.

I like that, because insurance is the key of the two companies’ business model. They are not simply holding companies, but rather insurance companies that invest their float on equities and acquisitions.

Cash and short-term T-notes, compared with equity securities, are more or less the same for both companies, but fixed maturity securities are much bigger for Markel (170% vs. 13% of equity securities for Berkshire).

This reflects Markel’s more conservative approach and it is also partly due to the recent acquisitions of Alterra and State National, which had numerous bonds and treasuries in their investment baskets.

This over-exposure to bonds could lead to a better performance in the future, as management will eventually shift a bigger part of its portfolio to equity stocks.

Goodwill and intangibles, as percentage of total assets, are much bigger for Berkshire (16% vs. 9.5%). Today, this difference can be explained with Buffett and Munger being in charge, but I cannot guarantee that this would be a realistic scenario when they retire.

The bottom line is that Markel is well-positioned for future growth in all respects. Its business is well balanced and strong. Even during a difficult year, like the last one for insurance companies, due to several dramatic catastrophes, Markel managed to deliver an excellent profit for its shareholders. The net unrealized investment gain of more than $760M together with the income of the fast-growing Markel Ventures operation, which exceeded $100M in 2017, easily offset the net loss brought by the insurance segment.

On the other hand, by comparison, Berkshire appears to be scrambling a little bit after Markel.

Even the P/B value ratio, which is cheaper for Berkshire, does not differ that much, if we consider only the tangible assets. Markel is only 12% more expensive than Berkshire according to this metric.


Berkshire Hathaway has been a legend for all investors. Due to its terrific performance, it earned the well-deserved fame of a modern institution in the financial environment.

Nevertheless, several signs are telling us that its future performance will not be as good as the past ones.

If you are as intrigued as I am by the Berkshire’s business model, you should buy Markel instead, a company that shares the same investment philosophy, but without the size-problems of its larger twin.

After all, a Markel’s buy-out would not be that extravagant for Berkshire in the future. Maybe it is already on Mr. Buffett’s to do list.

Disclosure: I am/we are long MKL.

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

The Kinder Morgan Dividend Story Is About To Resume

By the Sure Dividend staff

Kinder Morgan (KMI) has been a favorite dividend growth investment for many retail investors, until the company cut its payout by three quarters two years ago. After two years of low payouts, during which the company focused on reducing debt levels and finishing projects, things are about to change soon. Kinder Morgan is one of 294 dividend stocks in the energy sector. You can see all 294 dividend-paying energy stocks here.

Kinder Morgan has aggressive dividend growth plans for the coming years, but unlike in the past, this time they look very achievable. The company is about to increase its dividend meaningfully soon, and investors will very likely benefit from ongoing strong dividend growth rates over the coming years.

Since Kinder Morgan is not trading at an expensive valuation at all, shares of the pipeline giant are worthy of a closer look right here.

Company Overview

Kinder Morgan is proud of its huge asset base, and rightfully so:

(company presentation)

The company operates a giant pipeline network spanning North America, with the focus being put on natural gas pipelines. Kinder Morgan also owns terminals, pipelines and oil production assets on top of its natural gas pipeline network.

(company presentation)

The vast majority of Kinder Morgan’s revenues are fee-based, which means that there is very low commodity price risk. The company’s revenues, earnings and cash flows do not depend highly on the price of oil and natural gas. The only segment with a bigger exposure to the price of oil is Kinder Morgan’s CO2 business. Kinder Morgan is hedging its revenues from that segment, though, thus the short-term price swings for WTI do not matter very much.

Due to the fact that Kinder Morgan is much less impacted by commodity price swings than other companies in the oil & gas industry, its cash flows are not cyclical at all.

(company presentation)

During 2018 Kinder Morgan plans to increase its EBITDA as well as its distributable cash flows slightly. Distributable cash flows are operating cash flows minus the portion of capex that is needed to keep the assets intact (maintenance capex). Distributable cash flows are thus the portion of the company’s cash flows that are not needed to maintain the business, those can be spend in several ways:

– Growth capex, which expand Kinder Morgan’s asset base and lead to higher earnings / cash flows in the future.

– Shareholder returns via dividends & share repurchases.

– Debt reduction, which leads to lower interest expenses and thereby positively impacts the company’s earnings and cash flows.

A couple of years ago Kinder Morgan has paid out almost all of its DCF in dividends and financed growth capex by issuing new shares and debt. That did not work very well once its share price collapsed, which was the reason for the dividend cut, as Kinder Morgan had to finance its growth projects organically from that point.

Right now Kinder Morgan is using its DCF for a combination of growth capex, dividends and share repurchases. The company has brought down its debt levels meaningfully already, but doesn’t plan to reduce its leverage further this year.

Kinder Morgan Has Announced Aggressive Dividend Growth Plans Through 2020

In the last two years Kinder Morgan has produced about $2.00 per share in distributable cash flows, but paid out only $0.50 each year. This has allowed the company to finance billions in growth projects with excess cash flows whilst also paying down debt.

The company has stated that it wants to increase the dividend meaningfully this year as well as in 2019 and 2020:

– The dividend will be $0.80 for 2018 (which means a 60% raise year over year)

– The dividend will be $1.00 for 2019 (which means a 25% raise yoy)

– The dividend will be $1.25 for 2020 (which means a 25% raise yoy, again)

This looks like a very compelling dividend growth rate, especially when we factor in that Kinder Morgan’s current dividend yield is not low at all: Based on a share price of $16.10, Kinder Morgan’s shares yield about 3.1% right now. The forward dividend yields are thus 5.0%, 6.2% and 7.8% for 2018, 2019 and 2020, respectively.

A closer look at the company’s dividend growth plans and cash flow generation shows that those plans are not unrealistic at all:


DCF per share


Payout ratio

Excess DCF after dividend payments





$2.8 billion





$2.4 billion





$2.0 billion

Assumption: DCF grows by two percent a year

Even in a rather conservative scenario where distributable cash flows grow by only two percent annually, Kinder Morgan’s payout ratio stays below 60% through 2020. At the same time the company would generate $7.2 billion in cash flows that are not needed to pay the dividends. Those cash flows could thus be utilized for growth capex, share repurchases or for paying down debt.

Kinder Morgan Has Significant Growth Potential

The scenario laid out above (2% annual DCF growth) is rather conservative due to the fact that Kinder Morgan plans to invest heavily into new assets over the coming years:

(company presentation)

Management has identified $12 billion of potential investments which fit the company’s strategy and which promise attractive returns. The company could complete a meaningful amount of these projects in the coming years, as high after-dividend cash flows allow the company to spend on growth investments heavily.

According to management these assets could add $1.6 billion to the company’s EBITDA, which means a 21% increase over 2017’s level. When we assume that distributable cash flows would grow by 21% as well, Kinder Morgan’s DCF per share could hit $2.40 in 2022. This calculation does not yet include the positive impact share repurchases would have on the DCF per share growth rate.

Kinder Morgan has recently started a $2 billion share repurchase program and has already bought back more than 27 million shares since December. At that pace Kinder Morgan’s share count would drop by almost five percent a year, this alone would drive DCF per share up by mid-single digits each year, without any underlying organic growth.

Due to its focus on natural gas pipelines Kinder Morgan is well positioned for the future. Natural gas consumption will, according to most analysts, continue to grow for decades, as natural gas combines several positives: The commodity is significantly more environmentally friendly than oil and coal, it is inexpensive and it is available in North America in large quantities. Through LNG terminals natural gas can even be exported to other markets (primarily in Asia).

All the natural gas that gets used in the US or exported to foreign countries needs to be transported through the US by pipelines. Kinder Morgan as the provider of the vastest pipeline network should benefit from that trend, which will lead to ample cash flows for decades.


The US Energy Information Administration expects that global consumption of natural gas will grow from 130 quadrillion Btu to 190 quadrillion Btu through 2040. Since proved reserves of natural gas in the US are growing, it seems opportune to assume that the US will remain a major producer of natural gas going forward. This, in turn, means that Kinder Morgan’s asset base will not only exist for a very long time, but will remain very profitable through the coming decades.

Kinder Morgan Is Trading At A Discount Price

KMI EV to EBITDA (Forward) data by YCharts

Kinder Morgan is trading at the lowest valuation the company’s shares have traded for over the last couple of years right now. With a forward EV to EBITDA multiple of about ten Kinder Morgan is also not looking expensive at all on an absolute basis.

When we focus on the cash flows the company generates, we see that Kinder Morgan trades at eight times trailing DCF and at slightly less than eight times forward distributable cash flows. This means that shares can be bought with a distributable cash flow yield of 12.7% right now. Kinder Morgan is a non-cyclical company which has a solid growth outlook, and at the same time its size and diversified asset base mean that there isn’t a lot of risk. Based on those facts the current valuation looks pretty low.

Investors can currently acquire shares of the company with a forward dividend yield of 5.0% (the dividend increase announcement should come next month) at a DCF multiple of slightly below 8. For long term focused investors who seek an investment that provides a growing income stream that looks like an attractive investment case.

Final Thoughts

Kinder Morgan’s failed dividend growth plans hurt many retail investors in the past, but management has learned from its mistakes. This time the dividend growth plans are well thought out and look very achievable.

Thanks to high cash flows and a big growth project backlog Kinder Morgan should be able to provide a steadily growing income stream over the coming years. This, combined with a low valuation, makes shares of the pipeline giant worthy of a closer look right here.

Disclosure: I am/we are long KMI.

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

‘Black Panther’ Should Become Marvel’s Latest Billion-Dollar Movie This Weekend

Black Panther is already the biggest movie of 2018, and now the latest superhero blockbuster from Marvel and Walt Disney is on the precipice of cracking $1 billion in worldwide box-office revenue.

Entering its fourth weekend in movie theaters, the movie still has its claws dug into the top spot at the box office as it debuts in China, the world’s second-largest movie market, for this first time. Black Panther should climb past the $1 billion mark this weekend, having reached $940 million in global grosses during the week, including $22.7 million in its opening-day haul in China on Friday. That gave Black Panther the best opening day gross in China for a Marvel movie since 2016’s Captain America: Civil War, which took in over $30 million on its first day in Chinese theaters on its way to grossing a whopping $180 million in that country overall.

Black Panther would also be the first Marvel movie to reach $1 billion since Civil War cleared $1.15 billion two years ago, and the fifth so far from Disney’s Marvel Cinematic Universe. The movie is already the second highest-grossing Marvel film domestically, with its $520 million haul in North America trailing only 2012’s The Avengers, at $623 million domestically ($1.5 billion worldwide), according to Box Office Mojo.

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Black Panther only needs roughly $60 million worldwide at this weekend’s box office to reach $1 billion after pulling in roughly $122 million globally last weekend. Barring a larger-than-expected drop-off, the film should coast past that milestone.

However, Black Panther could still lose its box-office crown this weekend to newcomer (and fellow Disney film) A Wrinkle in Time. Director Ava DuVernay‘s adaptation of the popular young-adult novel of the same name has been highly-anticipated since Disney made her the first-ever black woman to direct a movie with a budget over $100 million. Disney has been promoting the film heavily for months, though its recent mixed reviews from critics could dampen A Wrinkle in Time‘s opening weekend box-office performance. Variety reports that the film is forecasted to gross roughly $35 million domestically this weekend, which may not quite be enough to stop Black Panther from a fourth weekend of dominance.