Archives for December 2017

General Electric Winning Multiple Contracts Is A BUY At 6-Year Lows

Yesterday’s contract win by General Electric (NYSE:GE) from Canadian National Railway Co (NYSE:CNI) for 200 locomotives went mostly unnoticed by the market and the news media outlets as the country geared up for the Christmas Holiday. This is one of many recent positive developments that have been ignored by the market as year end tax selling has kept downward pressure on GE along with the doom and gloom that has the stock trading at a 6 year low.

The demise of GE (NYSE:GE) in my opinion is to say the least overblown. Yes the company is having issues with their energy division. Yes they cut the dividend by 50%, Yes the stock is down 46% YTD. Yes there is year end tax selling.

Is there any reason to buy GE at all? I guess that all depends on your tolerance for risk and ability to handle a possible 10% downside from capitulation level lows reached a month ago at $17.46 and the recent low on Thursday of $17.36, the same day the tax reform bill passed.

GE is out of favor and in the dog house, this is a secret to no one. However it is my belief that GE will be turning the corner much sooner than the market is forecasting. The last six weeks have seen the stock trade in a tight range as the market searches for the ever elusive multi year bottom.

I bought more Friday at $17.41,adding to a heavily long position in the stock.

Here are a few headlines that you may have not heard about or seen over the last 30 days that should have moved the stock in a positive direction.

General Electric: CN (CNI) says will acquire 200 new locomotives over the next three years from GE Transportation to accommodate future growth opportunities and drive operational efficiency across its system

From briefing.com TODAY

The locomotives will be produced at the GE Manufacturing Solutions facility in Fort Worth, Texas beginning in 2018. CN’s order is the largest among class I railways since 2014. The first units are expected to be delivered in 2018 with the balance delivered in 2019 and 2020.

GE scores its largest Renewable Energy order in Thailand

  • Agreements to build three 90 MW clusters for the Theparak Wind farm in Central Thailand
  • 270 MW of total capacity to provide enough electricity to power the equivalent of 120,000+ local homes
  • Win supported by the GE Store; strong collaboration between GE Renewable Energy and GE Power.

Bangkok, 13 December 2017 – GE Renewable Energy and GE Power recently announced agreements to provide 270 MW of wind energy capacity to Wind Energy Holding (a member of Thailand’s KPN Group) for the Theparak Wind Farm in Central Thailand.

GE Renewable Energy is set to provide a total of ninety 3.0-137 wind turbines with 156.5m hybrid towers, making those the tallest turbines it has ever installed outside of Europe. Read full details by clicking here.

One third of 66 GE Haliade 150-6MW nacelles depart for Merkur Offshore windfarm

  • Complex logistical dance needed to complete project by 2018 remains on-track
  • When completed Merkur will be one of Germany’s largest offshore wind farms
  • Project will power around 500,000 homes and cut CO2 emissions significantly.

Paris, December 12th 2017 – GE Renewable Energy announces the depart of the last set of nacelles to be shipped this year to Merkur’s Offshore Windfarm logistical hub in Eemshaven Netherlands. By the end of the month this hub will have received 24 nacelles, 24 blades, and several other tower fragments and transition pieces. With all these component in-place, local teams will perform some pre-assembly works while getting prepared for the installation phase that is set to begin mid-February 2018. Click here for more for more details.

GE Power, Egypt’s EETC to connect 120 MW of wind power to national grid through extension of the Gabal El Zayt substation

  • Extension of the Gabal El Zayt substation will help connect up to 120 MW of wind power to the national grid from one of the region’s largest wind farms
  • GE will also provide local project management, engineering, design, fabrication, the erection of power transformers, site management, testing and commissioning services on a turnkey basis as part of the agreement

Cairo, Egypt; December 11, 2017: GE Power (NYSE: GE) today announced that it has signed an agreement with the Egyptian Electricity Transmission Company (EETC) for the extension of the Gabal El Zayt 22/220 kilovolt (kV) Gas Insulated Substation, connecting an additional 120 megawatts (MW) of power to the national grid by the end of 2018.

The extension will leverage GE Power’s Grid Solutions portfolio, which includes GE’s B105 220 kV gas-insulated switchgear (GIS), in addition to medium and low voltage systems, control and protection systems and auxiliary services. GE will also provide local project management, engineering, design, fabrication, the erection of power transformers, site management, testing and commissioning services on a turnkey basis. You can get more details from the company website at ge.com.

GE Renewable Energy Receives Full Maintenance contract for Alsleben Wind Farm in Germany

November 30, 2017

  • 9-year agreement to oversee full maintenance needs for the 54MW Alsleben wind farm
  • More than 20 years of services experience in Europe

Salzbergen, 30 November 2017 – GE Renewable Energy today announced it was awarded a Full Maintenance contract for the Alsleben wind farm in Germany by Dortmunder Energie- und Wasserversorgung (DEW21), a subsidiary of the municipal utility of the city of Dortmund in North Rhine-Westphalia, who currently operates the site and its 36 turbines.

The agreement includes the implementation of remote monitoring and regular maintenance intervals as well as the preventive maintenance and replacement of large components when needed. GE Renewable Energy will be responsible for the full maintenance of the facilities over a period of nine years. The agreement was tendered by DEW21 in the framework of a European procurement procedure. More details available at ge.com

A list of large companies to benefit from tax repatriation

source: Bloomberg

GE has 41.9% of their cash overseas, how much they will bring back is unknown but I believe it will be substantial.

Tax Reform Passes!

In a month where stocks rallied on tax reform, GE has GONE NOWHERE.

Today it is testing a yearly low that equals the low in Dec. 2011. Where does it end? Not sure, maybe here. The tax selling is coming to an end and some deep pockets may be stepping in to buy these levels the last several days. I have been buying while knowing it may get a little cheaper.

Tax reform will benefit GE although their tax bill is minimal, repatriation and corporate structure going forward stand to give great benefit to the company. I estimate a minimum of $2 to $3 a share in value from the new tax structure, we will have to wait until experts confirm my thesis.

To be clear, in my opinion GE should have rallied on the announcement of 12K job cuts or the largest renewable energy deal in Thailand. The stock should have rallied on the 200 locomotive deal with Canadian National railway but it didn’t. It barely showed up in the news.

The art of the shakeout

This is a real phenomenon that is going on as we speak, One negative article after another calling for a frightening drop from the current level of down 45% on the year and years of turnaround.

Yesterday’s headline

Deutsche Bank analyst John Inch, who rates GE a Sell with a $15 price target. Says they could exit Baker Hughes.

Great, just great, John Inch of Deutsche Bank(NYSE:DB) puts a sell with a target of $15? Of course the stock can go to $15, any human with a stock chart could see that as a possibility. These type of comments are made all the time at multiyear lows, it does not mean it is going to happen.

Deutsche bank wants to buy GE on the cheap along with everyone else. So here is my take: They could sell Baker Hughes, or keep Baker Hughes and ride the rebound in oil that is coming this spring. I think they should keep it and make it work.

John Inch is a person working for Deutsche Bank, speculating to the downside with his own agenda. GE could trade to $15 or also trade to $20 next month, place your bets accordingly. Investors should consider using options to hedge the downside if needed.

Perspective from experts

One need look no further then one of my favorite calls by Goldman Sachs (NYSE:GS) a couple years ago calling on iron ore to stay at $35 to $40 for the next 5 years. Vale (NYSE:VALE) was trading at a multi year low around $2.30 a share then. It now trades around $12. Maybe Goldman will make the next downside call that marks the bottom for GE.

I was pounding the table when Bank of America, (one of my favorite stocks) (NYSE:BAC) was $12.50 in June of last year 2016, it now trades near $30. GE will be fine and those buying this level will likely see a 50% upside or more in the next 12 to 18 months. IT pays to ignore the doom and gloom and backward looking forecasting as we move into a new age of corporate and global growth.

In a world where Riot Block chain (RIOT) can rally from $6 in November to $45 in a month on a name (like dotcom) and no earnings gives me serious pause. RIOT down 50% in a few days by the way should tell you something. Stay away for now from bitcoin unless you are prepared to lose 50% to 98% or more of your money.

A look at the charts.


Here is a 10 year weekly to show the path of GE. Believe it or not I owned GE at $8.60 on the day the market bottomed in March of 2009. I bought the bankruptcy rumor that plunged the stock to $5.72 in a 30 minute period of time on fake news. It should have been investigated by the SEC, in my view it was straight up mayhem in action. That whole drop from $11 to $5.72 should have been eliminated from the stock chart and never happened, but it did.

The lesson: keep enough reserve to stay liquid in the event of a catastrophe. At a multi year bottom anything can happen.

One more intraday 60 minute chart showing a solid entry point if you believe in buying low and selling high.

Interested investors can see this intraday 60 minute snapshot of GE from early October which covered the earnings call miss and the November 13th conference call.

Important note: there was capitulation; the stock was bought by insiders, it then sold off on great economic news and tax reform that was not totally expected. The stock made a new low by $.10 cents on the day tax reform passed, testing the will of those long the stock.

Look for more Insider purchases in the next 30 days.

I will be watching closely and keeping readers apprised of any new insider purchases in the coming weeks as more insiders step up to purchase shares. My last report on insider buying of GE showed the CEO of LOEWS buying 3 million shares on behalf of the company. Interested investors can read the full article by clicking here.

Conclusion

GE is in the dog house, down 45% on the year. The market has so far been ignoring many recent positive developments that would other wise cause a nice relief rally. Year end tax selling is pressuring the stock but I believe many are buying GE right now and not publicly talking about it.

In a world of news dominated by bitcoin and block chain, one could do a lot worse than putting some money to work in GE with a 12 to 24 month time horizon.

The 200 locomotive deal is a great win For GE, the Largest renewable energy order in Thailand is a positive and signal of more to come in SE Asia. All of these events are going unnoticed at the moment which is a good way to get a stock on sale.

At some point in the the near future the narrative will change and it will be all about global growth, and tax reform benefits to corporations. Until then buckle up and buy any weakness from here. The bottom may be in right now or there may be a little more pain but GE has some really exciting things going on including 3D printing that could be amazing for future growth.

I am a buyer of GE at this level and am excited about the digital revolution within the company. Flannery is making the right moves at the right time and it is my belief GE will turn the corner much quicker than the market is forecasting at year end.

As always, do your own research and always have an exit strategy in place before putting your hard earned dollars to work.

If you found this article interesting, please follow me and consider joining my site Bargain Hunter for my timely trade ideas in real time.

Disclosure: I am/we are long GE,CHK,LYG, BP,NBR.

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.

How Do You Know Someone Has the Leadership Skills of the Future? Look for These 5 Signs

As you think ahead to improving your leadership skills in 2018 and beyond, the best traits I have found which will profoundly impact individuals and teams may not be futuristic at all. But — and you can take this to the bank — these 5 leadership practices will stand the test of time, next year or fifty years from now.

1. Set your team up for success, and you’ll experience success.

A leader’s success can only go as far as the team takes him or her. Sure, it’s conventional wisdom, yet so many people in management roles only focus on their own performance while ignoring the individual needs of team members. 

Karyn Schoenbart, CEO of The NPD Group, and author of Mom.B.A. says, “[S]uccess as a leader or a manager is not based on your own performance but based on the success of your team…so my leadership style is very much about helping people bring out the best they can be and helping us all succeed together.”

2. Turn the traditional organizational hierarchy upside down.

This “servant leadership” concept of flipping the hierarchy may have idealistic roots in Robert Greenleaf’s writings, but is practiced by the biggest and most profitable companies worldwide.

John Donahoe, former president and CEO of eBay and now CEO of enterprise cloud company ServiceNow, lives by this aspiring philosophy to get the most out of his employees.

He tells The Australian, “The classic organizational hierarchy is a triangle with the CEO on top and then a hierarchy under that, but the leadership model I learnt was exactly the opposite. On the top of the upside down triangle are customers, serving them is our purpose for existing and it’s our customer facing employees that are higher up the ladder in the organization,” states Donahoe.

“They are the ones who deal with our customers day in day out and in my book they are one’s who need to be at the top of the list…..as the CEO my place is at the very bottom of the upside down triangle,” he added.

3. Recognize people for business and personal accomplishments.

As a leader, you may have bought in to the idea that praising people for going above and beyond is a good thing for business. It is, and in fact, research confirms this. The companies in Gallup’s study with the highest engagement levels use recognition and praise as a powerful motivator to get their commitment.

But try going a step further. Doug Davidson, chairman and CEO of New South Construction Co., one of Atlanta’s 50 fastest-growing private companies, tells Atlanta Business Chronicle, “For years, I have recognized our people not only for their business accomplishments but also for their milestones outside of work, such as birthdays, awards and family celebrations.”

This is still foreign territory for most managers, yet acknowledging personal milestones in a meaningful and authentic way brings leaders closer to their people, further increasing loyalty and engagement in their work.

4. Build community with regular learning rituals.

A leader with hope and a vision for developing a strong work culture will, in most cases, create an environment that feels more like community than the corporate grind. People care about each other’s work and show appreciation for one another. This is key to employee morale, teamwork and customer satisfaction.

One of the ways to make work feel more like “community” is through cultural rituals that bring teams together. At Utah-based Cotopaxi, an innovative outdoor apparel company, one that stands out is their bi-monthly event, “Academia.”

Matt Pittman, Corporate & Group Sales Manager for Cotopaxi, shares the concept in an O.C. Tanner blog:

Every other Friday the entire company comes together for 2 hours for general overview of the business as well as calling out special announcements or appreciation moments. Then we always end the meeting with what we call a learning event to discover something new or something you might not otherwise get exposed to. We’ve had a lot of different ones for example, harmonica or paint lessons, a session on traveling on a shoestring budget, speakers that have summited Everest. Really just getting in something out of the ordinary. We had a woman who was developing a new way of getting protein. So one event, you know, we ate grasshoppers and crickets served up in different ways! 

5. Give them the flexibility they need to live a life of balance.

In this day and age, a new formula for success is emerging in defining who the customers are. That’s because, for so many companies, employees are considered the most important customers. 

That means we must value them more than we value customers. And one of the best strategies for serving employees well is giving them flex-time. Multiple surveys have already shown that millennials desire flexibility in where, when and how they work. Nearly 40 percent of them, in fact, would even consider moving to a different country in order to have greater balance in their lives.

It it makes business sense and the work is getting done, it may mean abandoning set workplace hours and agreeing to allow workers the freedom to control their own schedules, like the option of starting at five in the morning and leaving at one in the afternoon.

Writing for The New York Times, Tony Schwartz says you define a great place to work by “creating a work environment that enables and encourages all employees to regularly refuel and renew themselves, both on and off the job. That will make them capable of bringing the best of themselves to work.”

Want to get an early jump on this strategy heading into 2018? Job search site Indeed recently analyzed over 10 million company reviews to identify the 20 companies with the best work-life balance. Among the highest-rated companies on the list were Trader Joe’s, NIKE, Intuit, and Southwest Airlines.

Assured Guaranty At 52-Week Low Should Be Bought

One of the wonderful things about investing is that ultimately you will find out if you are right or if you are wrong. There really isn’t ambiguity over the long term, as the results will speak for themselves. Over the short term, things can be much murkier, as the voting machine of Mr. Market can take precedent over the weighing machine, in the terms of Benjamin Graham. Currently, voters are saying Assured Guaranty (AGO) is worth far less than any reasonable proxy of liquidation value, despite a track record of exceptional performance. I disagree with this assessment based on an examination of the facts. For long-term investors, this might be one of the great opportunities in today’s market, which I’ll attempt to describe in this article.

Source: AGO 3rd Quarter 2017 Investor Presentation

It seems sensible to start the discussion with a breakdown of past performance. As you can discern from the slide above, book value per share and adjusted book value per share have risen from $18.73 and $24.51 at the time of its IPO in 2004, respectively, to $58.32 and $74.78 in the most recent quarter. This growth has occurred despite the Great Recession, which annihilated most of Assured’s financial guaranty competitors. It has occurred despite the defaults of Detroit, Jefferson County, Stockton, etc. Lastly, it has occurred despite the train wreck that is Puerto Rico.

There seems to always be at least one or two troubled municipalities that dominate the headlines, but it is important to look at the complete picture. The economy has seen steady growth since the Great Recession and growth seems to be accelerating due to a more positive regulatory environment, in addition to the potential for tax reform. Municipalities have taken advantage of historically low interest rates, but there are certainly cities such as Chicago and Hartford that are showing some structural weaknesses. One of the key things to understand though is that Assured Guaranty has seen major amortization of its insured portfolio over the last 8 years, as net par outstanding has declined by 57%. The more capital-intensive structured finance insured exposure has declined by 91% over the same period, from $142.2 billion to $13.1 billion. Meanwhile, AGO’s claims-paying resources has stayed constant at around $12 billion. Assured has never been in a stronger financial situation than it is right now.

CEO Dominic Frederico has done a stellar job in managing the company. One of the best testaments to AGO’s efficiency is the fact that its annual investment income, net of interest and operating expenses, provides a steady and profitable earnings stream. For 2017, this cushion should be around $90MM, which means that 100% of the earned premium can be used to offset any loss developments in the insured portfolio or to generate profits. The other ways that Assured creates value is through buying runoff financial guaranty companies, commutating previously ceded business or reinsuring other portfolios. Major acquisitions have been FSA, CIFG, Radian Assurance, and MBIA’s UK business. AGO has been commutating previously ceded business as it recently did with FGIC, for example, where it takes on the risk but gets back the unearned premium reserve and a premium based on the risk of the portfolio. There are still some very big potential deals out there where AGO can create value.

The biggest opportunity in my opinion is an acquisition of MBIA’s (MBI) National insurance division. This deal would be exceptionally sensible for both parties in that National has a large insured portfolio in runoff, so its priority is really on freeing up capital to its holding company where it can invest long-term to monetize NOLs, while of course making sure the insured portfolio is protected. Assured should be able to buy the subsidiary at a reasonable discount to book value and consolidate it with its operations, in a deal that would bring massive synergies. I think you’d see both stocks rally aggressively if such a deal were to occur. The biggest concern for this type of deal would be MBI’s Puerto Rico exposure of around $3.5 billion, which AGO might not want to add to its existing exposure given the uncertainty on the island. We should get a great deal more clarity in 2018, making the deal path easier. The other option would be for AGO to take the rest of National except for Puerto Rico and maybe Chicago, via a reinsurance transaction. This would really come down to price and what level of capital could be freed up in such a transaction. Another exciting option for purchase would be Ambac’s (AMBC) insured portfolio once it completes the rehabilitation of the Segregated account. Ambac really has the same goals as MBI and the company has done an excellent job in reducing its Puerto Rico risk via buying back large parts of its insured exposures at a discount.

The clear majority of Assured’s insured portfolio will generate no losses whatsoever. As of the 3rd quarter, $13.226 billion of the $275.8 billion of net par exposure is categorized as below investment grade or 4.8%. $5.2 billion of that shows sufficient deterioration to make future losses possible but for which none are currently expected. Nearly $3 billion of the claims, which are expected to or already have generated losses, are in structured finance with much of it covered by R&W agreements. The biggest concern is the nearly $5 billion in net par related to Puerto Rico.

Municipal bonds are generally very safe investments and are usually split into GOs and revenue bonds. They have strong protections, which is why defaults are infrequent and severities are low. Over the last decade, we have seen defaults in Vallejo, Stockton, Detroit, and Jefferson County, etc. These municipalities were in terrible financial condition with dismal prospects for short-term improvement. Puerto Rico’s debt-to-GDP ratios at the time of its bankruptcy put it in a stronger position than many of these other defaults. Since Hurricane Maria, however, Puerto Rico bonds have been devastated with prices reflecting unheard of severities.

I’d argue that we are in the period of peak uncertainty as it relates to Puerto Rico. The Oversight Board and government of PR have done everything they can to hide the actual finances of the Commonwealth. On December 18th, it was revealed that they have discovered 8000 bank accounts holding $6.8 billion in cash, although $1.7 billion is restricted by bankruptcy proceedings. This was after the governor said that they would have no money by December. I discussed the pathetic track the Oversight Board has taken things down in my recent article; Puerto Rico’s Oversight Board is Failing At Its Duties.

AGO’s Puerto Rico credits are generally quite adequately protected. $1.419 billion of the exposure is to GO bonds. As you can see from the graphic that was included in Manal Mehta’s terrific MBI article, debt service on GOs is supposed to come before all other expenses. While current prices don’t reflect that reality, I do believe that in court the constitutions on the United States and Puerto Rico will indeed matter!

$853MM of net par relates to PREPA where creditors have a perpetual lien on the net revenues of the utility. Similar protections are involved with the $373MM PRASA exposure. Probably the most worrisome credits are the $1.377 billion of exposure to the Puerto Rico Highway and Transportation Authority. This is another revenue bond that wouldn’t worry me except for the “clawback” feature. This feature says that if there is not enough revenue to cover the debt service on the GOs, revenue can be diverted from these bonds only to pay GOs. Obviously, those aren’t being paid either, which is just another blatantly illegal act perpetrated by the government of Puerto Rico and the Oversight Board. Ultimately, these issues will be worked out in court or via a settlement. Remember that much of the interest and principal payments on Puerto Rico debt is 15-30 years out. This means that you must present value of the actual losses to get a real feel for how significant of a hit it would be to the company. Any increases in interest rates that bolster investment income would go a long way to mitigating losses.

Assured easily has the financial capacity to fight it out as long as it needs to via appeals, etc. The company generates enough investment income to cover its annual Puerto Rico payments, so it isn’t like Puerto Rico alone is enough to put the company in any financial duress or that there will even be a sniff of a liquidity problem. In past bankruptcies, AGO has assisted the defaulted municipality with obtaining access to capital markets via its insurance. There is the potential debt for equity swaps and a whole swath of options, which should reduce projected severities. As the situation clears up, I believe it will be very manageable, in direct contrast with what the current market is pricing in. I believe a big reason for the disconnect is that the likelihood of news getting worse in the short term is higher than it getting good, just by the nature of the bankruptcy process and the political environment we are in. As facts come into focus, the long-term potential undeniably outweighs the bad.

While it is impossible to tell you exactly what AGO has reserved for Puerto Rico, the net expected loss to be paid in U.S. public finance is now $1.046 billion and obviously most of that relates to PR. The balance sheet has a $1.326 billion loss and LAE reserve. RMBS and structured losses have been more favorable than expected due to home price appreciation, so AGO’s reserves have thus far proven to be conservative. On the asset side, there is a $497MM salvage and subrogation recoverable, which will probably keep going up in the short term, but AGO will eventually get a lot of this money it is paying to cover Puerto Rico debt service back once the restructuring is finalized. Lastly, the largest liability on the balance sheet is a $3.597 billion unearned premium reserve. This money is already on the balance sheet and is being invested to generate income, which ultimately can be used to pay any claims.

Currently, AGO trades around $33.62, a 52-week low despite stellar year-to-date financial results. Non-GAAP operating shareholders’ equity per share is $55.87 and adjusted book value per share is $74.78. That means that AGO is trading at a 40% and 55% discount to these metrics, respectively. Based on 118 MM shares outstanding and using a 21% tax rate, a staggeringly large and unlikely $2 billion increase to losses would result in a $13.38 loss per share. This would put operating book value per share and adjusted book value per share at $42.49 and $61.40, respectively, in this extreme scenario. Keep in mind that AGO has been generating roughly $200MM a quarter in operating income despite reserving aggressively for PR, so the actual losses would be far more gradual. I believe the company should trade around operating book value, given that its new business production is accelerating and its path to continue creating value.

AGO has been buying around $500MM in stock per year over the last few years and that is its stated goal. If the company were to buy $500MM in stock at $33.62, it would reduce shares outstanding by 14.87MM, so that would reduce the share count to 103.13. The adjusted book value of $8.820 billion would be reduced by the cash amount to $8.320 billion. The new adjusted book value per share would be $80.67 per share and operating book value per share would be $57.07. As an AGO bull, I don’t mind the decline in the stock as it allows the company to materially increase intrinsic value because it is in a strong position to buy back stock. Also, I’m able to add to my position for my clients and I, which I assure you I’ve been doing.

Recent stock and bond pressure relating to Puerto Rico reflects maximum panic. The OB and government of PR have been doing everything in their power to make things look as bad as can be for the Commonwealth, to enhance their negotiating leverage with creditors. As more data comes out and as we get to court, creditors will be able to utilize the leverage on their strong legal protections and the calculus is going to change materially. In Detroit’s bankruptcy, the initial offer for UTGO bonds was 20 cents and then later that was reduced to 10 cents. Ultimately, it settled for 74 cents. There is nothing inherent to PR that makes its situation that much worse than previously struggling municipalities. No matter what happens, AGO is prepared and should see at least 50% stock returns over the next 3 years in my estimation, and would still not be overvalued.

Disclosure: I am/we are long AGO, MBI, AMBC.

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 Best Games of 2017, From 'Nier: Automata' to 'Legend of Zelda'

2017 was an incredible year for videogames—a mixed bag of genre, style, and mood. The best titles ranged from sweeping adventures to tense shooters to meditations on the existential burden of life. Some of the games released this year will go on to be lauded as the most important, profound videogames of this generation. If you don’t know how to dive into videogames in the coming days, here is where to start.

10. Lone Echo

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Virtual reality’s great promise has always been that of escape, and nowhere has that been put to better use than in Ready At Dawn’s captivating, compelling space adventure. Half puzzle-heavy exploration, half zero-G playground, Lone Echo delivers what traditional gaming cannot: a truly embodied adventure. Most of that is due to an ingenious locomotion mechanic, which eschews the all-but-default teleportation to lets you move through the game via combination of thrusters and pushing off solid surfaces. The disc-golf-in-space multiplayer companion, Echo Arena, has become a fan favorite, but it’s Lone Echo that will be remembered as a singular, medium-defining game.

System: Oculus Rift

  1. Everything
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You might begin life as a polar bear. Or a kangaroo. Or a twig. Maybe a mitochondria. Then you might grow and reach with your mind and perception until you’re a galaxy, or the sun, or the magic of consciousness itself. In David O’Reilly’s meditative masterpiece, you can be, literally, everything. Everything derives power from a logic of interconnectedness, weaving a philosophical fable about the nature of objects while teaching the player a mechanical dance that surprises and stir. You ever wondered what the world looked like from the perspective of a soda can? Now’s the time to find out.

System: PlayStation 4, Microsoft Windows

  1. Resident Evil 7
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In Resident Evil 7, you open doors by pressing into them, face first. It’s a neat little metaphor: the act of moving forward is an act of dogged, perhaps irrational, persistence. In this brilliant revival of one of gaming’s originary survival horror franchises, it’s the sort of subtle touch that goes a long way. And Resident Evil 7 is full of subtle touches: the scattered trash in the derelict rural manor your hero is trapped in; the unsettling, flowing, almost oil-y design of the game’s monsters; the way videotapes are used to create a hallucinatory alternate reality experience while also playing with found footage horror tropes. Resident Evil 7 is two-thirds a brilliant horror adventure, and one-third a solid action game. It’ll undoubtedly be frustrating when the horror starts to run dry, but every step taken on the way is more than worth it, if you have the courage to get that far. Play in VR at your own risk.

System: PlayStation 4, PlayStation VR, Xbox One, Microsoft Windows

  1. Yakuza 0
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Taking place in Tokyo’s Red Lights District during the late 80s and early 90s, Yakuza 0 is one of the most riveting, carefully crafted dramas ever put in front of a videogame controller. It’s also a game where one of your main characters uses Street Fighter moves and random objects on the street to fight vengeful clowns. Yakuza 0 manages an impossible alchemy, merging a self-serious crime drama largely about real estate with some of the goofiest and off-beat supporting material the creators at Sega could come up with. It feels, on the whole, like a love letter to what videogames are capable of. Games are places where powerful, fascinating drama can happen. They’re also places where a giant dude named Mr. Shakedown will chase you through the streets of Tokyo and try to steal your cash until you learn how to beat him up with a baseball bat. Yakuza 0 sees the dissonance, and it loves it. And you’ll love it, too.

System: PlayStation 4

  1. Splatoon 2
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Splatoon 2 is the rare multiplayer shooter that has the power to reach beyond the core “gamer” marketplace that those games usually cater to. Part of that is the platform: the Nintendo Switch is a console built for people who hate the nonsense of modern videogame consoles, and that gives any game on it an allure it might not otherwise have. But more than that, it’s in the design. The squid-kid world of Splatoon is bright and playful, awash in colorful ink, aquatic pop stars, and Harajuku high fashion. And cleverly, the designers use this aesthetic to create a shooter that actually doesn’t employ violence at all. Victory is a matter of covering as many surfaces and enemies with ink as possible. Nobody gets hurt. Splatoon 2 is a marginal refinement of the original game, and that might make it less compelling for returning players, but the core of the experience remains so solid and wholesome that not changing enough can hardly be considered a flaw.

System: Nintendo Switch

  1. Hellblade: Senua’s Sacrifice
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Hellblade: Senua’s Sacrifice is a controversial game, largely because of a single page of text that appears before the experience even begins, claiming that Hellblade is a story about mental illness, specifically psychosis, and that care has been taken to make that representation thoughtful and accurate. Whether or not that’s true, or to what extent telling that kind of story is appropriate in a game mostly about obscure puzzles and hack-and-slash combat, is a question worth debating. But Hellblade is, at its heart, a game that rises above those conversations, and above the sum of its own components. The story of Senua, a warrior journeying into the land of death in search of her lost love, is an uncanny screaming death knell of pain and perseverance. It’s held together by the brilliant work of Melina Juergens, whose motion capture and vocal acting as Senua is possibly the best performance in the entire medium. Hellblade is flawed, sometimes monotonous and sometimes infuriating, but it’s unlike anything else I’ve played this year, and its imagery and sound will stay with me for a long, long time.

System: PlayStation 4, Microsoft Windows

  1. Super Mario Odyssey
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At its best moments, Nintendo’s flagship Mario title for the Nintendo Switch feels like Super Mario at his best. His most surreal, his most silly, his most unpretentiously fun. Operating out of an effortless dream logic, Super Mario Odyssey is the story of Mario Mario (that’s his real name, I swear) travelling across the multiverse to crash a wedding party with the help of his friend, a cap that has the power to possess anything in the world that doesn’t have its own hat. The cap’s name is Cappy. This premise doesn’t require you to understand or accept it. You just have to follow it, jumping, flipping, and wah-wah-wah-hoo-ing to whatever unlikely, unpredictable turn it offers next. If it had Luigi, and left some of its insensitive cultural tendencies behind (Mario, take off that sombrero, please), Super Mario Odyssey would be perfect.

System: Nintendo Switch

  1. PlayerUnknown Battlegrounds
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I have spent roughly half my time with PlayerUnknown Battlegrounds hiding in a shed. Surprisingly, that’s not a complaint. PlayerUnknown Battlegrounds has a simple premise, one with surprising power. Take a large map, a derelict Eastern European city, perhaps. Fill it with a hundred players. Litter weapons around, some vehicles, some traps for funsies. Last player alive wins. This straightforward idea, literally cribbed from a movie, imbues every single moment of Battlegrounds with tension. Every movement in the grass, every shadow out of the corner of your eye, could be one of 99 other players with you in the crosshairs. Under that kind of scrutiny, every single microdecision becomes terrifying. Which is how I find myself hiding in a shed, over and over and over again, aiming a shotgun at a door that may never open. But let me tell you: hiding has never been so riveting.

System: Xbox One, Microsoft Windows

  1. The Legend of Zelda: Breath of the Wild
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The commanding image of Breath of the Wild is a sweeping vista. Encountered roughly five minutes into the game, this vista–a wide shot of a whole continent’s worth of wilderness, open and ready to be explored–is a promise. Lots of videogames offer this promise, of freedom, of unfettered and truly organic exploration, but most fail. So many game worlds feel empty, and dead, and basically constructed. Which, in a very real sense, they all inevitably are. But some special games have enough of their creators in them that their worlds feel real, and beautiful, and are able to pass off the illusion that you’re not just running through handcrafted levels but through a full, living place. Breath of the Wild is one of those games, and it uses such a place to deconstruct and resurrect the mythology and ideas of The Legend of Zelda, a game that was originally very simple: a story of a boy, and a big, scary place, and the promise of someone he loves at the end of the journey. No sequel in this series’ thirty years has so captured the elegance and joy of that story. And now it’s hard to imagine how any other game after it could.

System: Nintendo Switch

  1. Nier: Automata
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WIRED made one significant mistake with its gaming coverage in 2017: we never reviewed Nier: Automata. This is my fault. I came to the game a month or two late, and there was no room for coverage in our calendar. And yet Nier: Automata is so excellent, such a significant contribution to the medium of gaming and to my own life that I cannot in good conscience place any other game in the #1 spot. It’s the story of two androids caught in an ancient, horrible war, but that explanation doesn’t do Nier: Automata justice. It is a genre-hopping, brilliantly written, intricately crafted magnum opus about persistence, and love, and hope in the face of absolute loss. Game director Yoko Taro has famously said he makes “weird games for weird people,” but Nier: Automata might be for everyone.

System: PlayStation 4, Microsoft Windows

Uber dealt blow after EU court classifies it as transport service

LUXEMBOURG (Reuters) – Uber [UBER.UL] should be classified as a transport service and regulated like other taxi operators, the European Union’s top court said in a landmark ruling on Wednesday that could impact other online businesses in Europe.

Uber, which allows passengers to summon a ride through an app on their smartphones, has transformed the taxi industry since its launch in 2011 and now operates in more than 600 cities globally.

In the latest of a series of legal battles, Uber had argued it was simply a digital app that acted as an intermediary between drivers and customers looking for a ride and so should fall under lighter EU rules for online services.

“The service provided by Uber connecting individuals with non-professional drivers is covered by services in the field of transport,” the European Court of Justice (ECJ) said.

“Member states can, therefore, regulate the conditions for providing that service,” it said.

The case follows a complaint from a professional taxi drivers’ association in Barcelona that Uber’s activities in Spain amounted to misleading practices and unfair competition from Uber’s use of non-professional drivers – a service Uber calls UberPOP and which has since been suspended in Spain and other countries.

GIG ECONOMY

Uber has taken the fight to regulators and established taxi and cab companies, expanding from a Silicon Valley start-up to a business with a valuation of $68 billion.

Following changes at the top and legal battles, it recently adopted a more conciliatory approach under its new chief executive Dara Khosrowshahi.

The European case had been widely watched as an indicator of how the burgeoning gig economy would be regulated in Europe.

The ECJ said Uber “exercises decisive influence over the conditions under which the drivers provide their service” and that without the Uber mobile app “persons who wish to make an urban journey would not use the services provided by those drivers.”

The decision is unlikely to have an immediate impact on Uber’s operations in Europe, where it has cut back its use of unlicensed services such as UberPOP and adheres to local transportation laws.

“This ruling will not change things in most EU countries where we already operate under transportation law,” an Uber spokeswoman said in a statement.

“As our new CEO has said, it is appropriate to regulate services such as Uber and so we will continue the dialogue with cities across Europe. This is the approach we’ll take to ensure everyone can get a reliable ride at the tap of a button.”

Uber is in the middle of a legal battle over its right to operate in London, its most important European market.

TAXI LOBBY CHEERS

IRU, the world road transport organization, which includes taxi associations, cheered the ruling as finally offering a level playing field for providers of the same service.

“In the area of mobility, the taxi and for-hire sector was one of the first to embrace innovation and new technologies,” said Oleg Kamberski, Head of Passenger Transport at IRU.

“Finding a solution that allows both traditional and new transport service providers to compete in a fair way while meeting the service quality standards became necessary.”

EU law protects online services from undue restrictions and national governments must notify the European Commission of any measures regulating them so it can ensure they are not discriminatory or disproportionate.

Transport, however, is excluded from this.

The tech industry said the ruling would impact the next generation of start-ups more than Uber itself.

“We regret the judgment effectively threatens the application of harmonized EU rules to online intermediaries,” said Jakob Kucharczyk, Vice President, Competition & EU Regulatory Policy at the Computer & Communications Industry Association.

“The purpose of those rules is to make sure online innovators can achieve greater scalability and competitiveness in the EU, unfettered from undue national restrictions,” he added.

”This is a blow to the EU’s ambition of building an integrated digital single market.”

Reporting by Julia Fioretti; editing by Jason Neely and Keith Weir

These Clues Tell You If A Company Is Making A Dumb Acquisition

As a shareholder, you do well to place more emphasis on risk than on reward. Corporate management usually does the opposite, and this is why most large acquisitions fail. In fact, I assume from the start that an acquisition will fail – or at least will turn out not nearly as profitable as the picture management paints.

For starters, a buyer typically pays too much. An old Wall Street adage comes to mind: “Price is what you pay; value is what you get.” It all starts with a control premium. When we purchase shares of a stock, we pay a price that is within pennies of the latest trade. When a company is acquired, though, the purchase price is negotiated during long dinners at fine restaurants and comes with a control premium that is higher than the latest stock quotation.

How much higher? Acquisitions have the elements of a zero-sum game. Both buyer and seller need to feel that they are getting a good deal. The seller has to convince the company’ s board and its shareholders that the sale price is high (unfairly good). The buyer in turn needs to convince his constituents that they are getting a bargain. Remember, both are talking about the same asset.

This is where a magic word – which must have been invented by Wall Street banks’ research labs – comes into play: “synergy.” The only way this acquisition’s dance can work is if the buyer convinces his constituents that combining the two companies will create additional revenues otherwise not available, and/or it will eliminate redundant costs. Thus, the sum of synergies will turn the purchase price into a bargain.

If you examine why General Electric Co. (NYSE:GE), for example, has been a subpar investment over the last two decades, you’ll find that it’s because of poor capital allocation. The company lost a lot of value in making destructive acquisitions – buying businesses at high prices, relying on false or unfulfilled synergies, and selling (divesting) at reasonable (or low) prices.

There are also a lot of “dis-synergies” (a term you’ll never see in an acquisition press release). The two corporate cultures may simply be incompatible. One company may have a strong founder-led culture, while in the other company decisions are made by consensus. Cultural incompatibilities only get worse when the buyer and seller are not engaged in the same business.

A case in point: Silicon Valley pioneer HP Inc. has been substantially gutted by large acquisitions. When the company acquired Compaq in 2002, HP’s unique engineering culture did not mix well with Compaq’s manufacturing culture. The same happened with EDS (acquired in 2008), which had a service culture, and again with Autonomy (in 2011) – a software company that ended up being a bag of bad goods (it used questionable accounting and overstated its sales). Each of these acquisitions severely damaged HP’s unique culture, and all were reversed through various spinoffs in recent years.

Acquisitions can also lead to an employee morale problem. The day before the acquisition, people at the acquired company came to work as usual. They were not particularly worried about the future. After the acquisition announcement, though, their job security is perceived as being at risk, and they are now on LinkedIn updating their profiles and networking. Now they worry about the sustainability of their paychecks (and finding new jobs) a lot more than how they can help this great, new, more profitable organization that may be about to let them go.

Finally, integrating businesses is difficult. Aside from the culture problems, companies must realign global supply chains, move or combine headquarters, and merge software systems. In large companies, this task is like merging two complex nervous systems.

So while the acquisition press releases may tout synergies, they don’t talk about the price tags and dis-synergies (risks) that come with the deal, too.

Here’s a good example of the right approach: Gilead Sciences’s (NASDAQ:GILD) management has a terrific, but small, acquisition record. In 2011, it paid $11 billion for Pharmasset, a company that had no revenues and a molecule a few years out of (maybe) being approved: a cure for hepatitis C. Well, cure hepatitis C it did. It was an incredible success, generating $20 billion in revenues in just the first year of sales. It is incredibly difficult to judge this transaction, though, because we don’t really know the role that luck played here.

Wall Street sees Gilead’s October purchase of Kite Pharma (NASDAQ:KITE) as Pharmasset 2.0. Gilead is paying $11.9 billion for a company that has just $20 million in revenues but also has a possibly revolutionary medicine to treat cancer – and potentially reap billions in profits. We own shares of Gilead and would love to believe that this acquisition will be a success, but we don’t know – and neither does Wall Street.

Yet from a risk perspective, even if the Kite acquisition doesn’t work out, it will not weaken Gilead. It will the cost the company one year of earnings. Gilead generates significant, stable cash flow, has a great balance sheet and management that is great at running the business, and is a rational, patient capital allocator. Indeed, our upbeat view on the company has not really changed, except that now we also hold a $12 billion lottery ticket that may cure cancer.

Moreover, this acquisition doesn’t have most of the dis-synergy risks we discussed above – Gilead is buying research and scientists. Science and luck will decide whether the deal is successful. If Kite’s drug is as good as Gilead’s management thinks it is, then we’ll have Pharmasset 2.0. If not, we lost a year of earnings.

To be sure, acquisitions can create value. But when a company grows through acquisitions, its management needs to have a highly specialized skill set that is often different from that used in running a company’s day-to-day operations.

Accordingly, it’s important to examine the motivations of management when it makes an acquisition. When management feels that their business, on its own, is threatened by future developments, their acquisitions will have a “Hail Mary” desperation to them – and a corresponding price tag.

Singapore central bank warns against investing in cryptocurrencies

SINGAPORE (Reuters) – Singapore’s central bank issued a warning against investment in cryptocurrencies on Tuesday, saying it considers their recent price surge to be driven by speculation and that there is a risk investors could lose all their capital.

The Monetary Authority of Singapore (MAS) said it is “concerned that members of the public may be attracted to invest in cryptocurrencies, such as Bitcoin, due to the recent escalation in their prices”.

“MAS considers the recent surge in the prices of cryptocurrencies to be driven by speculation,” the central bank said in a statement. “The risk of a sharp reduction in prices is high. Investors in cryptocurrencies should be aware that they run the risk of losing all their capital.”

The city-state’s central bank added that there is no regulatory safeguard for investments in cryptocurrencies and that it does not regulate cryptocurrencies.

It urged the public to act with “extreme caution” and to understand the “significant risks” they take on if they invest in cryptocurrencies.

“As most operators of platforms on which cryptocurrencies are traded do not have a presence in Singapore, it would be difficult to verify their authenticity or credibility. There is greater risk of fraud when investors deal with entities whose backgrounds and operations cannot be easily verified,” the MAS said.

Bitcoin set a record high of $19,666 (£14,700) on Sunday on the Luxembourg-based Bitstamp exchange, its prices having surged more than 1,700 percent this year. On Tuesday, Bitcoin stood at around $17,980, down more than 5 percent on the day.

While Singapore has been an early adopter of fintech, it has not been a major centre for trading cryptocurrencies and none of the big exchanges are based in the city-state.

Reporting by Masayuki Kitano; Editing by Richard Borsuk

Oracle Corp to buy Australia's Aconex for $1.19 billion

Sydney (Reuters) – Australia’s Aconex Ltd (ACX.AX) said on Monday it had received a A$1.56 billion ($1.2 billion), or A$7.80 in cash-per-share, buyout offer from U.S. software major Oracle Corp (ORCL.N), sending the target’s share price up 45 percent.

Aconex said in a statement its directors unanimously recommended the offer, with shareholders of the cloud-based project management company scheduled to vote on the bid at a scheme meeting in March next year.

The Australian company specializes in web-based project management software that allows input from different teams. Its technology has been used on global projects including the Panama Canal extension.

“Oracle’s offer of A$7.80 per share represents a significant premium and a high degree of certainty of value to shareholders through the cash offer and limited conditionality,” Aconex Chairman Adam Lewis said in a statement.

Aconex founders Leigh Jasper and Rob Phillpot, who both have holdings of just over 5 percent, declined interview requests on Monday.

The company has experienced massive share price fluctuations since listing in 2014 at A$1.90, and peaking at just above A$8.50 last year.

The share price rose 45 percent immediately after trading resumed on Monday to just below the A$7.80 cash-per-share offer.

Aconex, which focuses on construction projects, said it would be liable to pay Oracle about 1 percent of the deal’s equity value as a break-up fee under certain conditions which it did not specify.

Oracle said in a statement that the transaction was expected to close in the first half of 2018.

The proposed transaction was one of two major U.S.-Australian technology deals unveiled on Monday, with Australian data centre provider Metronode receiving a A$1.04 billion ($791.2 million) bid from U.S. company Equinix Inc(EQIX.O).

($1 = 1.3074 Australian dollars)

Reporting by Jonathan Barrett in SYDNEY. Additional reporting by Aaron Saldanha in Bengaluru, Editing by Stephen Coates

China's Tencent, JD.com invest $863 million in online retailer Vipshop

BEIJING (Reuters) – Chinese internet giant Tencent Holdings Ltd (0700.HK) said on Monday it would lead an $863 million investment in apparel platform Vipshop Holdings Ltd (VIPS.N), upping its rivalry in retail with Alibaba Group Holding Ltd (BABA.N).

Tencent will invest $604 million in exchange for a 7 percent stake in Vipshop, while e-commerce firm JD.com Inc (JD.O) – a long-standing ally – will invest $259 million for a 5.5 percent stake, the two firms said in a statement.

The companies did not clarify why the cost of Tencent’s purchased stock was higher than JD.com‘s. Neither company responded to requests for comment on Monday afternoon.

The deal extends a recent push by Tencent into Alibaba’s home turf of retail, where the firm hopes to leverage its messaging service WeChat and its online payment systems to drive shopping demand.

Martin Lau, Tencent’s President, said the tie-up would bring Vipshop Tencent’s “audiences, marketing solutions, and payment support” to help tap China’s rising middle class. Tencent’s WeChat has nearly a billion users.

The looming retail battle reflects a wider, long-running stand-off between Tencent and Alibaba, who have made competing investments in areas as diverse as bike-sharing apps, food delivery and gaming.

“Right now in the Chinese market we have two internet powers,” said Weiwen Han, managing partner for Greater China at Bain & Company. “Investments will either fall into the Alibaba or Tencent camp.”

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He added, however, that such deals were difficult to turn into successful ventures.

“It remains to be seen how they will be integrated successfully, (and) whether or not these will actually be effective investments.”

RETAIL FAULT LINES

Alibaba has been looking to reshape the battle lines of China’s online and offline market. Its Tmall and Taobao platforms dominate online and it has invested over $10 billion in a push into brick-and-mortar stores.

Tencent, Asia’s most valuable company with a market capitalization of $473 billion, plans to invest 4.2 billion yuan ($636 million) for a 5 percent stake in supermarket operator Yonghui Superstores Co Ltd (601933.SS).

It is already a major stakeholder in JD.com.

The latest deal, at a 55 percent premium to Vipshop’s closing share price on Friday, will help Tencent tap the firm’s young, female shoppers and give it access to reams of consumer and transaction data to help it compete with Alibaba’s Alipay.

JD.com’s Chief Executive Richard Liu said the move would help “expand the breadth and reach of our fashion business”. That comes after he said last month around 100 Chinese apparel merchants had left its platform in the last quarter due to what he called “coercive” tactics by competing platforms.

Reporting by Cate Cadell; Editing by Christopher Cushing

San Francisco Security Robot Fired After Public Outcry

A San Francisco animal shelter has announced it will no longer use a Knightscope security robot to patrol its office, after a widely-circulated report that described the robot being used to “deter” nearby homeless encampments and rising crime.

In a statement to Ars Technica, the San Francisco SPCA said it has “received hundreds of messages inciting violence and vandalism against our facility” after the story of the robot went viral. In response to that pressure, the organization will seek “a more fully informed, consensus-oriented, local approach” to the use of security robots. San Francisco authorities had already advised the SPCA to stop using the robot on sidewalks without proper approval.

Mountain View-based Knightscope has said in a statement that the robot “was not brought in to clear the area around the San Francisco SPCA of homeless individuals,” but only to “serve and protect the SPCA.”

The fracas reads as the latest installment in a long-running cultural and economic war over the present and future of San Francisco. The recent influx of tech companies and their high-paid employees has helped drive income inequality and make the onetime bohemian mecca the most expensive place to rent an apartment in the United States.

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Those underlying tensions have boiled over in protests against tech companies, including over private shuttles run by companies including Google. According to Ars Technica, the San Francisco SPCA facility is located in a rapidly-gentrifying neighborhood where inequality is particularly acute, contributing to the rise of homeless encampments on sidewalks. The SPCA reported a recent rise in vandalism and theft, which it has said declined after the security robot was put into service.

But in San Francisco’s current context, the optics of even a nonprofit using a high-tech robot to deter homeless people could hardly have been worse. In a further layer, the robot could be seen as taking a job from a human. SF SPCA President Jennifer Scarlett earlier told the San Francisco Business Times that the robot cost about $6 an hour to rent, while San Francisco’s minimum wage is $14 an hour. Scarlett said having humans perform the same duties would be “cost prohibitive,” though, suggesting no new workers will be hired to replace the laid-off robot.