Biz Builder Mike

You can't sail Today's boat on Yesterdays wind - Michael Noel

Crooked police chief sentenced to 8 years for dark web shenanigans

by

Former police chief Yuri Zaitsev was recently sentenced to eight years in prison for acting as a bounty hunter for a dark web marketplace. In December 2018, Zaitsev was working as the leader of his unit within the Main Directorate for Drugs Control of the Republic of Khakassia — a law enforcement division which is analogous to the U.S. Drug Enforcement Administration, or DEA. At that time, he initiated contact with the operator of a dark net marketplace, offering to help hunt down a man who had appropriated drugs that were entrusted to him for placement in dead drops. 

In Russia, unlike the U.S., most dark web entrepreneurs do not trust the post office for shipments. The prevailing mode of dissemination of these illegal products is instead completed through dead drops — a method of delivery by which two parties can pass items or information back and forth without ever needing to meet in person.

According to the Main Investigation Department, the cop had received the equivalent of 52,000 roubles in Bitcoin (BTC) for his services. At the time, this was equivalent to approximately, $750 or 0.2 BTC. He was found guilty on charges of bribery and the disclosure of classified information.

According to Zaitsev’s wife, his prosecution was punishment for investigating senior officials within his agency. He was subsequently fired and prosecuted. From October-November 2019, Zaitsev uploaded a number of videos to YouTube in which he allegedly exposed corruption among senior officials in his Directorate. This appears to be what led to criminal charges against him for disclosure of classified information. In November 2019, Zaitsev uploaded an appeal to president Putin on YouTube in which he pleaded his case, but to no avail.

During the unrelated Silk Road investigation, numerous law enforcement officials fell afoul to what they perceived as easy, untraceable Bitcoin. DEA Special Agent Carl Force managed to elicit 1,200 Bitcoin from Ross Ulbricht. He obtained the funds using an elaborate scheme in which he had created multiple fake personas ranging from a major South American drug trafficker to a corrupt law enforcement official. One of the tasks assigned to him by Ulbricht was hunting down and murdering a former associate who allegedly had stolen Bitcoin from him. The actual thief was another law enforcement official involved in the investigation. The murder was staged by Force, but never materialized in actuality.

The events that took place in Khakasia a few years after the Silk Road saga seem in some ways like a cheap local knockoff of an expensive HBO show. As Marx once said, history repeats itself “the first time as tragedy, the second as farce”.

Crooked police chief sentenced to 8 years for dark web shenanigans

Source

Profiting Off Misunderstanding

by

Lately I’ve been analyzing  my investment history — both successes and failures.

I noticed that all my winning investments have one thing in common. In almost all cases, I understood something that the market didn’t.

That may sound a bit strange (or arrogant). So let me explain this idea with an example.

Back in 2004, I started using Google’s advertising platform for my job. It was the same year the company went public. Within a year of using the product on a daily basis, I was convinced that this was the future of advertising. And I knew that Google was incredibly far ahead of its primary competitors — Microsoft and Yahoo — because I used their products too.

I first bought shares of Google in 2006. And I continued to add to my position until 2012. During that time, I followed the company very closely. And I was really surprised by how Wall Street analysts and other investors misunderstood the company. 

For example, analysts complained that Google’s $1.65 billion acquisition of YouTube in 2006 was a poor use of shareholder funds. They thought YouTube — and other acquisitions — would distract from Google’s very profitable core business of search advertising.

What many analysts failed to understand was video was going to become a huge part of search. But Google’s founders knew this. They went ahead with the acquisition despite complaints from some investors. Today, YouTube has been called the best tech acquisition of all time. In 2019, YouTube advertising produced revenue of more than $15 billion — and it’s growing at more than 30% per year.

A similar thing happened with Google’s core advertising business. From 2006 to 2012, analysts paid a lot of attention to Google’s cost-per-advertising-click. Whenever this metric went down, analysts worried about the health of Google’s ad business.

The analysts were looking at the wrong metric though. While the cost-per-click was declining, the ad click-through-rate (the percent of ad views that generate a paid click) was soaring. So yes, Google was seeing less revenue per click, but the number of clicks they were seeing was going through the roof. Google was smartly optimizing their platform for the most possible revenue by showing ads that would pay less per click, but get clicked much more often. 

The analysts didn’t understand the nuances at play. If you want to know more about the complexity of cost-per-click and analysts’ misconceptions, check out CNBC’s excellent piece on the topic.

What’s Misunderstood Today?

I believe the biggest example of this “misunderstood” phenomena today is U.S. stocks.

No matter how you look at it, U.S. stocks are expensive on a historical basis. Here’s a chart showing Warren Buffet’s favorite indicator of whether stocks are overvalued. It shows the ratio of the total U.S. stock market to our GDP. As you can see, we are currently near levels last seen in 2000.

Wilshire 5000 to GDP

It’s one of many worrying signs. When I look at the American economy, I see a troubled picture.  Real economic growth remains slow. The S&P 500 today pays a lowly 1.93% yield. And yet somehow stocks are leaping higher.

Both the government and corporations have record levels of debt. And since the COVID-19 crisis began, it’s been piling up even faster. As I say frequently, eventually all this debt will have to be dealt with. And the options we have to deal with debt aren’t pretty — higher taxes, slashed spending, sustained inflation or some combination of all three. No matter how we do it, it’s going to have a majorly negative impact on U.S. companies. They’ll either see higher taxes, lower spending by customers or be hurt by rising prices. The bill will come due.

This fact is being completely overlooked by investors. It’s as if all this debt doesn’t matter. But I believe that in the long run, it will matter. Very much.

For these reasons, I continue to prefer emerging market (EM) stocks over American ones. EMs are basically the only place you can consistently buy solid companies at reasonable prices. These factors alone help to limit any potential downside.

I like the fact that I can get up to 7% yields on stocks in emerging markets like Russia. At those dividend levels, I’m fine parking money there for 5 years and just letting the dividends compound.

Another reason I think investors should pay attention to unpopular markets like Russia is that their levels of debt are incredibly low. Surprisingly, the Russian government today runs a surplus and has almost no debt (Russia’s debt to GDP ratio is around 10%, versus more than 100% in the U.S.). Corporations in these countries are sometimes poorly run, but they’re cheap. And they are unlikely to have nasty surprises related to government debt in their future. You can’t say the same for most developed markets like the U.S.

EM stocks, including Russia, have basically done nothing over the past decade. That makes people understandably hesitant to invest in them. But that stability is a huge part of the reason I like them. Eventually, EM will come back in favor. And when that happens, the multiples people are willing to pay will rise. Until then, I’m happy compounding my money at 5-7% a year from dividends.

Source