An unknown state may be running drills for taking down the entire internet

An unknown state may be running drills for taking down the entire internet

Security researcher and blogger Bruce Schneier has a new essay up, arguing that there’s a single body out there carrying out a systematic attempt to test the defenses of the internet’s fundamental infrastructure, presumably with the intention of one day breaking those defenses. While the sources for the article are anonymous, they hardly need naming since Schneier makes it clear that his research has collected insight from virtually all major internet companies, from large service providers like AT&T all the way to organizing bodies like Verisign or potentially even ICANN itself. Somebody is searching for weaknesses in the sorts of places that many assume you’d only attack for one reason: crashing all or a large portion of the internet.The basic narrative is this: Schneier has been hearing sustained, widespread reports from fundamentally important internet companies that they are experiencing a marked uptick in certain kinds of attacks, in particular Distributed Denial of Service (DDoS) attacks. These have been not only getting stronger, longer lasting, and more diverse, but they’ve been moving in seemingly systematic, investigatory ways. Schneier describes a scenario in which attackers sent predictable probing attacks against successively higher levels ofsecurity until it had tested everything, apparently being exhaustive in their search for failure points.

One important aspect of these attacks is their power and frequency, implying enormous resources at the disposal of the attacker and strongly indicating a nation-state as the culprit. Schneier name-drops both China and Russia as the most likely culprits (China most of all), but he can’t say for sure. In addition to the sheer volume of the attacks, however, is their variety, forcing defenders to roll out their full complement of defenses. This could be interpreted as an attempt to get defenders to “bare all,” and make their full defensive capabilities known. Corero director Sean Newman said the attacks his company has seen are short and “sub-saturating,” likely meant to slowly approach and find the target’s exact maximum traffic capacity.

More worrying, the attacks also seemed to be interested in the response procedures of these bodies, like the ability to change addresses and routes in response to attacks. These incursions, more than anything else, seem to imply that the attacker is thinking through the possibility of really attacking someday. They’re looking at not only the points of ingress, but the response times, and points of egress — everything you’d need to know to attack and get away with it.


The “internet backbone” is a more real, physical thing than people often imagine.

Accepting all of Schneier’s intelligence as genuine (and it almost certainly is), we still have to note here the inherent assumption in his thinking: that these investigatory attacks necessarily imply an intent to exploit any weaknesses they find, to tank the internet. It’s a fairly safe assumption, but one that does overlook the possibility that this could be the product of a very understandable paranoia on the part of other world powers; as Schneier himself points out, the NSA has more investigatory hardware on the internet backbone than all other powers combined, so it can’t be surprising that the internet is seen as an inherently American, culturally aggressive thing. Investigating such a system could at least tell you how best to route your diplomatic cables to avoid being hoovered up by NATO listening hardware.


Russian ships perform “tactical exercises” over the deep sea internet backbone.

The other very real possibility is that these attacks were meant to be seen, and meant to be publicly known. Much like alleged Russian hacking of political documents, a basic point is being made about the abilities that can be arrayed against the United States… should that kind of action become necessary. The implicit threat is not so different from making sure your adversary sees you install a missile battery within range of their border.

You’re saying something, very clearly: Watch your ass.

The seeming flaw in this explanation, of course, is that the real attacks most feared to follow these reported investigatory probes may be too indiscriminate to be an effective threat against any one actor, even the US. This means that if it is a threat, it’s a threat against everybody. Much like Russian threats against the physical internet backbone in the deep sea, it’s believed that any major attack would have to coincide with a major reorientation of the attacking society away from the online space, or it would end up being suicide — it’s just a shame that such reorientation efforts are well under way.

The Russian government seems to belooking into the feasibility of making do with a Russian-bloc-only intranet with only semi-porous connections to the larger online world. If it did manage to implement such a system, cutting off the global internet would be far less harmful to their own interests. In China the process is even further along, as the country continues to pioneer frankly incredible technologies and procedures to further lock down the internet. What has once been dismissed as a fool’s errand is now a reality: the highly regulated, deeply censored Chinese internet is here, and it is well on its way to being able to make do without the corrupting cyber-influence of outside thoughts.

The idea is classically that the global internet is so important to to everyone that nobody but ISIS and maybe North Korea could consider crippling or destroying it — but both China and Russia are expending real effort to at least explore such a possibility. It’s a far-out threat, one that could conceivably start a major global war if done in certain provocative ways, and so it’s probably mostly meant as a threat. The message could be broadly similar to that delivered by a nuclear test: you can see that I have a weapon of last resort, so make sure never to put us in a situation where I might want to use such a thing.

Why is this made out of anonymous quotes? Why aren’t companies willing to talk about the very real threats to their security? We have to assume the national security world is more aware of this than Schneier is, as the article’s final line is telling: “But this is happening. And people should know.”

Chase signs mobile payments agreement

Chase signs mobile payments agreement with US electronics retailer Best Buy


Chase, the US consumer and commercial banking business of JPMorgan Chase & Co, has signed a multiyear agreement with Best Buy, that will see the electronics retailer accept Chase Pay in its stores, on and in the Best Buy app.

“We’ll partner with Best Buy to deepen relationships with our common customers by integrating offers and rewards into the payment experience to deliver a seamless experience at the point of sale,” said Jennifer Roberts, president of strategic alliances and loyalty solutions for Chase.

Chase says that More than 70% of Americans live within 15 minutes of one of Best Buy’s 1,400 US stores meaning the convenience factor is very high. Its customers have more than 90 million consumer credit and debit card accounts, and nearly 24 million actively use the Chase mobile banking app.

Best Buy is also a member of the Merchant Customer Exchange (MCX), a strategic Chase Pay relationship.

Brian Mooney, CEO of MCX said the collaboration between MCX, Best Buy and Chase evidences the value of MCX’s core concept: linking top merchants like Best Buy with financial institutions.

“Our goal is always to make things easier for our customers and help them smoothly navigate the checkout process,” added Mark Williams, president of financial services for Best Buy. “Chase Pay provides an easy and safe way for customers to purchase the products they want.” Pulls Files From Google Drive, Grabs Facebook Photos Pulls Files From Google Drive, Grabs Facebook Photos

By Pedro Hernandez

Microsoft updates its web-based email client, allowing users to attach files stored on Google Drive and attach pictures from Facebook.

The Outlook apps for iOS and Android already feature Google Drive support, enabling users to access their files on the cloud storage service. This week, Microsoft announced that it was extending similar functionality to of Hotmail’s successor can now link their Google Drive accounts by selecting the option under the Attachment menu icon. After entering their Google account details, they can browse and select the files they wish to use as message attachments. offers users similar integrations with Box and Dropbox, and, of course, Microsoft’s own OneDrive cloud file storage, sync and share service.Taking matters a step further, Microsoft has added the ability to edit Google file types within the same browser tab.”Now, when you receive a Google Doc, Slide or Sheet, you can open the file within Outlook,” announced the Microsoft Outlook group in a Sept. 15 announcement. Previously, clicking a URL that pointed to a Google-hosted file would cause it to open in a separate tab.

“Just like photos and Office file types, the Google files open in Outlook next to your message window so your work flow is not disrupted. And, as with Google Drive links, if you have edit permissions, you’ll be able to edit using the full functionality available on Google Drive—again, all without leaving Outlook,” added the company’s staffers.

Google, too, has been expanding its third-party integrations.Earlier this month, the mammoth Alphabet subsidiary announced a collaboration with Box, the enterprise cloud file hosting provider, enabling users to search for content in Gmail, Google Drive, Google Docs and the Box service. The capability comes courtesy of new integrations with Google Docs and Springboard, Google’s enterprise search technology.Recognizing that many folks on Facebook treat it as a giant virtual photo album, at least in part, Microsoft also enabled another integration that allows users to attach images stored on the social network.Like the Google Drive integration, users provide their Facebook login information using the Attachment menu icon. Once their accounts are linked, users can browse and attach images they uploaded to Facebook (“My Photos”) or images in which they’ve been tagged (“Photos of Me”).When working collaboratively, users may lose track of a specific attachments as respondents pile more files onto long conversation threads. To help, Microsoft added a new feature that organizes a thread’s attachments into one view.”At the top of every thread, you’ll now find an attachment icon. Click it to open a drop-down list of all the attachments in the conversation. Simply select the file you are looking for and open it—you don’t have to click through each reply or expand the thread,” instructed Microsoft.Microsoft is rolling out the new features over the next few weeks. The attachment dropdown is also being ported to Outlook on the Web users with Office 365 commercial subscriptions.

Brazil’s Pension Scandal?

Brazil’s Pension Scandal?

Posted: 07 Sep 2016 02:59 PM PDT

Anthony Boadle of Reuters reports, Brazil’s new government buffeted by pension fund scandal (h/t, Suzanne Bishopric):

The government of Brazil’s new President Michel Temer scrambled on Tuesday to distance itself from a multibillion-dollar corruption scandal that broke less than a week after he took office, involving fraud in the country’s largest pension funds.

With the country already reeling from a sprawling bribery and kickback scandal at state oil company Petrobras, the new corruption case could hamper the conservative Temer’s efforts to restore credibility and turn the page on the leftist government of impeached President Dilma Rousseff.

Police on Monday arrested five people linked to fraudulent investments made by four huge pension funds of state-run companies. The investigation snared dozens of businessmen and fund managers suspected of involvement in a fraud scheme valued at around 8 billion reais ($2.5 billion), including the chief executive of the world’s biggest beef exporter.

The coveted appointments of directors to the funds’ boards were made by political parties and the probe is expected to spread to Brazil’s political establishment, where some 50 politicians are already under investigation in the Petrobras scandal.

Temer’s office said the appointments were made during the 13 years of Workers Party rule that ended with Rousseff’s removal from office last week, and the “irregularities” uncovered by the police had nothing to do with the current administration.

“The Workers Party appointed the pension fund directors from the moment it took office in 2003 and they were closely linked to the unions,” said a Temer aide who asked not to be named.

“The Workers Party was responsible for the big loss suffered, ironically, by the workers of the state companies who were saving for their retirement,” the aide said. “This has not even scratched the image of the new government.”

Temer’s government will press for a thorough investigation as it pushes through proposed legislation that will depoliticize the appointment to directors of state companies, he said.

The investigation focuses on investments in overpriced assets, including private equity funds with artificially inflated share prices, according to the federal police.

The Workers Party declined to comment on the investigation but its president, Rui Falcao, denounced as “arbitrary” a raid and seizure of documents at the home of the party’s former treasurer Joao Vaccari, jailed a year ago in the Petrobras scandal.


Political observers in Brasilia doubt that Temer’s Brazilian Democratic Movement Party will emerge unscathed from the new scandal, since it shared power with the Workers Party during the years the fraud allegedly took place. The party has also been deeply implicated in the Petrobras scandal.

The state-company pension funds, flush with cash, have long been vulnerable to political interference and dogged by suspicions of fraud, said political risk consultant Andre Cesar.

“The 8 billion reais is just the tip of the iceberg. They have opened a Pandora’s Box and names of politicians will inevitably appear sooner or later,” Cesar said.

Even if nobody in Temer’s government is implicated, the new scandal underscores some of the unsavory ties between business and political interests in Brazil that have undermined confidence in Latin America’s largest economy.

“What are voters going to think? We just got rid of one government and corruption continues just the same in the new one,” Cesar said

The pension funds caught up in the investigation are those of state-run banks Banco do Brasil and Caixa Economica Federal, the postal service Correios and oil company Petrobras, or Petroleo Brasileiro SA. The funds have said they are cooperating with the investigation.

The funds, which controlled 280 billion reais in assets last year, have been an important source of investment in Brazil’s credit-starved economy, now in its second year of recession.

I just finished writing a comment on the global pension crunch, going over China and Chile’s pension woes, and the hits just keep on coming.

The latest pension scandal coming out of Brazil shouldn’t surprise us. Brazil and other Latin American countries are fraught with political corruption, and it’s no different in other emerging markets. These scandals typically come to the surface after a big boom turns into a big bust.

I discussed my thoughts on this recently when I went over Ontario Teachers’ Brazilian blunders:

Investing in emerging markets isn’t easy. You need to find the right partners and make sure they’ve got the right alignment of interests and aren’t con artists. I don’t trust many fund managers in Brazil and think there are a lot of blowhards there selling snake oil. Then again, Brazil is home of 3G Capital, arguably the best private equity fund in the world (at least Warren Buffet thinks so).

And while there’s no denying Brazil has huge potential, it’s currently experiencing a lot of political and economic turmoil, highlighted by the fact that the 2016 Rio Olympic Games are in dire straits.

The lesson for Canada’s large pension funds? Choose your investment partners very carefully in emerging markets like Brazil, Russia, China and India but no matter how well you vet them, be prepared for headline risk if things go awfully wrong.

Now, I don’t want to beat up on emerging markets like Brazil because the truth is scandals happen everywhere, including the United States and even boring old Canada (we just don’t hear about them every time because they are swept under the rug).

The key difference — and I keep harping on this — is that Canada’ radical pensions have adopted world class governance standards precisely to avoid undue political interference and corruption in their day-to-day operations.

Importantly, Canada’s large public pensions have an independent, qualified investment board overseeing their operations but not responsible for taking investment decisions or other decisions that are the responsibility of senior pension managers who get compensated extremely well if they deliver outstanding long term results.

Is it perfect? Of course not. No governance system is perfect and even in Canada, I can tell you there are shady things going on at large public pensions to varying degrees. It can be as “innocent” as a new CEO coming into power and placing all his people in key positions (basically, shoving them through the front and back door) on to more serious stuff like pension fund managers accepting bribes from external managers or third party vendors, service providers and brokers (to be fair, this is extremely rare but shady things do occur at large Canadian funds too).

Still, even though the governance at Canada’s large pensions is far from perfect, I would take our governance model over that of any other country, including the United States where public pensions are crumbling and many are facing disaster.

So the next time you hear of Brazil’s pension scandal or that of another country, just remember the root cause is poor governance which allows for public pensions to be easily corrupted or influenced by politicians who don’t have the pension’s stakeholders best interests at heart.

Of course, there’s outright corruption and then there’s what I call “systemic and legal corruption” like in the US where poor governance allows for undue political interference at public pensions, basically ensuring external fund managers can rake them on fees. This symbiotic and perverse relationship has been going on for years but now that the pension Titanic is sinking, the chicken has come home to roost, threatening the very foundations that Wall Street was built on.

I know, I sound like a hopelessly arrogant, cynical and critical Greek-Canadian jerk who needs to give everyone the benefit of the doubt when it comes to pensions but I’m not here to coddle people in power and you’re not reading me for the sanitized version of pensions and investments.

On that note, I remind all of you no matter who you are to show your appreciation for the work that goes into writing these blog comments by subscribing and/ or donating via PayPal under my picture on the top right-hand side of this blog.

Below, CNBC’s Seema Mody reports the removal of Dilma Rousseff from the presidency of Brazil is unlikely to speed up the country’s recovery from a severe recession. No kidding, I remain short emerging markets and think investors should steer clear of Brazil and China going into 2017 and beyond.

I also embedded another CNBC clip discussing why Brazil’s politics, economy are huge messes as the Olympics begin.

Well, the Olympics are over and while they were a success, now begins the Herculean task of transforming Brazil’s economy and political system for a better future. Good luck with that project.

Watch that Rat Hole – author Kenneth D. Campbell

Watch that Rat Hole – author Kenneth D. Campbell
watch that rate hole

Leaving his Pennsylvania steel town home as a young man, author Kenneth D. Campbell scrambled to land a magazine writer’s job in Manhattan. He followed his new boss’s instruction to “Watch that rat hole,” newspaper slang for a “beat” or coverage topic. Campbell’s “rat hole” was the real estate investment trusts or REITs, untested entities just approved by Congress.

In Watch that Rat Hole, Campbell intertwines his personal journey with his unique observations as an investment newsletter editor witnessing the REIT Revolution-his rat hole. He tells how that casual assignment became a distinguished lifework in three areas:

Writing-Campbell wrote an influential REIT stock market newsletter and co-authored the first hardcover REIT book;

Investment banking-He and his partner advised on more than two dozen mergers and acquisitions.

Managing money-Campbell co-founded a major real estate investment trusts.

In addition, he provides an insider’s take on investment styles of 1980s activists including Carl Icahn, Michael Milken, Leland Speed, Sam Zell, and Warren Buffett and their nearly two dozen company purchases and takeovers. And, he presents valuable insights into a number of business and stock market issues.

Offering personal recollections of the world of real-estate investment, Watch that Rat Hole gives insight into REITs, this little-understood-but pivotal-area of business and finance.

An excerpt from “Watch that Rat Hole”:
“Watch that rat hole.”
The speaker is my new boss, Gurney Breckenfeld. As assistant managing editor of House & Home magazine (H&H), Gurney runs the best news operation in the housing business. The date is Friday, February 3, 1961-two weeks after John F. Kennedy’s inauguration as the thirty-fifth president of the United States brings Camelot to Washington. It is my first full day in H&H’s Rockefeller Center offices in Manhattan.
Gurney’s “rat hole” is journalese shorthand for a beat, a topic to be covered intensively and mined for future stories. Just as city hall and police headquarters were, in earlier times, my beats-my rat holes- Gurney is now giving me a new one.

“Watch that Rat Hole”
By Kenneth D. Campbell
Hardcover | 6 x 9 in | 582 pages | ISBN 9781480823143
Softcover | 6 x 9 in | 582 pages | ISBN 9781480823167
E-Book | 582 pages | ISBN 9781480823150
Available at Amazon and Barnes & Noble

About the Author
Kenneth D. Campbell created and edited an influential investment newsletter for 20 years; co-wrote “The Real Estate Trusts: America’s Newest Billionaires,” his first full-length book on REITs; and co-founded a global firm managing $22 billion in assets. Now 86, Campbell lives with Irene, his wife of 54 years, outside Philadelphia. More information is available

Simon & Schuster, a company with nearly ninety years of publishing experience, has teamed up with Author Solutions, LLC, the leading self-publishing company worldwide, to create Archway Publishing. With unique resources to support books of all kind, Archway Publishing offers a specialized approach to help every author reach his or her desired audience. For more information, visit or call 888-242-5904.

Review by R.G.Richard

Amazon’s suspensions don’t sit well with smaller marketplace sellers

Amazon’s suspensions don’t sit well with smaller marketplace sellers

Mom-and-pop online sellers find Amazon’s decisions to suspend accounts “arbitrary,” and they’re turning to other online marketplaces and seeking legal advice to get reinstated.

(Bloomberg)—Andy Ayers was walking to his car in a Big Lots parking lot—shopping cart brimming with cereal, dog treats and Always brand feminine hygiene products he planned to resell for a markup on Inc.—when he got a phone alert that his account had been suspended.

“I thought, ‘Oh Crap. Perfect timing,”’ says Ayers, 32, of Athens, Ga.

An Amazon shopper had complained that one of Ayers’s products wasn’t authentic. Ayers disputed the claim and provided receipts to back it up. But about two weeks had passed by the time his account was reinstated, and the downtime cost him sales.

“I wasn’t doing anything shady,” says Ayers, who estimates he’ll sell $500,000 worth of goods on Amazon this year. “It seems there are a lot of Amazon sellers who aren’t doing anything wrong and are getting punished. There’s an arbitrary nature to it.” He has plenty of company. Attendees at an annual gathering of online merchants in Seattle last week said merchants are “living in fear” that they’ll be kicked off the site.

Most Amazon customers probably don’t realize that almost half of all items sold on the site come from third-party merchants. That means a set of kitchen knives could have been plucked from a Wal-Mart bargain rack in Nebraska by a mom-and-pop business looking to profit from a little retail arbitrage. Amazon, No. 1 in the Internet Retailer Top 500 Guide, relies on more than 2 million merchants like Ayers to keep its website and warehouses stocked with an assortment of goods no bricks-and-mortar store could ever match. But the company’s relentless focus on customer service means that when Amazon receives a complaint it’s the shopper, not the merchant, who typically gets the benefit of the doubt.

“We treat sellers like customers,” said Erik Fairleigh, a company spokesman. “The perfect seller experience is seamless self-service that allows the seller to independently run their business. If a seller needs to contact us, we have Seller Support associates available 24 hours a day worldwide, including support for urgent issues with a response in an hour or less. Sellers have available to them at any time many comprehensive tools and services to reach and interact with our Seller Support team.”

But Ayers and other sellers maintain Amazon is too quick to suspend its business partners and too slow to review their appeals, cutting off their primary revenue source, leaving them saddled with inventory. That ties up thousands of dollars in Amazon accounts until the issues get resolved, they say. As a result, many are reducing their reliance on Amazon by placing some of their merchandise on other sites, including eBay Inc., one of Amazon’s chief rivals.

“Any complaint from any buyer or manufacturer can result in a seller suspension, and their livelihood stops,” says CJ Rosenbaum, a New York attorney who says he’s helped hundreds of sellers navigate the suspension appeal process in the past several months. “Mom-and-pop businesses can’t make the mortgage and big businesses can’t make payroll.”

Sellers say the suspension process is guilty-until-proven-innocent, forcing them to prove complaints are unwarranted or pledging to make improvements to get selling privileges reinstated. They also say that the email appeal process wastes time and energy, and they often field the same request, often vague, seeking additional information without specifying what’s wanted.

The tension between Amazon and its sellers was on full display at the Seattle conference, which attracted 100-plus merchants and vendors. The suspension process has given rise to a cottage industry of lawyers, former Amazon seller account investigators and veteran online merchants who charge up to $3,000 to help sellers navigate the mysterious suspension appeal process.

Consultant Lesley Hensell was scheduled to lead an afternoon session on “hot button suspensions.” She and her partner noticed the business of helping sellers deal with Amazon suspensions pick up a year ago, and they now have a 30-person team working on it. “Amazon is getting harder and harder to persuade,” she says. “There’s no consistency. It’s all by email with different people handling the case. This isn’t how business partners are supposed to act. If I’m your business partner and you’re unhappy with me, I’d hope I could speak with you about it.”

Amazon is clear in its seller policies that its rules can change at any time, taking effect immediately. Sellers are informed about changes via email and other notifications sent on the platforms they use to manage their accounts.

Amazon’s view of the perfect customer experience is one that is completely automated with no person-to-person interaction. Someone orders something online, and it arrives on their doorstep. Any additional interaction—a complaint or a return—is considered friction that indicates a problem. Sellers maintain this policy is unrealistic and fails to recognize that some shoppers lodge unwarranted complaints to get refunds when they are simply having buyers’ remorse.

EBay has grappled with similar complaints from its marketplace sellers and last year relaxed its rules in an effort to make amends. Consultants for online merchants encourage sellers to get inventory on eBay and other platforms so their business isn’t crippled by an Amazon suspension.

That’s what happened to Emad Abukheit, who spent several years building a $2 million business selling mostly health and beauty products on Amazon before his account was suspended in March. Customers complained that products they purchased were expired, damaged or not as advertised. He submitted a plan of action to improve operations in his North Carolina warehouse, but Amazon kept requesting additional information and saying his account remained under review without making a decision.

Dell Officially Changes Its Name to Dell Technologies

Dell Officially Changes Its Name to Dell Technologies

By Jeffrey Burt

Dell CEO

The new name comes as Dell expands its capabilities with the $62 billion acquisition of data storage vendor EMC and its federated companies.

Dell Inc. is now Dell Technologies.Dell founder and CEO Michael Dell in May announced that the tech vendor would change its name as it pursued buying storage data vendor EMC and its family of federated companies in a massive deal worth around $62 billion. Dell made the announcement during the first day of the EMC World show.”We wanted to convey a family of businesses and aligned capabilities, and as family names go, I’m kind of attached to Dell,” Michael Dell said during his keynote address at the show.In a filing with the Securities and Exchange Commission (SEC) Aug. 26, Dell officials said the company made the change effective the day before. The SEC filing comes a week after a report surfaced in the New York Post saying that Chinese antitrust regulators had given their approval to the Dell-EMC deal, which was seen as the final major hurdle the two companies had to clear for the acquisition to go forward.


The deal is expected to close by October. It represents the largest acquisition in the history of the tech industry, bringing together two companies that are stalwarts in a vast array of market segments, from PCs and storage systems to enterprise IT and virtualization.

Like other established players in the industry—such as Hewlett Packard Enterprise, Cisco Systems and Intel—Dell and EMC also are looking to quickly adapt to a changing business world that is being impacted by such trends as the cloud, the proliferation of mobile devices, data analytics, the internet of things (IoT) and the years-long contraction of the global PC market.Dell, the world’s third largest PC vendor, for several years has been looking to transform itself from being simply a client box maker to an enterprise IT solutions and services provider that can better compete with the likes of HPE and IBM, spending billions of dollars to build up its capabilities in such areas as software, security, enterprise hardware and the cloud. EMC under CEO Joe Tucci has created a federated business model where other companies it owns—including VMware, RSA Security, software maker Pivotal and cloud software vendor Virtustream—operate as independent but cooperating businesses to make the entire EMC Federation stronger.According to Dell officials, the PC business will keep the Dell brand, while the combined enterprise IT business will be called Dell EMC and will headquartered in Hopkinton, Mass., where EMC is currently based.Earlier this year, antitrust regulators in both the United States and the European Union gave their approvals to Dell’s acquisition of EMC, and in July, EMC shareholders overwhelmingly voted in support of the deal, with 98 percent of them accounting for 74 percent of company shares voting in favor. That left the approval of China as the last major challenge. Reports indicated that Dell’s announcement of Chinese regulator support could come this week.Dell has changed its name several times since Michael Dell launched the company as PCs Ltd. from his dorm room at the University of Texas, Austin more than 30 years ago. It had been Dell Computer Corp. until 2003, when it became Dell Inc. as it looked to expand into such areas as the data center.

Canadian Pensions Unloading Vancouver RE?

Pension Pulse

Canadian Pensions Unloading Vancouver RE?

Posted: 19 Aug 2016 06:36 PM PDT

Katia Dmitrieva of Bloomberg reports, Ontario Teachers’ Pension Plan seeking buyers for minority stake in $4-billion Vancouver real estate portfolio:

The Ontario Teachers’ Pension Plan is seeking buyers for a minority stake in its $4 billion real-estate portfolio in Vancouver, including office towers and shopping malls, according to people familiar with the matter.

Cadillac Fairview, the real-estate unit of Canada’s third-biggest pension fund, is looking to raise about $2 billion from the sale, according to the people, who asked not to be identified. Cadillac Fairview has hired CBRE Group Inc. and Royal Bank of Canada for the sale, the people said. Spokespeople for Cadillac Fairview, CBRE, and RBC didn’t immediately respond to requests for comment or declined to comment.

Cadillac Fairview is the latest pension group seeking to reduce its holdings in the Vancouver commercial market, where prices have reached record highs amid an influx of foreign cash even as new supply drives up vacancy rates. Ivanhoe Cambridge and the Healthcare of Ontario Pension Plan are seeking about $800 million for their office towers in Burnaby, British Columbia, just outside of Vancouver.

The Cadillac Fairview portfolio, which hasn’t yet started marketing, includes 14 properties in downtown Vancouver and Richmond, with some of Canada’s largest shopping centers, office towers, and historic buildings up for grabs. The assets include a portfolio of waterfront properties including Waterfront Centre, a 21-story tower on the harbor built in 1990; the 238,000-square-foot PricewaterhouseCoopers Place; and The Station, a historic property built in 1912 that serves as North America’s largest transport hub, currently pending approval for an added office tower.

Some of the country’s biggest retail assets are also in the mix, such as the Pacific Centre, a downtown retailer with 1.6 million square feet for which Cadillac Fairview submitted a proposal this year to expand. It’s the third-most profitable shopping mall in Canada, according to brokerage Avison Young, with $1,599 in sales per square foot. The center also contains eight office towers of two million square feet, including 701 West Georgia and the HSBC building.

Asset Gains

The net asset value of Cadillac Fairview’s real estate holdings increased 13 per cent to $24.9 billion in 2015 over the prior year amid high demand for assets in North America, according to the latest financial report from the Toronto-based pension fund. It also lists six of the Vancouver properties as worth at least $150 million.

Demand for Vancouver offices has sent prices of properties to record highs in recent transactions, including Anbang Insurance Group Co.’s purchase of the Bentall Centre. The vacancy rate in the city rose to a 12-year high of 10.4 per cent as of June 30 as tenants absorbed 1 million square feet of new space since the same time last year, according to Avison Young. Buildings downtown, where most of Cadillac Fairview’s properties are located, are faring better, with vacancy tightening to 7.8 per cent from 9.8 per cent at the end of 2015.

Additional space is set to flood the market, with six office towers under construction for delivery as soon as this year totaling about 802,700 square feet, and 10 buildings proposed for the city, including Cadillac Fairview’s Waterfront Tower, according to Avison Young’s mid-year 2016 report. Despite the vacancy, rental rates for the best quality assets in Vancouver are the highest in Canada and some U.S. cities such as Chicago and L.A. at about $30 a square foot, Avison Young said.

Earlier this month, Katia Dmitrieva and Nathalie Obiko Pearson of Bloomberg reported on how the Canadian housing boom was fueled by China’s billionaires:

The walls of Clarence Debelle’s Vancouver office on Canada’s west coast are lined with gifts from his real estate clients: jade and turtle dragon figurines; bottles of baijiu, a traditional Chinese alcohol; and enough special-edition Veuve Clicquot to fuel several high-end cocktail parties.

They are the product of Vancouver’s decade-long real estate frenzy. The city, with its stunning views of the mountains and yacht-dotted harbor, has long been one of the world’s most expensive places to live but price gains have reached a whole new level of intensity this year. Low interest rates, rising immigration, and a surge of foreign money—particularly from China—have all driven the increases.

Consider the latest milestones:

§ The cost of a single-family home surged a record 39 percent to C$1.6 million ($1.2 million) in June from a year earlier.

§ More than 90 percent of those homes are now worth more than C$1 million, up from 65 percent a year earlier, according to city assessment figures.

§ Vancouver is now outpacing price gains in New York, San Francisco and London over the past decade.

§ Foreigners pumped C$1 billion into the province’s real estate in a five-week period this summer, or about 8 percent of the province’s sales.

After copious warnings over the last six months, including from the Bank of Canada, that price gains are unsustainable, the provincial government of British Columbia moved last week. Foreign investors will have to pay an additional 15 percent in property-transfer tax as of Aug. 2 and city of Vancouver was given the authority to impose a new tax on empty homes.

As Canada waits to see what effect, if any, the moves may have, here are the stories from the city’s wild ride.

The great Canadian Vancouver real estate bubble, eh? Just keep buying Vancouver real estate and wait for all those Chinese billionaires and multimillionaires to buy your house at a hefty premium, especially if it has good Fen Shui.

I’ve been short Canadian real estate for as long as I can remember, and have been dead wrong. I’ve also been short Canada for a long time and still think this country is going to experience some major economic upheaval in the next few years.

Canada’s banks are finally sounding the housing bubble alarm but it’s too late (they have good reasons to be scared). This silliness will likely continue until you have some major macro event in China or Paul Singer’s dire warning of a major market breakdown because of the implosion of the global bond bubble comes true.

Since I’ve openly criticized Paul Singer’s views on bonds being “the bigger short”, I can’t see a major backup in yields as driving a housing crash in Canada or elsewhere. Instead, what worries me a lot more is the bond market’s ominous warning on global deflation and how that is going to impact residential and commercial real estate, especially if China experiences a severe economic dislocation.

Now think about it, why are several large Canadian pension funds looking to unload major commercial real estate in Vancouver? Quite simply, the upside is limited and the downside could be huge. That and the fact they’re looking to sell for nice gains and diversify their real estate holdings geographically away from Canada (incidentally, geographic diversification is the reason why foreign investors would consider buying Canadian real estate at the top of the market).

Some of Canada’s large pensions, like bcIMC, are way too exposed to Canadian real estate. The rationale was that liabilities are in Canadian dollars so why not focus solely on Canadian real estate, but this increased geographic risk. This is why bcIMC is now looking to increase its foreign real estate holdings (read more on this here).

Real estate is a long term investment. Pensions don’t buy real estate looking to unload it fast (even opportunistic real estate can take a few years to realize big gains) but rather keep these assets on their books for a long time to collect good yield (rents). Even if prices decline, a pension plan with a long investment horizon can wait out a cycle to see a recovery.

That is all fine and dandy but what if pensions buy at the top of a bubble and then there’s a protracted deflationary episode? What then? Vacancy rates will shoot up, prices will plummet and rents will get hit as unemployment soars and businesses go bankrupt. They then can be stuck with commercial real estate that experiences huge depreciation and depending on how bad the economic cycle is, it could take many years or possible decades before these real estate assets recover even if money is cheap.

I mention this because a while back, I publicly disagreed with Garth Turner on his well-known Canadian real estate bubble blog, Greater Fool, telling him that he’s wrong to believe the Fed will raise rates because of higher inflation and that will be the transmission mechanism which will spell the death knell for Canada’s real estate bubble.

Instead, I explained that once global deflation becomes entrenched, companies’ earnings will get hit hard, unemployment will soar and many highly indebted Canadian families barely able to make their mortgage payments will be forced to sell their house even if rates stay at historic lows.

Admittedly, this is a disaster scenario, one that I hope doesn’t come true. What is more likely to happen is real estate prices will stay flat or marginally decline over the next few years, but that all depends on how bad the next global economic downturn will be. And some parts of Canada, like Vancouver and Toronto, will experience a more pronounced cyclical downturn than others (for obvious reasons).

Those are my thoughts on Canadian pensions unloading commercial real estate in Vancouver. As always, if you have any thoughts, shoot me an email at And please remember to kindly subscribe or donate to this blog via PayPal at the top right-hand side to show your appreciation for the work that goes into these comments.

Below, CTV News reports on the latest developments in the Canadian real estate market. The way things are going, I think Capital Economics is right, the housing bubble ‘will end in tears’.


Airbnb already took down its new travel guide app

Airbnb already took down its new travel guide app

founders airbnb Joe Gebbia Brian CheskyAirbnb co-founders Brian Chesky and Joe Gebbia Airbnb

Airbnb was testing out a new app that will help it expand beyond a home-sharing service, but the company has already taken it down.

Airbnb Trips was available on the Google Play store earlier in the day on Tuesday, but as of 2:30 p.m. Eastern time, the app no longer appears in the Play store.

Airbnb Trips was billed as a trip-planning app that creates an itinerary and offers guides of local restaurants, bars, and activities. Even though anyone could download it, Airbnb was listing it as “unreleased,” meaning it was still in the testing stages and may contain bugs.

The app was not at all available on the Apple App Store.

In June, Airbnb raised $1 billion in debt financing to help Airbnb expand and develop new services, specifically add-on travel services. The company has previously tested out art gallery tours, personal chefs, and bicycle rentals, which customers have been able to book when they rent a home or reserve a room through Airbnb.

Airbnb Google Play appAirbnb

According to Bloomberg, the initiative had been referred to as “magical trips” and was a priority for the company this year.

“We’re continually experimenting with new things and we don’t have anything to share right now, but we have a few exciting things in the works,” Airbnb spokesman Nick Papas said in an email.

Bill Gross Admonishes Public Pensions?

Pension Pulse

Bill Gross Admonishes Public Pensions?

Posted: 09 Aug 2016 01:36 PM PDT

Darrell Preston of Bloomberg reports, Bill Gross’s Admonishment Supported By Illinois Pension Fund:

Illinois’s largest public pension agrees with Bill Gross’s admonishment that it’s time to face up to the reality of lower returns and reduce assumptions about what funds can make off stocks and bonds.

Fund managers that have been counting on returns of 7 percent to 8 percent may need to adjust that to around 4 percent, Gross, who runs the $1.5 billion Janus Global Unconstrained Bond Fund, said during an Aug. 5 interview on Bloomberg TV. Public pensions, including the California Public Employees’ Retirement System, the largest in the U.S., are reporting gains of less than 1 percent for the fiscal year ended June 30.

Illinois’s largest state pension, the $43.8 billion Teachers’ Retirement System, plans to take another look at how much it assumes it will make in the coming year as part of an asset allocation study, said Richard Ingram, executive director. Currently it assumes 7.5 percent, lowered from 8 percent in June 2014. Plans for the study were in place before Gross made his remarks.

“Anybody that doesn’t consider revisiting what their assumed rate of return is would be ignoring reality,” Ingram, whose pension is 41.5 percent funded, said in a phone interview. The fund has yet to report its June 30 return.

Lowering how much pensions assume they can earn from investment of assets could put many in the difficult position of having to cut benefits or ask for increased contributions from workers and state and local governments that sponsor them or risk seeing the amount of assets needed to pay future benefits shrink. The $3.55 trillion of assets now held by public pensions is about two-thirds the amount needed to pay retirees, according to Federal Reserve data.

Since the financial crisis, the interest rates earned on bonds have remained low as stock prices have brought strong returns some years and more modest returns in other years. Calpers earned 0.6 percent in the fiscal year ended June 30, with an average gain of 5.1 percent over 10 years.

Illinois is struggling with $111 billion of pension debt, and more than half of that, or about $62 billion, is for the Teachers’ Retirement System. The partisan gridlock that spurred the longest budget impasse in state history only exacerbated the problem. Governor Bruce Rauner and lawmakers have made no progress in finding a fix for the rising liabilities that helped sink Illinois’s credit rating to the lowest of all 50 states.

Lagging Returns

Others also have reported meager returns recently, including a 0.19 percent gain for New York state’s $178.1 billion retirement system and a 1.5 percent increase in New York City’s five pension funds with $163 billion of assets, the smallest gain since 2012.

Government-retirement systems have lagged return targets after U.S. stocks declined last year and bond yields hold near record lows, leaving little to be made from fixed-income investments. Large plans have an average of 46 percent of their money in equities, with 23 percent in bonds and 31 percent in other assets such as private equity, Moody’s Investors Service said in a July 26 report, citing its review of fund disclosures.

“If investment returns suffer, you have to look at reality until we return to a more normal investment environment,” said Chris Mier, a municipal strategist with Loop Capital Markets in Chicago. “Some pensions don’t like changing those assumptions because then their liabilities increase.”

Pensions’ push into stocks and other high-risk investments have exacerbated pressures on the funds because of the “significant volatility and risk of market value loss” at a time when governments have little ability to boost contributions if returns fall short, Moody’s said in its report.

Dialing Back

Public pensions over 30-year-or-so horizons traditionally could hit targets for returns of 7 percent to 8 percent. But that was in an era before the Fed began holding down interest rates to stimulate the economy and returns in the stock market were not high enough to offset lower fixed-income investments.

Public pensions have been reducing assumed rates of returns, cutting from a median of 8 percent six years ago to 7.5 percent currently, said Keith Brainard, who tracks pensions for the National Association of State Retirement Administrators. Now “more than a handful” are below 7 percent, he said.

“We’ve seen a pronounced decline in return assumptions,” said Brainard

Public pensions have been hurt by the Fed’s zero-rate policy that Gross says has led to “erosion at the margins of business models” such as the ones used for funding public pensions, which depend on assumptions about returns over time horizons of 30 years or more.

“Pensions have to adjust,” said Gross. “They have to have more contributions and they have to reduce benefit payments.”

Bill Gross is right, low returns are taking a toll on US pensions, especially delusional public pensions that refuse to acknowledge that ultra low and even negative rates are here to stay, and that necessarily means they need to assume lower returns ahead, cut benefits and increase contributions.

Of course, astute readers of this blog know my thoughts, cutting benefits and increasing contributions is the easy part. So is hiking property taxes and utility rates to fund unfunded public pensions, just like Chicago just did. Sure, it takes political courage to admit your public pensions are effectively bankrupt and require drastic measures to get them back to an acceptable funded status, but that isn’t the hard part.

It’s much harder introducing real change to US public pensions, change that I discussed in the New York Times three years ago when I wrote about the need for independent, qualified investment boards and governance rules that mimic what Canada’s large public pensions have done.

Importantly, apart from years of mismanagement, the lack of proper governance is a huge factor as to why so many US public pensions are in such dire straits yet very few politicians are discussing this topic openly and in a constructive manner.

And instead of cutting their assumed rate of return, what are US public pensions doing? What else, they’re taking more risks in alternative investments like private equity and hedge funds.

Unfortunately, that hasn’t panned out too well (shocking!). Private equity’s diminishing returns and hard times in Hedge Fundistan are hitting public pensions very hard.

In fact, Charles Stein of Bloomberg reports, Hedge Funds Make Last Place at $61 Billion Massachusetts Pension:

Public pension funds have soured on hedge funds.

The New Jersey Investment Council last week voted to cut its target allocation to hedge fund managers by 52 percent, following similar moves by pensions in California and New York. The institutions are disappointed by the combination of high fees and modest returns the hedge funds have delivered.

The chart below explains some of that unhappiness. In the 10-years ended June 30, the $60.6 billion Massachusetts public fund realized a 3.2 percent average annual return, net of fees, from the hedge funds in which it invests. That was the worst performance of seven asset classes the fund holds, according to data released last week for the Pension Reserves Investment Trust Fund. Private equity, with a 14.4 percent annual gain, was the top performer. The fund overall returned 5.7 percent a year.
It’s not that Massachusetts picked especially bad managers. Its hedge fund returns are roughly in line with industry averages. The fund weighted composite index created by Hedge Fund Research Inc. gained 3.6 percent a year over the same stretch.

Unlike some of its peers, Massachusetts hasn’t reduced its roughly 10 percent allocation to hedge funds. Rather, the pension in 2015 began making investments in the asset class through managed accounts rather than co-mingled accounts. The strategy has resulted in fee discounts of 40 to 50 percent, said Eric Nierenberg, who runs hedge funds for Massachusetts’ pension.

“We are hedge fund skeptics,” he said in an e-mailed statement. The investments made through the new structure have performed “considerably better” than the pension’s legacy holdings, Nierenberg said.

[Note: If you are looking for a managed account platform for hedge funds, talk to the folks at Innocap here in Montreal. Ontario Teachers’ Pension Plan uses their platform for its external hedge funds and they know what they’re doing monitoring operational and investment risks on Teachers’ behalf.]

I guarantee you over the next ten years, returns on all these asset classes will be considerably lower, especially private equity. And the most important asset class for all pensions in ten years will likely be infrastructure, but even there, returns will come down as more and more pensions chase stable yield.

The crucial point I want to drive home is this:  Yields are coming down hard across the investment spectrum and all pensions need to adjust to the new reality. Low returns are taking a toll on all pensions, especially US public pensions, but it’s record low and negative yields that are really hurting them. There is no big illusion in the bond market; it’s sending an ominous warning to all investors, prepare for lower returns ahead.

On that note, back to trading my biotech shares because when they start running, they run fast and hard and I need to capitalize on these rallies (click on image):
Sometimes I wonder how are hedge funds commanding 2 & 20 for mediocre returns when I can’t get more large pensions to subscribe or donate to my blog? Oh well, go figure.

Below, once again, Bill Gross explains why bonds aren’t an asset, they’re a liability. I disagree with him and Gundlach on the risks of US bonds and continue to recommend them as they will remain the ultimate diversifier in a deflationary world.

Also, public pension plans from New Jersey to California are cutting their allocations to hedge funds as low returns and high fees combine to disappoint managers. Bloomberg’s Charles Stein reports on “Bloomberg Markets.”