Musk Talks Tariffs, NYC Battles Traffic, and More Car News of the Week

In times of great upheaval, there’s bound to be a few question marks. How should the US respond to China’s protectionist car tariffs—and does it have the leverage to change anything about them? How will self-driving cars actually be manufactured, and how will old players make money off the new tech?

Plus, Waymo is really moving toward launching a driverless taxi service in Phoenix (but when?); New York inches toward a congestion charge that could clear up traffic (but how?); and reporter Jack Stewart highlights the bonkers concepts from the Geneva Motor Show (but how much?).

It was a week; let’s get you caught up.

Headlines

Stories you might have missed from WIRED this week

  • Sure, electric cars are mostly better for the environment. But what does “mostly” mean? Jack takes a look at a new analysis that maps the real miles-per-gallon output of your zippy ride by region. (The world is better off if you drive in California than Texas.)

  • Lyft and Magna team up to make self-driving cars. As transportation editor Alex Davies explains, the Canadian parts supplier gets data and an actual path to deployment. And Lyft gets manufacturing and automotive knowhow, plus connections with almost every player in the driving industry.

  • A Twitter convo between Donald Trump and Elon Musk prompts the question: Why is it so hard for American carmakers to sell their wares in China? And what can the US do about it? Jack runs the analysis and concludes that Tesla (and other EV-makers) will most likely continue to have a tough time there.

  • Waymo starts to put “early riders” in its totally driverless taxis, to prep for the launch of a commercial service in Phoenix, Arizona, sometime this year.

  • Via Jack, some inventive inspirations from the Geneva Motor Show, where headlights, tires, windscreen wipers, and even autonomous vehicle concepts got whole new looks.

  • New York City may finally, finally, be considering a plan to fight terrible traffic. But much easier said than done: The scheme is a complex exercise in behavioral economics, I report, and it’s very possible the city may get it wrong.

Excellent Engine Purchase of the Week

Some lucky attendee of the storied Amelia Island Concours d’Elegance walked away with this special 1962 Ferrari Tipo 128F Engine and Tipo 508E gearbox, originally installed in a Series II 250 GTE. With 240 brake horsepower, auction house Gooding & Co notes the setup is “ideal for museum display or as a spare.” Hope whoever spent $143,000 on this hunk enjoys it.

This 1962 Ferrari engine, just sold at auction, hasn’t run in a few decades, but makes for a nice source of spare parts or piece for your at-home museum.

James Lipman/Gooding & Company

Required Reading

News from elsewhere on the internet.

  • Despite recent, very strenuous protestations to the contrary, it appears Uber is indeed on the precipice of selling its southeast Asian business to Grab. The San Francisco ride-hail company would reportedly exit the region for a stake in its rival.
  • Kitty Hawk, the flying car company funded by Google CEO Larry Page, will start testing airborne taxi services in New Zealand, with the goal of launching a commercial service in three years.
  • Bloomberg reports General Motors is readying to launch a peer-to-peer service this summer. Rent out your Chevy Cruze when you’re not using it!
  • Evelozcity, an electric car startup just out of stealth mode and run by a BMW and Faraday Future alum, aims to raise $1 billion. Its plot: Build a house for battery and electric drivetrain tech, and three “cabins” for it to live in—a commuter car, an autonomous ride-sharing car, and a small delivery vehicle.
  • In January, Elon Musk mused online that he’d like to build a Supercharger station with an “old school drive-in, roller skates & rock restaurant”. This week, Tesla filed a permit in Santa Monica for a Tesla restaurant and Supercharger. Dreams can come true—as long as Musk can deliver burgers fasters than Model 3s.
  • What happens to traffic when everyone uses a navigation app like Waze? Scientists are trying to figure it out.

In the Rearview

Essential Stories from WIRED’s canon

Ah, the halcyon days of 2017. Amid “flying car” news, check out this not-so-vintage interview from WIRED’s own Steven Levy. He pushes Kitty Hawk CEO Sebastian Thrun on the logistical challenges of the longtime childhood dream.

Why a Co-Founder of UFC Is Launching a New MMA Startup

One can only imagine what it must feel like to have been a co-founder of the Ultimate Fighting Championship (UFC), launched in 1993, sold for just $2 million in 2001 and then sold again in 2016 for $4 billion. Campbell McLaren can speak to it. He created and executive produced the first 22 UFC pay-per-view events dating back to 1993.

And McLaren is interestingly not done trying to re-imagine and innovate the sport of fighting and mixed martial arts (MMA). He is building a platform called Combate Americas, an up-and-coming MMA league that has emerged as a premier Hispanic MMA franchise. Next month, McLaren and his partners will be hosting a major event for the startup league in Los Angeles at the Shine.

I recently spoke with McLaren about what it is like to do another startup in the MMA space, the parallels and differences from working with UFC and more.

What were some of the early challenges in creating with UFC?

McLaren: I think the biggest challenge in launching the UFC was getting the word out about this brand new, unique, compelling program. There was no social media, no Twitter back then. Betty White has a joke that I liken it to… ‘In my day, there was no Facebook only phone book.’

To a great extent we used phone books. We called every dojo gym in America to tell them about it and that their athletes should watch it. There wasn’t a network type of communication that would let us promote it. And it definitely wasn’t cost effective to do TV advertising. On top of all of that, the press was uninterested. That was another big challenge, which I solved by using controversy as the vehicle to create buzz.

How did you know when was the right time to leave the UFC to focus on new opportunities?

McLaren: I think when John McCain called me a ‘threat to Western Civilization,’ I saw the writing on the wall.

What made you believe that creating Combate Americas was the next important move in your professional life?

McLaren: Combate Americas struck me as potentially the biggest opportunity that I ever had, including launching the UFC. I saw that there was a huge group of sports fans that didn’t have anything to root for. Combate fit perfectly into the demographics of the US/Hispanic World. But, the more we got into it, the more we saw that in Spanish sports its soccer and nothing else. We quickly saw that we could become another avenue for Spanish sports fans, which is nearly 1 billion fans worldwide.

What did you learn from UFC that you will use (or not use) in running your new startup, Combate Americas?

McLaren: I learned that it’s hard to reinvent the wheel, which we really did at the UFC. It was a brand new sport that went through a lot of bumps. When I saw that Combate Americas was very uniquely positioned to pick up a big fan base quickly, instead of reinventing the rules or changing the format, we looked to the success of UFC. We looked to the success of boxing. And we looked to the global dominance of soccer. I said, ‘How can I incorporate the best of these?’

What that became was Combate’s great format to really using soccer and boxing rivalries – whether it’s Brazil v Argentina or Mexico v US or Puerto Rico v Mexico. We’re taking those rivalries and putting it together in a way that fans already understand the conflict, so that help brings it to a ‘new sport,’ for them. It’s really hard to start something. At the beginning of the UFC, I had no idea where the fight would take place and where to stage the action. Starting Combate let us focus on some other aspects of this; such as how do we bring in a new generation because our audience is 20 years younger than the UFC and how do we bring in a new group of fans.

Which Microsoft Surface Should I Buy? (2018)

Microsoft’s Surface brand had a rocky first few months. When it launched in 2012, people loved Microsoft’s innovative, tablet-like hardware design, but the software was too confusing and too limited for many longtime Windows users.

Now, more than four years on, things are different. Not only does Windows run much more cleanly on tablet hardware, but it’s also become clear that Microsoft was an early innovator in mobile-friendly hybrid PC design. It’s hard to find a PC-maker today that doesn’t ape Surface’s kickstand-packing, detachable-keyboard-rocking form factor.

Since launching the first Surface ultraportables, Microsoft has expanded the Surface line to include a full family of computers, from a standard laptop to a giant, drafting-table desktop. If you need a portable Windows PC, it’s hard to find a nicer physical experience than what Surface offers. The problem is one of choice: with such a diverse family of premium computers, which is best for your needs? Not to worry—we’re on this like a Type Cover on a Surface Pro.

The Best All-Arounder

Microsoft

Surface Laptop (i5, 8 GB RAM, 256 GB SSD), $1,299

This device isn’t as swish as the transforming, flexible computers that made the Surface brand famous, but bear with me for a second. If you need a laptop, you need a laptop. Kickstands and clicky magnetic keyboard covers don’t work well in every situation, so we’re going with the Surface Laptop as the best pick for most shoppers. Sure, it’s not a tablet, but the Surface Laptop is a killer notebook computer.

Featuring a gorgeous, 13.5-inch high-resolution display, a lovely-feeling keyboard, a stellar glass trackpad, and a slim case, the Surface Laptop is well-built and easy to handle. It even foregoes the new USB-C standard and gives you a good, old-fashioned USB-A port, so it should be much easier to find accessories that work without requiring a dongle. It also has a magnetic charging port. If you’re a klutz who trips over your power cord all the time, this can be a lifesaver. It severs the connection between the wall plug and the computer before the laptop goes flying across the room like a Frisbee.

Microsoft also gives users some great tech standards, like a Windows Hello IR camera that lets you log in to Windows with your face lickety-split. Once you get used that, it’s hard to go back to typing in your password like some sort of paleolithic protohuman. When we tried the Surface Laptop last year, we gave it our WIRED Recommends seal of approval and a score of 8/10.

Buy the Surface Laptop (i5, 8 GB RAM, 256 GB SSD) from Microsoft or Amazon.

Word to the wise: even though Microsoft has an affordable, $799 entry-level Surface Laptop, it’s not the model most users should get. It’s a bit more expensive, but the Surface Laptop model with an Intel i5 chip, 8 GB of RAM, and a 256 GB SSD is a far better computer. More importantly for some, this upgrade also unlocks the Laptop’s alternate color choices—a stunning burgundy, cool teal, and gold tone aren’t available on the cheapest spec.

The Best 2-in-1

Microsoft

Surface Pro (i5, 8 GB RAM, 256 GB SSD), $1,299

The original Surface design, with its kickstand and keyboard cover, is still a joy all these years later. The fifth-generation Surface Pro is a mobile device that bridges the gap between laptop and tablet pretty well. If portability is your primary concern, this is what you want.

Available in configurations ranging from a low-power fanless Intel Core m3 all the way up to a fully-loaded Intel Core i7 with Iris Graphics, there’s a Surface Pro that meets your power requirements. No matter which configuration you land on, each Pro has a 12.3-inch high-res touchscreen with a document-friendly 3:2 aspect ratio. You also get a USB-A port, a magnetic charging port, a Windows Hello-compatible webcam, and a microSD slot for expanding the onboard storage. There’s even a version with cellular internet built-in, so you can check your email and Slack your coworkers without hunting for Wi-Fi.

If you want your Pro purchase to last as long as possible, spring for the $1,299 configuration. Our team recently tried this tablet and liked it quite a bit (8/10, WIRED Recommends). This version is fanless—so it’s whisper quiet—but it also has a 256 GB SSD and 8 GB RAM, which is plenty for most users.

Buy the Surface Laptop (i5, 8 GB RAM, 256 GB SSD) from Microsoft or Amazon.

There’s a slight catch, however. If you want the full Surface tablet experience, you’ll need to buy one of Microsoft’s Type Cover keyboards. This accessory is essential, but not included. So, tack on an additional $129 for a simple black cover, or $159 for a fancier, Alcantara-covered version.

The Best for Power Users

Microsoft

Surface Book 2 15-inch (i7, Nvidia dGPU, 16 GB RAM, 256 GB SSD), $2,499

Microsoft’s newest hybrid computer is Surface Book 2. This transforming powerhouse is the only Surface device with an optional graphics chip that’ll boost core performance, speeding up everything from Adobe Premiere to SolidWorks. The screen also undocks from the keyboard, so you can use the display as a tablet for brief stints when watching movies or annotating documents with the Surface Pen accessory. When our team reviewed this laptop, we gave it our WIRED Recommends seal of approval and a score of 8/10.

Available in versions with 13.5 and 15.6-inch screens, Surface Book 2 is the closest analog to Apple’s MacBook Pro series. Thanks to standard quad-core Intel processors and an optional discrete Nvidia 10-series graphics chip inside the keyboard dock, you’ll get amazing performance for a portable. Plus you get the expected suite of Surface goodies—Windows Hello, a gorgeous high-res screen, a luxurious backlit keyboard, and a big, silky-smooth glass trackpad.

Buy the Surface Book 2 15-inch (i7, Nvidia dGPU, 16 GB RAM, 256 GB SSD) from Microsoft or Amazon.

If you have cash to burn on a really nice Windows laptop, the 15-inch version has the fastest Nvidia 1060 graphics chip and the biggest, highest-res screen available from a Surface. The 13-inch is great, too, but the cheapest version is poorly equipped, going without Nvidia graphics, and has a measly 128 GB SSD—not enough space for your Lightroom library, much less all your go-to pro apps.

Caveats

Even though the Surface lineup has never been as diverse as it is now, there are still some imperfections that may impact your enjoyment of a shiny new Microsoft computer. The first annoyances begin when you add your device to your cart. If you’re grabbing a Surface hoping to use the famous, fabulous Surface Pen with it, you’ll need to buy it separately. In years past, Surface Pro and Surface Book included the pen, but no longer.

Ports are another mixed bag for Surface. While the rest of the industry is starting to turn to USB-C and Thunderbolt 3 for charging and I/O, Microsoft stuck with good old-fashioned USB-A and its magnetic Surface Connect charger. If you miss Apple’s MagSafe era and don’t want to deal with dongles, this isn’t a bad thing, but if you’re looking forward to a one-connector future, Microsoft hasn’t delivered on that yet. Only the Surface Book 2 has USB-C, and even then it’s not compatible with Thunderbolt devices. At least Surface Connect doubles as a handy desktop docking port, should you require a one-cable solution.

It’s also worth noting that Consumer Reports has put Microsoft on notice for reliability. However, the way CR gauges brand reliability is a little screwy—Microsoft’s devices have changed in design and construction considerably since the beginning of the brand, and it’s more than a little unfair to judge 2018 device reliability using numbers derived from significantly older devices. That said, there were issues with the company’s 2015 devices featuring 6th generation Intel chips, but those were shored up with software updates. Microsoft has greatly improved the cadence of firmware improvements, and it’s reasonable to expect the current batch of Surfaces will live long and productive lives.

If you’re a little short on cash but still want to pick up a Surface, check out the Surface Plus program. Microsoft lets shoppers buy a new Surface on an installment plan, for as little as $40 per month. Like Apple’s iPhone Upgrade Plan, you can choose to upgrade to a new Surface device every 18 months, or you can decide to pay off your computer in 24 months. You also get the Microsoft Complete warranty included, so you’ll get extra protection against hardware flaws and accidental damage.

Reasons to Wait

Like with other computer models, we’re currently between generations. Even though the Surface Book 2 has the new 8th-generation Intel processors, the Surface Pro and Surface Laptop are both still on the 7th generation. We don’t know exactly when Microsoft will make the switch, but it should be sometime later this year. The 7th gen chips are great for most uses, so you won’t exactly be getting a “slow” system if you buy a Surface Pro or Surface Laptop.

Get Microsoft Complete

If you’re rough on your gadgets, plan on buying the Microsoft Complete extended warranty. Starting at $149, this gives you additional warranty coverage and accidental damage protection. You get two accidental damage claims, with only a $49 deductible, whether you take your device to the local Microsoft Store or ship it in for repairs. Given how much a Surface costs, it’s worth the peace of mind to add this protection to your new device.

Shop for Microsoft Complete

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Exclusive: Fitness app Strava overhauls map that revealed military positions

SAN FRANCISCO (Reuters) – Fitness-tracking app Strava said starting on Tuesday it will restrict access to an online map that shows where people run, cycle and swim and remove some data after researchers found it inadvertently revealed military posts and other sensitive sites.

Strava’s heat map shows exercise routes in colors such as white, orange and purple that signify their popularity. The map drew worldwide attention in January when academics, journalists and private security experts used it to deduce where military personnel were deployed, by looking on the app for workout locations in war zones.

Strava is launching a new version of the heat map, a tool that displays data in map form, that will bar access to street-level details to anyone but registered Strava users, Strava Chief Executive James Quarles told Reuters.

Roads and trails with little activity will not show up on the revised map until several different users upload workouts in that area, the company said. The map will also be refreshed monthly to remove data people have made private.

Security experts previously spotted on Strava’s map what they believed to be the movements of U.S. soldiers in Africa and of people who work at a suspected Taiwanese missile command, all of whom had shared workouts apparently without realizing the implications.

In some spots, such as Afghanistan, researchers speculated that most or all of Strava’s users were soldiers or related personnel, making it easier to spot their bases.

Quarles said that the company did not anticipate that people would find sensitive information on the map because fitness data is shared voluntarily. The company does not track people without their knowledge, he said.

“Our use is really explicit,” Quarles said in an interview, his first on the subject.“You’re recording your activity in its location for the express purpose of analyzing it or sharing it and to do so publicly.”

Strava customers have the option of keeping their workouts private, and the map included no names. But the episode underscored how big data sets held by Silicon Valley companies can be used for unintended purposes.

Strava’s initial response, in which it pledged to help people better understand the app’s privacy settings, was not enough for U.S. lawmakers, who demanded to know what steps the company was taking to protect privacy.

The privately held San Francisco company has 150 employees and bills itself as the“social network for athletes.” It has 28 million users, 82 percent of whom are outside the United States.

People use Strava, or competitors such as Runkeeper or MapMyRide, to log exercise and follow the activity of friends or celebrity athletes. The services sync to GPS-enabled watches and other wearable technology.

It was not clear how much of a difference the company’s changes would make. Quarles said he did not know how much data would be removed, and he said Strava was focused on educating its users about privacy settings as the most effective way to keep secret locations secret.

The real danger is the data that underlies the map including non-public information, like names, times and dates which spy agencies or others would like access to, said Jeffrey Lewis, a nuclear policy expert at the Middlebury Institute of International Studies.

“The heat map is not the problem. The heat map was just a shocking demonstration of the incredible data they possess. The heat map just said,‘Hack me,’” Lewis said.

Quarles said there have been no signs of hacking attempts, and that the company was not aware of any physical attacks due to Strava’s heat map.

USE OF HEAT MAP

The idea behind the heat map, which launched in 2014, was to help people find new places to exercise. About 100,000 people use it, Quarles said.

The most recent version of the heat map launched in November, and a student in Australia was the first to identify sensitive sites. His Twitter posts and heat-map images drew unprecedented attention to the map.

Quarles said many people assumed the worst, such as that Strava had collected data secretly, because the company is little-known outside sports circles.

“We sounded like a nameless Silicon Valley company. We probably weren’t as well understood,” Quarles said.

The heat-map revelations prompted the U.S. Defense Department, which encourages personnel to limit their internet presence, to review security protocols.

Quarles said Strava has been in contact with U.S. defense and intelligence officials, and he said they did not ask Strava to take down the map.

Quarles, who previously was Facebook’s (FB.O) vice president of Instagram business, met congressional staff in Washington, D.C., last month. A congressional aide confirmed the meeting but declined to comment further.

Despite widespread media coverage of the heat map, Strava did not have many inquiries from authorities outside the United States, Quarles said.“We’ve not been contacted to make any changes,” he said.

Reporting by David Ingram; Editing by Jonathan Weber and Cynthia Osterman

SteelSeries Arctis Pro (GameDAC and Wireless) for PS4, PC Review: Great Sound and Features

Gaming headsets are often wealthy with features: virtual surround sound, high quality wireless radios, noise-isolating designs, replaceable ear cushions. A few models even come with their own fancy stands, giving you a place to rest your headphones when you take a pizza break.

But no matter what bill of goods most headsets arrive with, none of them likely sound as good as the new SteelSeries Arctis Pro. In addition to high-end components and a comfortable fit that blocks out exterior noise, the headset utilizes a small audio-control box that the headphones plug into. The box combines a digital-to-analog converter and an amplifier, two pieces of tech that improve the sound of the headphones by adding depth, clarity, and drama. The combination of the Arctis Pro and its accompanying GameDAC box has quickly become my favorite new audio companion when playing games or just listening to tunes.

I noticed the improved audio most in shooters like Overwatch. Even my own weapon sounded clearer, and I could better discern the position and distance of footsteps and energy shields shattering around me. Mowing down other characters as Bastion has never sounded so right. It’s remarkable, and that’s thanks to the DTS Headphone:X 2.0 software running on the GameDAC; movie-theater-grade technology that presents sounds in a multi-channel mix that makes it easier for you to pick out the distance and direction of the sounds you hear.

The headphones, when connected to the GameDAC, are also capable of playing back high-resolution audio files, making them great for listening to music in addition to gaming. Music sounded stunning on my PS4, Mac, and PC, somewhat reminding me of the impressive Blue Sadie headphones I recently reviewed, which also have their own amplifier on-board.

The GameDAC box connects to your computer or console via optical cable or USB. It has an OLED screen, a volume wheel, and software controls to tinker with audio settings or fiddle with the color of the RGB lighting on the headphones. I went with a purple hue, lighting up the rims of ear cups and the microphone mute button. (It looked pretty; Prince was onto something.) Customizing the lights is completely unnecessary, but I kept doing it anyway.

SteelSeries’ GameDAC box uses a digital-to-analog converter to sweeten the audio sent to the company’s Arctis Pro headphones.

Steelseries

A Sound Fit

The design is nearly identical to SteelSeries’ previous Arctis headsets, with a steel headband surrounded by elastic fabric that feels just like ski or snowboarding goggles—though I wouldn’t head down a Black Diamond wearing these. You can adjust the tautness of the headband assembly give to get a better fit.

The outside of the earcups are plastic, but have a soft coating that resembles metal. They’re connected to the headband by aluminum hangers that pivot 90 degrees so you can rest them on your weary shoulders when you get tired from pwning noobs, which is somehow still a phrase I say. They’re fairly glasses-friendly with plump mesh fabric (SteelSeries call it “Airweave”) that doesn’t seem to heat up as much as sweat-inducing leather headset cushions. They do have some scratchiness to them, but that hasn’t bothered me once I get them in place.

I’m mad for the retractable noise-cancelling microphone on the left earcup. It extends about four and a half inches, and you can adjust it as close to or as far away from your face as you’d like. SteelSeries also includes a foam mic cover you can slide on to temper pops and breathing sounds. To mute the mic, you use the big, easy-to-find button on back. Press it and it pops out, so you know it’s muted. The mic has a deep red glow when muted, which helped me know when I could munch on some chips or sneeze without destroying my friends’ eardrums. Though the headset has good noise isolation that tends to make you a Loud Talker, my wife didn’t complain she could hear me screaming from the other room thanks to the mic monitoring that let me hear myself talking.

The headset comes in wired and wireless variants. The only downside to the wired version is that you will need to keep that GameDAC box within reach so you can adjust your max volume or tweak the audio mix to bring up (or silence) the chattering of your friends. The wired version has a single volume dial on the left earcup, but it cannot change your chatmix. (The wireless version has a clickable wheel that does let you adjust how loudly you hear your friends.) Luckily, the cables that come in the box are a few feet long each. One goes from the GameDAC to the headphones, the other goes from the GameDAC to your console or PC. So, at least the little box doesn’t have to sit right next to your PS4. I was able to sit on my couch several feet away without much trouble, though I did have to dabble with the big volume nob now and then.

Decision Tree

The fit and feel of every Arctis Pro is the same, but only one model has that prized GameDAC included. It comes in several varieties, most of which work on PS4 and PC, and they do have some key differences. For instance, the $330 Arctis Pro Wireless has its own larger, squarer box that transmits lossless audio over both Bluetooth and 2.4GHz Wi-Fi. The wireless version sounds fantastic and as good as any other wireless headset I’ve used, but it isn’t as impressive as the wired version.

The wireless version of the new Arctis Pro.

Steelseries

The wireless transmitter pairs with the Arctis Pro Wireless headphones.

Steelseries

The wireless transmitter box has a volume/chatmix wheel and screen to let you muck around with basic settings (no RGB lighting options on this version, sadly). It also has a slot to charge one of the two swappable batteries, each of which lasts about 10 hours. The battery meter on the box’s display is also helpful. Being able to choose between Bluetooth and Wi-Fi or dual connect to both is useful if you’re home isn’t the best place for wireless signals. I’ve yet to have a single putter in my wireless connection. Pro-gamer features like these help justify the higher cost of the Arctis Pro series.

The standard Arctis Pro + GameDAC will set you back $250, but a cheaper $180 wired Arctis Pro without the GameDAC (PC only) is also available. The cheaper version still has a big volume wheel, but its sound also cannot match the wired version with the GameDAC. Like having more cowbell in “(Don’t Fear) the Reaper”, you’re gonna want that audio boost you get with GameDAC.

Best of the Best

The Arcis Pro Wireless is a top-shelf Bluetooth and Wi-Fi headset, and the benefits of going cordless are numerous, but playing games on the Arctis Pro + GameDAC makes the wired option a whole lot more appealing. The GameDAC brings a new level of clarity and immersion to any game. If any gaming headset is worth a $250 investment, it’s this one. The Arctis Pro is comfortable, has immaculate sound, and is clearly built to put gamers’ needs first. It’s a professional headset in a sea of amateurs.

How Jeff Bezos Is Spending His Multibillion-Dollar Fortune

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Artificial intelligence can make power firms more efficient: consultancy

FRANKFURT (Reuters) – Utilities can increase their efficiency by using more artificial intelligence (AI) technology, such as software to predict demand swings in the power grid or to control home appliances, consultancy Roland Berger said.

European utilities could achieve efficiency gains of up to a fifth over the next five years using such technology, it said, adding that less than a quarter of firms had a strategy to do this.

Power firms across Europe, which previously depended on coal or gas-fired power plants, are having to adapt to the expanding use of renewable power sources and facing a profit squeeze as wholesale electricity prices have fallen.

“Companies need to respond to this change and come up with new business models,” Torsten Henzelmann, partner at Roland Berger, said. “To do that they need new technologies such as artificial intelligence.”

The rise of renewables, such as solar and wind that provide intermittent supply, has increased the need for intelligent IT systems to balance demand and supply swings as companies seek to meet energy and carbon emissions targets, the consultancy said.

Utilities have started plowing tens of billions of euros in investments into their grids, sparking a wave of merger and acquisition (M&A) deals and collaborations in the energy sector, with AI technology being one focus area.

E.ON, one of Germany’s largest energy companies, struck a deal last week with San Francisco-based start-up Sight Machine to offer software that uses machine learning to improve manufacturing processes and lower energy costs.

AI could be used heating, lighting and other household appliances to help them adapt to the daily habits of consumers and use energy more efficiently, Roland Berger said.

Reporting by Christoph Steitz; Editing by Edmund Blair

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.

Year

Annual percentage change Berkshire

Annual percentage change S&P 500

2008

(31,8)

(37)

2009

2,7

26,5

2010

21,4

15,1

2011

(4,7)

2,1

2012

16,8

16

2013

32,7

32,4

2014

27

13,7

2015

(12,5)

1,4

2016

23,4

12

2017

21,9

21,8

Compounded annual gain

9%

10%

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:

Berkshire

Markel

Float

114

9

Equity Securities

164

6

Fixed Inc Maturity Securities

21,35

10

Cash and Short Term T-notes

115

4,5

Intangibles and Goodwill

112

3,1

Total Assets

700

32,8

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.

Conclusions

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:

Year

DCF per share

Dividend

Payout ratio

Excess DCF after dividend payments

2018

$2.05

$0.80

39%

$2.8 billion

2019

$2.10

$1.00

48%

$2.4 billion

2020

$2.15

$1.25

58%

$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.

(eia.gov)

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.

America's Most Hated CEO Just Got Sentenced to Prison. Here's What It Will Be Like For Him

His cockiness was gone. Minutes before he was sentenced to prison, the man known as the “Pharma Bro” and the “most-hated CEO in America” broke down in tears, to the point that the judge asked a clerk to hand him a box of tissues.

Barring an appellate miracle, Martin Shkreli, just a few days shy of his 35th birthday, will be in his 40s before he walks the street a free man again. Judge Kiyo Matsumoto  sentenced him Friday to seven years for his stock fraud conspiracy convictions.

It wasn’t quite as harsh a sentence as prosecutors wanted; they’d asked for 15 years, but it was much more severe than the 18 months Shkreli’s lawyers asked for. It’s certainly much more than the “time served” at “Club Fed” Shkreli had predicted he’d get, and where he thought he’d be playing tennis and XBox.

There’s little sympathy for Shkreli on the outside–except for a small but passionate group of supporters, many of whom followed him on social media, and think he got royally screwed over.

Even during his trial, Shkreli seemed to try to show he wasn’t taking seriously: dropping in on reporters (he called the prosecutors “junior varsity”), using social media during the evenings, refusing to wear a tie, and simply reading a book during closing arguments.

Still, it’s not the stock fraud and conspiracy that he’s known for; it’s the notoriety he received as a drug company CEO, when he hiked the cost of an antiviral drug by 5,455 percent (from $13.50 to $750 a tablet)–and seemed to revel in the bad publicity.

What will life be like now for Shkreli, in prison? It’s impossible to predict, but the Internet is awash with accounts of what life is like behind bars for white collar federal prisoners like Shkreli.

In a word, it would seem, Shkreli’s time will likely be “difficult,” for three main reasons:

  1. Because the cushy Club Fed-style prisons he seemed to anticipate doesn’t really exist anymore (if they ever really did).
  2. Because Shkreli is already well-known, and likely still fairly wealthy, even after he’ll have to forfeit more than $7 million and pay a $75,000 fine.
  3. Because if there’s one thing Shkreli has proven, it’s that he has a really difficult time controlling his ego and his mouth. That causes people to feel passionately about him on the outside, and it’s hard to imagine him changing quickly behind bars.

There’s one consolation for Shkreli: The judge sentenced him to less than 10 years, so he’s far more likely to do his time in a minimum security federal prison camp, than a tougher, higher security facility.

Depending on where he winds up, the prison camp he’s at might not have razor wire or even many locked doors. The threat of more time in a tougher facility is enough to keep most people from walking away.

But it’s not fun, and as several well-known people who spent time in federal custody have explained, the deck is stacked against people with a public profile.

“The more ‘high profile’ you are–unlike in the non-prison world–the fewer perks you may receive,” according to a Business Insider article a few years ago profiling former NYC police commissioner Bernie Kerik, who spent four years in federal prison for tax fraud, among other charges.  

“Once you arrive at prison–I was shocked by the psychological punishment,” said Kerick who was in the kind of federal prison camp where Shkreli is likely to wind up. You are constantly berated, degraded, demoralized,” he says. “You’re herded like cattle.”

Another former federal white collar prisoner, Mike Kimelman, who was convicted of insider trading and spent 15 months in prison, had a harsh description for it as well.

“I learned what an abject disgrace our prison system is (really the entire criminal-justice system),” he told Turney Duff at CNBC. “While I get that it’s supposed to be punitive, I find it hard to believe that the American public would allow it to exist in its present state if they knew what it was like.”

And, Matthew Kluger, an attorney who got 12 years for insider trading, and gave an interview while still in prison.

“The couple things that are the worst about being here, have nothing to do with the facilities or things that you can show visually on TV. … Here, you look around, and it looks pretty nice,” he said. “[I]f this were filled with 1100 people that you want to hang out with, this would be a fine place to be. Unfortunately it’s not.”

The biggest challenge, he added, “is other people. It’s being with this diverse crowd of people who are generally angry, somewhat antisocial, not the kinds of people that you want to spend your time with in the outside world. So that makes it hard.”

(Kluger’s interview by the way, is really long and wide-ranging on life in a federal prison; if you’re really interested in this it’s worth checking out. He’s still inside, too, until 2022.)

There is certainly life after 40, and Shkreli’s last act has yet to be written. But leave no doubt: this is a harsh sentence and he faces years of difficult challenges as a result.