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Hedge funds are having their best year since 2013 [Bloomberg]

RenTech's Bob Mercer steps down [Bloomberg]

Bruce Berkowitz liquidates hedge fund that owned Sears [Bloomberg]

David Einhorn says value investing will make a comeback [CNBC]

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We highlighted the launch of the ICE FANG futures contract earlier this week (here) and what an auspicious moment it was for the launch.

The argument put forward by our guest author, Kevin Muir via The Macro Tourist blog, was that it is possible to be “bearish on the FANG stocks, but not be some perma-bear who thinks the world is about to collapse”. As Muir explained.

The reality of today’s limited alpha market is that when an investing theme gets some legs, it often becomes overdone and prone to disappointment. I have written about how, all too often, this results in a series of rolling mini-bubbles. There is nothing wrong with observing that the new era tech stocks are stupidly overbought, and that the risks are to the downside in the coming months. You can be bearish on FANG without thinking all stocks are going to zero…This new FANG contract offers some great opportunities to short the speculative names that have been the source of such over-exuberance, while maybe hedging it with a long position in the S&P 500 futures contract.

Muir commented wryly that now he would be able to get in as much trouble as high-profile bear, David Eeinhorn of Greenlight Capital by buying “old economy stocks and shorting the new tech darlings.” Another investor, with more than one gray hair of experience, has penned a thoughtful bearish piece on the FANGs in recent days, this time Neil Dwayne of Allianz Global Investors. Dwane’s piece is titled “De-FANGed: 5 Ways the Disrupters Could be Disrupted.” Dwane begins by noting that while consumers love the services they provide, the regulators are taking an increasingly close look at their anti-competitive practices.

Just as the growth, earnings and cash generation of these Big Tech names have soared, so has their impact on economies and consumers, who are wowed by the services, price transparency and convenience they provide. As a result, there has until recently been little public pressure to challenge the dominance of these firms, which some critics liken to near-monopoly status. Yet these powerful companies are attracting greater scrutiny from regulators:

 

• In June 2017, European Union antitrust regulators fined Google EUR 2.4 billion for unfairly manipulating search results to benefit its own shopping platform.
• In October 2017, the European Commission levied a EUR 250 million fine against Amazon for receiving illegal state aid from Luxembourg.
• As the US government probes Russia’s alleged influence on US elections, it is asking hard questions about Facebook and Google’s roles in selling advertising and allowing “fake news” to proliferate.
• In May 2018, the European Union will implement a robust set of requirements – the General Data Protection Regulation (GDPR) – aimed at guarding personal information and reshaping how organizations approach data privacy. This will affect not only the FANG stocks, but any company with a digital presence in the EU.

Pointing out that government regulators appear to be increasingly focused on reining back the dominance of these companies, Dwane asks whether these “masters of high-tech disruption” are about to find themselves disrupted. Dwane finds that it may not only be regulators which could reverse the seemingly never-ending rise in market capitalisation of these stocks. He outlines five ways in which the disrupters could be disrupted, beginning with the critical, for some of these companies, and potentially vulnerable issue of online advertising.

1. Digital advertising comes under pressure

“Bots” and automatic algorithms have completely transformed the realm of digital advertising and brought in billions of dollars in revenue for Facebook and Google. Yet an old adage still rings true today – “half the money I spend on advertising is wasted; the trouble is, I don't know which half”. If doubts about ad-sales effectiveness and practices grow, they could undermine social media business models and the profitability of the FANGs.

• Some firms may be overstating the reach and effectiveness of their technologies. One mega-cap US consumer-goods company recently made headlines when it slashed its online ad spending, citing “largely ineffective” digital ads.
• On the other hand, some of these ad-sales platforms may work too well, bringing into question the professed “platform neutrality” of some Big Tech companies. Amid growing concerns about Russia’s role in recent US elections, Facebook recently bought its own high-profile ads to detail how it is “protecting our community from election interference” – a clear response to calls for them to police their network.

 

2. “Free” content dilutes brand loyalty and bottom lines
Even though social media has become part of our daily lives, how much brand loyalty does it inspire? Surveys show that use of social media would drop if consumers had to pay for access – or they would migrate to other “free” services. This has implications for corporate longevity. Some may not endure in the same way as companies in more traditional industries once did with similar size and scale.

 

For its part, Google has recently announced it is dumping its “first-click-free” news policy, which had forced media companies to offer some free content or see their search-engine rankings plummet. This can be seen as a way of helping to support digital subscriptions – and therefore funding – for news providers. Google may also hope this heads off more onerous regulations by positioning them as good corporate citizens, and by reinforcing their stance that they are not a media company.

 

3. Unused cash grows costly
The FANGs remain extremely profitable, yet much of the cash they generate languishes on balance sheets. The result is billions of dollars left unused, un-returned to shareholders and unable to boost economic growth – and in many cases untaxed as well. This is growing increasingly frustrating for almost everyone but the cash-rich companies themselves. Unfortunately, there may not be much shareholders can do about it – the “founder’s stock” structure used at some firms does not always create an environment of good corporate governance – though active investors can try to effect change. Regulators have more power, however, and they are clearly looking for ways to claw back some of this cash.

 

4. Regulators crack down on data privacy
Big data, predictive algorithms and artificial intelligence all rely on one thing: collecting and analysing information. However, when the data in question come from the lives and habits of private citizens, shouldn’t they be able to influence how the data are used? Regulators in Europe agree. The EU’s new GDPR will give citizens more insight into and control of their digital information – and it will give regulators a potent new weapon against companies that don’t act in consumers’ best interest. While rules that are overly stringent could limit the benefits of technological innovations, the GDPR could also increase consumers’ trust in digital services and create a level playing field for companies that responsibly monetize consumers’ data.

 

5. Political pressure leads to new “duty of care” requirement
As a global producer of content that leverages it against advertising to drive growth, Facebook has effectively become a media company – yet critics suggest that it seeks to leverage its success as a global influencer without the responsibility that comes with it. This privilege may disappear if the US government imposes on Facebook and other social media platforms the kind of “duty of care” requirement that many old-world media companies have been facing for many years. This would force some Big Tech firms to engage in the kind of onerous editorial and legal responsibilities that already impair their current competitors – ironically disrupting their own disruption and potentially adding to their cost bases.

Dwane’s conclusion, which we lay out below, is that the growing regulation of these companies alone will bring their heyday – in stock market terms anyway – to an end. In contrast, he sees a better outlook for China’s version of the FANGs…the BATs (Baidu, Alibaba and Tencent).

Western governments have for the most part been happy to let Silicon Valley oversee itself, but it is clear that this grace period may be closing – especially in Europe. In addition to some of the new rules and pressures outlined above, we expect the playing field to be levelled further:

• The EU has launched a growing assault against US tech companies to ensure they pay their fair share of tax to society; it will soon announce a new plan that addresses cross-border sales tax rules.
• The US government has room to manoeuvre. Historically, concentrated power similar to that wielded by today’s Big Tech firms has led to government intervention – witness the breakup of the US telecom monopoly in the 1980s or US government actions against Microsoft in the 1990s.
• As the US Congress continues to probe Facebook and Google’s role in allegedly helping Russia influence US elections, it could fuel a growing backlash about issues ranging from political advertising to online privacy.

It is growing increasingly possible that these regulatory pressures could soon begin to limit the almighty FANGs’ reach in the US and Europe – rich but small markets compared with the opportunities facing China’s BATs (Baidu, Alibaba and Tencent). These firms are in many ways the Chinese equivalents of the FANGs, yet as of now, the BATs aren’t facing the same level of increasing regulatory scrutiny as their FANG counterparts. With less-onerous oversight and a larger opportunity set in their own neighbourhoods – populations in Asia are exponentially bigger – one could make the case that the BATs may fly further than the FANGs.

Whether Dwane’s arguments will prove to be just another premature obituary in the performance of the awesome FANGs, time will tell. Left to their own devices, there seems to be no stopping them. The things is, there’s something that governments value above all else, control. Perhaps the real question is just how close to the deep state (s) are some of these companies already? For now, however, any dips in these stocks are reversing quickly…as we saw again yesterday.

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When it comes to the last financial crisis, few timed the peak quite as well as Sam Zell, who sold his Equity Office Properties Trust, the largest office REIT, to Blackstone in 2007, literally days before the bottom fell out of the market. So, with Goldman dying to know when the next crash will take place, it is no surprise that it picked Zell as one of the people to ask. Unfortunately, Zell was unable to provide the much desired answer, and instead when Goldman's Allison Nathan asked him "how much longer do you think the current economic expansion can last?" His answer was anticlimatic: "Frankly, I don't have any idea. If I knew the answer to that, I would be rich. A year and a half ago, I said we were in the eighth or ninth inning of the expansion. But I think the election of Trump has changed that. There is more optimism in the business sector now, which has given us extra innings. So this expansion may last a little longer than everybody thinks."

(Indicatively, when Zell says he "would be rich", it is unclear just what number he envisions besides "more": his current net worth is $5 billion according to Forbes.)

What, according to Zell is the cause for this "business sector optimism"? Surprisingly, his answer - as has been the case for a while - is Donald Trump:

Allison Nathan: Has your initial optimism post the election waned given the challenges Trump has faced in making progress on his legislative agenda?

 

Sam Zell: No, just the opposite. Despite all of the public tweeting and noise surrounding our president, the reality is that the steps he's taken on deregulation, reversing executive orders, and so forth are confidence-building and very positive. The possibility of changing Dodd-Frank to increase lending to small businesses, for example, could have a very big impact. And I think that's why the economy is responding in the same positive manner as is the stock market.

 

Allison Nathan: If tax legislation doesn’t pass, would that make you more pessimistic?

 

Sam Zell: No. Expectations about tax reform have declined over the last eight to ten weeks and are now pretty limited. Originally, there was an assumption that a lot could get done. But that outcome assumed a lot more support both from within the Republican Party and from some lawmakers on the other side of the aisle, which has obviously not come to pass. That said, I think tax legislation will be passed and will definitely feature a reduction in the corporate tax rate, likely some adjustments on the taxation of repatriated income, and maybe some reduction in taxes for middle-to-low-income people. Beyond that, I don't have much expectation for significant tax reform. And if it fails to pass, I think the opposition will be blamed, not Trump. In my view, Washington continues to be remarkably disconnected from the reality of what's going on in most of the country, and that’s reflected in Congress’s inability to get things done.

Yet while unwilling to commit to a time frame for the next recession, Zell does discusses what catalysts would make him turn bearish.

Allison Nathan: You are famous for identifying the peaks and troughs of market cycles throughout your career.  What do you look for when you are determining whether we are near an inflection point?

 

Sam Zell: I tend to see those opportunities when day-to-day activities don't make any sense to me. And there is probably nothing more relevant to seeing around the corner than assessing supply versus demand. For example, when I see people building office space without being able to identify the future tenants, as I do today, that is a warning sign that supply is engulfing demand. In general, we're humans, and we tend to follow the pendulum to extremes. The more I see extreme imbalances between supply and demand, the more I become convinced that the opposite is correct. And when conventional wisdom becomes 100% bullish I usually close my checkbook

But his best response was to a question about the current valuation of FANG darlings such as Amazon. Asked if "there places today where you think we are at or near the top of the cycle and expect a sharp reversal?" His response was classic:

I can’t explain the valuation of the big tech companies, and can't believe that we won’t see a significant correction there. For example, in order to justify the multiple that Amazon trades at today, the company would have to be worth 25% of the US economy five years from now. This situation is no different from the one in 1997, when I pointed out that Cisco’s multiple would only be justifiable if the company represented 25% of the US economy five years later. Obviously, that didn't happen, and I don't think it's going to happen with today’s big tech companies, either. I'm also generally concerned about the size, scale, and influence of these companies, which I think is out of hand and dangerous to our overall society. Absolute power corrupts absolutely, and these companies are being set up to do exactly that.

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Below we excerpt some additional thoughts from Zell's Goldman interview:

• Allison Nathan: What about on the fixed income side? Do valuations there concern you at all?

Sam Zell: Yes. Going back to my earlier comments on supply and demand, we've just come through quantitative easing in the US, and the European Central Bank is still buying and adding new money to the system. I look at all that and think there’s too much supply, so there's got to be an adjustment.

• Allison Nathan: You called the top of the commercial real estate (CRE) cycle in 2007. Many market observers view CRE as a source of risk today. Do you agree that such concern is warranted and, if so, how big of a risk might it pose to the economy?

Sam Zell: I don’t think substantial concern is warranted just yet. The level of activity in CRE is nothing like previous periods of massive expansion, like the one that took down the economy in the 1980s, for example. In fact, the Great Recession of the late 2000s was the first recession since World War II in which we didn’t have massive oversupply of CRE built or under construction heading into the downturn. And there was a period of three or four years after the start of the recovery with almost no new construction; we didn’t begin to see a significant amount of new supply until 2013. That said, as I mentioned earlier, I see some signs that CRE supply is overwhelming demand. If it keeps going at the current rate, I would become alarmed about the potential for another CRE crash. But I am not quite there yet.

• Allison Nathan: There has been a lot of focus on retail property coming under pressure with the rise in online shopping. How concerned are you?

Sam Zell: Well, let's start with a very simple fact: The United States has five square feet of retail space for every one square foot that anybody else has around the world. So we are starting with a significant over-allocation of space to retail. Then we bring in the internet. It makes up only about 8.5% of retail sales at this point, so we're just talking about early stages. But those early stages are creating dramatic changes. Why would anybody go to the store to buy something that they can order online and have delivered the same day or the next day? The result is that the very best retailers and the small, corner strip mall centers are immune, but everything else is either obsolete or in grave danger. And the definition of “everything else” is a lot. So I think that the retail format and platform is going to change radically. And the net result is going to be the US needing a lot less retail space across the country than we currently have and previously felt was necessary.

• Allison Nathan: You have substantial exposure to residential real estate, which, of course, was a key source of the Great Recession. What notable residential trends are you seeing today?

Sam Zell: For over 20 years prior to the Great Recession, the US built over a million single-family homes per year, leading to a massive oversupply. But that did not apply to multi-family units, or what I'd call rental property. Post the recession, the number of new single-family homes per year dropped as low as 500,000, and new mobile homes, which at the peak reached 350,000 per year, fell to 25,000. With the collapse in supply of new single-family homes, there was significant growth in the demand for multi-family units. That growth has continued, particularly as the definition of demand has changed. When we went public with Equity Residential in 1993, it was made up  of garden apartments in the suburbs. And the definition of quality was expressway frontage. Today, we own no garden apartments in the suburbs. All of them are high-rise apartments in central business districts. And the measure of quality is walking score (i.e., how far to the subway, to Starbucks, to the gym, etc.). These are pretty dramatic changes, many of which are driven by perhaps the greatest demographic change in the last 100 years: the deferral of marriage. I graduated college in 1963 and was married ten days later. So was everybody else. Today, the average male is getting married with a three in front of his age. And the average female is almost as old. That has enormous implications for demand and for society more generally.

• Allison Nathan: If you take a step back, how do you rate the investment environment today?

Sam Zell: I rate the investment environment as certainly not good… and certainly not bad. The real issue is that the supply of capital is at a level that I've never seen before in my career. And that oversupply of capital is dramatically reducing the rewards that you get for investment. So whereas there are always opportunities, dislocations, and inefficiencies, the number of those opportunities is significantly lower than normal relative to the amounts of capital available today.

• Allison Nathan: What do you make of the apparently large amount of “dry powder” in private equity today?

Sam Zell: To me, dry powder reflects the amount of fear in the market. I'd say there's insufficient fear today, so there's too much capital available—and thus too much dry powder to allocate towards a limited set of opportunities given generally high asset prices. If you change the fear factor, you could go from too much dry powder to no capital available in a relatively short period of time.

• Allison Nathan: What would instill fear in the market?

Sam Zell: How about North Korea? How about Venezuela? How about Russia? How about the South China Sea? Want me to keep going?

• Allison Nathan: But will markets ever respond in a significant way to these geopolitical risks?

Sam Zell: I don't know the answer, but if North Korea fires an inter-continental ballistic missile at Guam, I think everybody's perception of investment will change.

• Allison Nathan: You mentioned that there are always investing opportunities. Where do you see the most compelling ones today?

Sam Zell: The most crowded areas are in technology, applications, “disruptions,” and all of the magic words that are driving people today. But the excitement over them doesn’t make them compelling. In many cases, I don't think you're getting paid for the risk involved—and the risk, by the way, may be unbridled competition. By contrast, I see opportunities in much more mundane areas. For example, we made a big investment this year in a trash-hauling business. We're building waste-to-energy facilities. We've been buying refineries. We're looking at agricultural investments. These are all assets that people value inappropriately, in my view. And, while perhaps less flashy than tech, that's the kind of stuff that I'm always looking for.

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Every Schizophyllum commune you see is likely a new sex. (Credit: wasanajai/Shutterstock)

Gender isn’t really a fungal construct.

Where we have two traditionally recognized genders, male and female, some species of fungi can have thousands of sexes. It sounds confusing, but it’s actually helpful — with so many variations, the fungi can mate with nearly every individual of their species they meet. It must make for a wild singles night.

Sexy Fun Guys

One species of fungi, Schizophyllum commune, really shines when it comes to gender diversity. The white, fan-shaped mushroom has more than 23,000 different sexual identities, a result of widespread differentiation in the genetic locations that govern its sexual behavior. For humans, and all animals, really, this would never fly, because we’ve evolved a very specific method of reproduction that involves specialized sexual organs to do the mating with and sex cells to carry the genetic information.

Fungi, by contrast, keep it casual. To mate, all a fungus has to do is bump up against another member of its species and let their cells fuse together. S. commune uses a special kind of structure called a clamp connection to do this, and it allows them to exchange their cell’s nuclei, along with the genetic information inside. This keeps reproduction simple and means that a potentially huge number of sexes is possible — other fungi species have dozens or more, though S. commune is certainly an outlier.

It’s Not What You Think

The “sexes” don’t really involve physical differences either, as we might think of when the word “sex” comes to mind. The variations are all in the genome, at two separate loci, or locations, each of which has two alleles, or alternate forms. The loci are called A and B and the alleles are termed “alpha” and “beta.” That makes four possible sexes, but there’s another twist. Every A-alpha/beta and B-alpha/beta can have many different variants, called specificities. It amounts to more than 339 specificities for A and 64 for B. Putting those two together yields thousands of possible unique sexes.

The fungus can mate with any specificity as long as it’s different somewhere on both A and B. So, two prospective mates could both have the same A-beta and B-alpha, but have different A-alphas and B-betas and they’d be fine to hook up. If they shared A-alpha and A-beta, though, their pheromones wouldn’t be compatible, meaning that they couldn’t carry out the reproductive process. That leaves a ton of options for mating, though, and essentially means that anyone a fungus meets is fair game for sexy time.

It also really helps spread genetic diversity around, because there are so many options. Think about that next time you’re looking for a date.

 

(h/t Popular Science)

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A tale of three Switches, and a reminder of the importance of good customer service

What a month it has been.

I haven’t updated in a while, and I’m sorry for that. I’ve had quite a bit going on in the run up to the holidays — but I’m getting back up to speed on things.

I wanted to share an experience I had recently (it’s still ongoing actually) that came from buying a Nintendo Switch for myself and my kid in the run up to the Super Mario Odyssey release.

I’m a lifelong Mario fan. I’m a pretty big Nintendo fan anyway, but for me every major Mario release is just a nostalgia bomb of happy memories from my childhood.

By this point, I’ve played Super Mario 3D World with my 4 year old to the point that there’s virtually no collectibles left to find (some, not many). We bought the game pretty early in the Wii U’s life, although he has only really been old enough to become curious about “dad’s video games” in the past six months.

I have fond memories from my younger days of waiting for release day to roll around for major entries, but my son has never had that excitement of unboxing a new system and being blown away by the next new classic to come out of Kyoto. I wanted to share this with him while he’s still at an age where he’s impressed by his father’s nerdy hobbies (and before he realizes how uncool I really am!).

The timing worked out quite well as it happens — my son’s school would be shutting down for half-term break just as the game was releasing and I had already arranged to take a break from work to spend that time with him.

A busted up package and a scratched-up screen

I ordered the Switch on October 16th from Nintendo’s UK online store. I wanted to buy direct primarily to support Nintendo, so I figured it better that more of the margin ends up with them than a reseller.

It didn’t take long to arrive — but when it did, I noticed some damage to the outside of the packaging. Concerned, I opened the box further to realize that the package had been more than a little disturbed — the internal contents had been removed from the bags and stuffed back in place again, and there were scratches on the screen and around the controllers that clearly hadn’t happened in transit. My assumption is that either this was a customer return that was shipped back out as new, or that the courier had intercepted the package (seems unlikely), but I contacted Nintendo to organize a return. These things happen sometimes, and at this point at least, they were gracious in offering to replace the item. I sent it back, but heard nothing more.

I spent much of the next week in an odd cat-and-mouse game with Nintendo’s support line —each day I’d be told that the replacement had already been dispatched (and that I would need to make myself available to sign for it), then be told the following day it wasn’t yet dispatched after the courier failed to show.

Ultimately it seems that they received the Switch back, but for one reason or another (they offered a couple of conflicting ones), hadn’t shipped out a replacement or offered a refund.

In the end I had to reorganize my work hours to make calls over the subsequent days to get the order sorted out. This was pretty disappointing, both because it was now affecting my work, and due to the plans I’d made with my kid around the school break that were now going to have to be scrapped (there’s no fun to be had in explaining to a wide-eyed four year old that the new Mario game has arrived but we don’t have the console to play it on). At this time I still figured this turn of events was not wholly out of the ordinary for customer support.

And then the fun started.

Here’s your Switch, and here’s someone elses, too

We’ve been trying to get ready for Christmas pretty early this year. Having two young kids means that I can’t really take risks with the Santa list, as the must-have toys tend to sell out fast, at least around here. So I’m guilty of having a few unmarked boxes stuffed away waiting to be sorted later (small toys — Hot Wheels, PJ Masks and the like).

Eventually the replacement Switch got delivered (packaging intact this time) and I was able to get it set up.

It’s off-topic for this article, but as an aside — I’m blown away by what they’ve done with this device. It’s almost supernaturally powerful considering it’s size. I thoroughly recommend you get one if you haven’t already — maybe just get it from Amazon, though.

When checking through some boxes ahead of work the next morning I noticed an identically marked package had been delivered. I wasn’t expecting any other orders from Nintendo, so I checked inside and saw that it was another Switch (I didn’t open the packaging all of the way so as not to damage the shipping box — I could see enough of the contents to tell with some measure of confidence what it was).

Some will point out (and some have!) that I could have quite easily saved myself a lot of time, hassle, and lost earnings at this point by just quietly holding on to the extra Switch and saying nothing to Nintendo about it. It certainly would have saved me a lot of stress, but it was morally not something I’d ever consider.

I reached out to Nintendo to let them know what happened as soon as I’d realized. I figured at the least I’ll get a thank you for letting them know, maybe even a poster or something in the mail for my kid’s bedroom if we’re lucky.

The subsequent exchange did not go the way I imagined it would at all.

At first, it was suggested by one representative that I just keep the extra Switch, which enthusiastically I advised I’d be happy to do if they were offering that as an option.

I was then contacted by a second representative and promptly informed that if the item was not immediately returned they would pursue legal action against me.

This was shocking to say the least (given the context of the dialogue until that point). On asking at what time this collection would occur (so I could plan around it) I was told that it’s impossible to say, and I would need to make myself available to hand over the item.

Being available as described would mean spending an additional day away from work to wait for a courier who (based on past experiences) may or may not turn up. If the courier didn’t turn up, would I be accused of theft? Would they really proceed to legal action? I assumed no, but I’m no legal expert, so I decided to just co-operate until this was sorted and not risk further stress over it.

Where things stand now

This was a relatively straight-forward transaction that had quickly snowballed into being a very costly timesink, and just about the worst experience I’ve had purchasing something online.

As I work independently, I’m not paid for time not spent directly working on client projects. Between the time spent chasing Nintendo’s support line, and waiting for their couriers, this has now cost me in lost income more than the original cost of the Switch, and I’m still waiting for Nintendo’s courier to pick up the third Switch now, lest I get taken to court for being mistakenly sent the item in the first place. I expect I’ll incur further costs and lost income until this is sorted out.

It has been an utterly baffling turn of events to say the least. I’ve asked for a comment from Nintendo’s UK support regarding the experience but they’ve not as yet provided one.

They still make some fantastic games, though

I’m still a fan of Nintendo’s products, if not their customer service. Now that I have the Switch, I’m really impressed with it — I just really think Nintendo should look at their standards around their direct sales and their policies when things go wrong. Retailers like Amazon get this so right these days, that it’s hard to imagine the process going this far off the rails.

It shouldn’t need to be said that threatening customers is terrible practice in any context, especially so when it’s unprovoked and un-necessary.

I’ll try to update this article when the matter is finally resolved (hopefully amicably).

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Image copyright Navya Image caption The technology was first tested in Vegas at the start of this year

A self-driving shuttle bus in Las Vegas was involved in a crash on its first day of service.

The vehicle - carrying “several” passengers - collided with a lorry driving at slow speed.

Nobody was injured in the incident which city officials say was the fault of the human driver of the lorry. The man was subsequently given a ticket by police.

The shuttle is the first of its kind to be used on public roads in the US.

The collision comes a day after Waymo - owned by Google's parent company Alphabet - announced it is launching a fully self-driving fleet of taxis in Phoenix, Arizona.

The Las Vegas shuttle, designed to ferry passengers to the famous strip, uses a system developed by Navya, a French company also testing its technology in London.

The shuttle carries up to 15 people and has a maximum speed of 45km/h, but typically travels at around 25km/h.

A spokesman for the City of Las Vegas told the BBC the crash was a “fender bender” - a minor collision - and that the shuttle would likely be back out on the road on Thursday after some routine diagnostics tests.

“A delivery truck was coming out of an alley,” public information officer Jace Radke said.

"The shuttle did what it was supposed to do and stopped. Unfortunately the human element, the driver of the truck, didn’t stop.”

Self-driving technology has been involved in crashes before, but almost all reported incidents have been due to human error.

Earlier this year an autonomous vehicle being tested by ride-sharing company Uber in Arizona rolled over after another driver on the road failed to give way.

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Media captionPowered by electricity the new buses are on trail around the Queen Elizabeth Olympic Park.

An incident involving a Tesla Model S, which has some autonomous functions, killed a man in 2016. An investigation ruled that computer failings were partly to blame. Tesla was instructed to make the limitations of its technology clearer to drivers.

Experts have said that even with these incidents, self-driving technology is already capable of making our roads significantly safer. A study from the RAND Corporation, published this week, argued that self-driving technology should be rolled out despite its imperfections.

“Waiting for highly autonomous vehicles that are many times safer than human drivers misses opportunities to save lives,” the report said.

"It is the very definition of allowing perfect to be the enemy of good.”

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Over the past year we have provided extensive coverage of what will likely be the biggest, most politically charged, and most significant financial crisis facing the aging U.S. population: a multi-trillion pension storm, which was recently dubbed "one of the most heated battles of a lifetime" by John Mauldin. The reason, in a nutshell, why the US public pension problem has stumped so many professionals is simple: for lack of a better word, it is an unsustainable Ponzi scheme, in which satisfying accrued pension and retirement obligations requires not only a constant inflow of new money, but also fixed income returns, typically in the 6%+ range, which are virtually unfeasible in a world where global debt/GDP is in the 300%+ range.  Which is why we, and many others, have long speculated that it is only a matter of time before the matter receives political attention, and ultimately, a taxpayer bailout.

That moment may be imminent. According to Pensions and Investments magazine, Democratic Senator Sherrod Brown from Ohio plans to introduce legislation that would allow struggling multiemployer pension funds to borrow from the U.S. Treasury to remain solvent.

The bill, which is co-sponsored by another Democrat, Rep. Tim Ryan, also of Ohio, could be introduced as soon as this week or shortly after. It would create a new office within the Treasury Department called the Pension Rehabilitation Administration. The funds would come from the sale of Treasury-issued bonds to financial institutions. The pension funds could borrow for 30 years at low interest rates. The one, and painfully amusing, restriction for borrowers is "they could not make risky investments", which of course will be promptly circumvented in hopes of generating outsized returns and repaying the Treasury's "bailout" loan, ultimately leading to massive losses on what is effectively a taxpayer-funded pension bailout.

The bill would also fund a program at the Pension Benefit Guaranty Corp. to finance any remaining needs of pension plans borrowing from the new program.

 

"Any money needed for the PBGC would be a tiny fraction of what it would otherwise be on the hook for if Congress fails to act," said an analysis by Mr. Brown's office.

Sen. Brown's angle was naturally populist, and aimed squarely at those whose pensions are likely to recoup pennies on the dollar under the current investing climate: union workers. Brown told a group of retired Teamsters in Ohio on Monday that the bill will be out shortly.

"It's bad enough that Wall Street squandered workers' money — and it's worse that the government that's supposed to look out for these folks is trying to break the promise made to these workers. Not on our watch. We won't allow that to happen," he said.

No, instead what will happen "under his watch" is that funds collected from taxpaying Americans will be spent to satisfy the ridiculous retirement promises and obligations made over the past few decades, and while the immediate recipients of the funds, i.e. those looking at near-term retirement will be made whole, everyone else, i.e., taxpayers will lose.

And now that the machinery for pension bailouts is finally in motion, we look forward to the next, and possibly final, tear in the American social fabric, that between workers who can't wait to retire to the generous pension promises (see "Why Illinois Is In Trouble - 63,000 Public Employees With $100,000+ Salaries Cost Taxpayers $10 Billion" and "Mapping The $100,000+ California Public Employee Pensions At CalPERS Costing Taxpayers $3.0B"), and all those other unluckly taxpayers, who will have to fund these promises.