June 4, 2019

Who Gets the Data Collected by Your Smart Car?

Hepburn Capital maintains an extensive network of procedures to protect your data (data encryption/firewalls, etc.) However, when I see articles like the one below, it makes me feel like our little slice of your data may be secure but there is so much more that we all are losing control of every day. I worry that the privacy genie is out of the bottle.

From The Hustle Daily Email, May 22, 2019

Data collected by connected cars ends up with carmakers, not consumers

Yesterday, Chevy introduced a new “Buckle to Drive” feature that will prevent cars from starting until teen drivers buckle their seatbelts.

As cars become more advanced, they are collecting more data about passengers. In Chevy’s case, this data goes to good use: Keeping drivers safe.

But when your car collects other data about you — like how much weight you’ve recently gained — it’s less clear how it’s used.

Giant computers with wheels

Some modern cars collect as much as 25GB per hour, reports Bill Hanvey — president and CEO of the not-for-profit Auto Care Association — in a recent opinion piece for The New York Times.

But not all of this info is about vehicle performance. Cars track how fast we drive — which is already enough to alarm many people — but they also track where we live, who we text, and what restaurants we visit.

The kicker? Most of this data isn’t delivered to the car’s owner or passengers… it’s delivered to carmakers, and any 3rd parties willing to pay for it.

Who does your car really work for, anyway?

Most people realize that services like Facebook and Google are double dipping into their data. But many people wouldn’t expect that kind of behavior from their cars.

Yet the fine print of most purchase and lease agreements allows today’s cars to devour data and pass it back to carmakers without making it available to consumers.

Car-collected data will be a gold mine

The data generated by cars will be worth as much as $750B by 2030, according to the consulting firm McKinsey.

Everyone wants car data: Carmakers could use it to direct cars to certain maintenance shops or build out autonomous fleets, insurers could use it to fine-tune policy premiums, and advertisers could use it to serve up location-specific ads.

But as car data drives this new digital economy, car owners will only continue to want their turn at the wheel.

What the Markets Are Doing

Despite enjoying a strong economy, including the highest employment figures in 50 years and about ¾ of companies reporting higher than expected earnings, as of this writing on June 1, 2019, the S&P 500** has lost 6.58% since early May (Data from Fasttrack).

Trade tensions are making investors jittery enough to hold back on investing. Since the markets are just a balance of buyers and sellers, having fewer buyers is enough to affect the market, and that is what I think we are seeing right now.

I am seeing no markers normally associated with recession like rising interest rates or spiking oil prices, so I still think we will see new highs in stock prices before the year is out, not a recession as some folks are talking about.

Tariffs, just another tax really, can be easily absorbed in a strong economy like we have. When the tax gets recycled back to support industries harder hit by tariffs, such as farming, it becomes a wash for the economy as a whole.

Analysts have suggested that tariffs are expected to shave only a small fraction of a percent off of the US’ economic growth, so they will not be the issue that will push us into recession. However, there are so many variables unfolding due to the trade issues being negotiated that no one really knows what will happen, so stay tuned. Things can change.

As newsletter writer John Mauldin said in his June 1st email, this is a time when “You’d better have your hedges and strategy together.” Since hedges and strategies ‘R us at Hepburn Capital, I felt pretty good when I read that.

Interest rates have dropped this month as investors moved from stocks to bonds, driving bond prices up and interest rates down. High yield bonds have underperformed high quality bonds enough to be noticeable, but not to the degree that this constitutes a sell signal for the stock market.

Gold prices are right where the were 5 years ago, so the choppy, sideways gold market is continuing.

College Classes Coming

Tax Tips for Arizona Newcomers

Tell your new friends that they can discover valuable tax savings from details about Arizona taxation that may differ from states in which they have previously lived. Tax deductions, tax credits, investment and estate planning considerations unique to Arizona will all be discussed. Wednesday, June 5th from 2:00-4:00 pm at Yavapai College. Register online with the link below or call the college at 928-717-7755 to register for class #SU19-121. Tuition is $45.

Fun-damentals of Investing for Retirees

Investing does not need to be dry. I try to make investing come alive with insights, humor and insider tips that allow you to discover how the principals being taught relate to you personally. This course can help you become more confident about your financial decisions. In an easy format, we discuss investments preferred by investors approaching or already in retirement. Learn the ins and outs of stocks, bonds, mutual funds, annuities and more. Topics include recognizing risk, controlling taxes on IRAs, planning to get the results you want, avoiding common investment mistakes and proven risk-reducing strategies that anyone can use. On 3 Wednesdays, June 12th-26th, from 2:00-4:00 p.m. Register online with the link below or call 928-717-7755 for class #SU19-117. Tuition is $45.

What’s Happening in Your Portfolio — Weeding the Garden

With the stock market softening over the past month, I have been systematically selling off our weaker stocks in a process I liken to weeding the garden as it grows. The cash from those sales insulates that part of your portfolio from decline, and when the amount of cash gets larger, I begin to “hedge” the portfolio by buying funds that go up as a particular index goes down. This allows us to continue to hold our stronger stocks, some of which have significant capital gains, while the hedge offsets the risk of holding stocks in a declining market by gaining as other stocks drop. I began to hedge our investments on May 13th.

As a result of these moves, all of HCM’s growth strategies — Adaptive Balance* (50/50 Growth vs Income), Adaptive Growth* (80/20 favoring Growth) and Shock Absorber Growth* (100% growth) — have had much smaller losses than the indexes over this past month. Since my first adjustments to your portfolios on May 13th, our performance has stabilized while the S&P 500** continues to cause losses for buy-and-hold investors.

Currently our stock market risk is about 42% of the S&P 500** Index, meaning if the market goes up $1, we will gain about 42 cents. If it drops $1, we will drop only 42 cents. And if my security selection remains good, we should continue to outperform those estimates as we have been doing during May.

With the hedges we have in place we actually made a small profit the last few days of May, a time in which the S&P 500** index dropped over 1%. So, if the stock market continues to drop, we should do very well. If it turns up, I’ll merely weed out the hedges and plant a few new stocks and let our garden continue to grow.

If you have friends who complain to you about stock market losses, have them contact me for a free portfolio review so I can show them how proactive management might help them, too. The easiest way to introduce someone to our work is to ask us to send them a complimentary copy of my new book, Why Bad Things Happen to Good Investments, or forward our newsletter to them. Here is a link that will allow you to forward the newsletter with just a click. {FORWARD}

Referring friends is the best thing you can do for them, and you can earn big savings with a Friends and Family Discount, described in more detail in another article in this newsletter.

Municipal income* accounts had another strong month in May.

Shock Absorber Growth* is our 100% growth portfolio.
Flexible Income* is our 100% income portfolio.
Adaptive Growth Portfolios* are currently allocated with 80% Shock Absorber Growth* and 20% Flexible Income*.
Adaptive Balance* is 50/50 between growth and income.

A Peek into the Future — The Race to Commercialize Space

This article is a little longer than ones normally presented in this space, but fascinating enough to include today.

By Peter Diamandis – May 24, 2019

The Next Space Race: Bezos vs. Musk

We are witnessing the next great space race… but this time, it is not the U.S. vs. USSR. This race is between Elon Musk and Jeff Bezos.

The aerospace industry has always been driven by competition.

In 1927, Charles Lindberg competed against eight other teams to achieve the first non-stop transatlantic flight to win the $25,000 Orteig Prize.

In the 1960s, it was America versus the Soviet Union that resulted in Sputnik, Yuri Gagarin and Apollo 11.

Fast forward another 40 years, and in 2004 the $10 million Ansari XPRIZE sparked the commercial space industry.

Now in 2019, on the brink of the 50th anniversary of Apollo 11, the competition that will rocket humanity into the cosmos is between two passionate and brilliant multi-billionaires: Jeff Bezos and Elon Musk.

This blog outlines each of their capabilities, as well as their near-term and long-term vision for the final frontier.

Let’s jump in…

Jeff Bezos & Blue Origin

“Do we want stasis and rationing, or do we want dynamism and growth?” — Jeff Bezos.

Jeff Bezos and I first met through a student organization I founded while I was at MIT. The group (which still exists today) is called Students for the Exploration and Development of Space (SEDS). At the time, I was chair of the organization, and Bezos was president of the Princeton chapter.

While Jeff was a passionate space enthusiast, rather than pursuing aerospace out of college, he first followed his intellect to Wall Street, after which he proceeded to found Amazon, which would ultimately reward him with a personal net worth in excess of $150 billion.

Today, Jeff has remained true to his passion for space by committing $1B per year to underwrite his space company, which he named Blue Origin (or “Blue”) as a tribute to Earth.

History of Blue Origin

Bezos founded Blue in 2000 with the vision to create “a future where millions of people are living and working in space.”

Of course, the first step for any serious space company is to build the rockets capable of shooting people and payloads off the Earth into space. In this category, Jeff has a planned sequence of bigger and bigger rockets.

The first of these vehicles is named for Mercury astronaut Alan Shepard. New Shepard is Blue’s suborbital rocket intended for suborbital space tourism. Following 10 successful consecutive launches and landings, New Shepard is expected to fly its first human astronauts to suborbital space by the end of 2019.

Next up is Blue’s New Glenn rocket (named after pioneering astronaut John Glenn), which will be able to lift substantial payloads and people to the Moon. Like SpaceX’s Falcon 9 (see below), New Glenn is designed for reusability by vertical propulsive landing of its booster stage. Blue hopes to first fly the New Glenn rocket in 2021.

Near Term Target — Blue Moon

In May 2019, in a presentation at the Air and Space Museum, Bezos unveiled Blue’s near-term mission to colonize the Moon for exploration, science, and resource utilization.

(NOTE: To my readers, I always capitalize the word “Moon” when it refers to Earth’s Moon, versus a generic moon… there are over 100 moons in our solar system. I think our Moon deserves at least the respect of capitalization!)

Bezos views the Moon as an incredible gift to our spacefaring species, one which will help humankind and space entrepreneurs break open the space economy.

With an abundance of frozen water, the Moon can provide fuel (oxygen and hydrogen) and critical elements for life (breathable oxygen and drinkable water).

As Bezos laid out in his May 9^th 2019 address, utilizing resources from the Moon instead of bringing equivalents to space from the Earth’s surface provides an extraordinary advantage: it takes 24 times less energy to lift one pound off the moon compared to lifting one pound off Earth.

As the first step in this vision, Bezos announced the Blue Moon Lunar Lander, which would travel to the Moon aboard the New Glenn rocket, and soft land 3.6 metric tons of rovers, cargo and humans on the lunar surface.

Importantly, this announcement and the fact that Blue has been working on Blue Moon for the past 3 years give added confidence to U.S. Vice President Mike Pence’s recent statement that: “It’s the stated policy of this administration and the United States of America to return American Astronauts to the Moon within the next 5 years (2024).”

“It’s time to go back to the moon, this time to stay.” — Jeff Bezos.

Disrupting Planetary Chauvinism with O’Neill Colonies

In his May 9th Blue Moon presentation, Bezos added a perspective-shifting announcement driven by the teachings of the late professor Gerard O’Neill, a professor of physics at Princeton, the founder of the Space Studies Institute, and a man I consider a mentor. That shift addressed a key question that Professor O’Neill asked his students during a summer studies project, namely: “Is a planetary surface the best place for humans to live while they expand into the solar system?”

O’Neill eventually determined that the answer to this critical question is “No.”

So instead of humankind living on other planets, O’Neill proposed that humanity build massive rotating cylinders, now known as O’Neill Colonies, manufactured from resources already outside the deep gravity well of a planet. Specifically, materials from the surface of the Moon or from asteroids.

Bezos revitalized and resurfaced O’Neill’s work by proclaiming that the vision for Blue Origin after reaching the Moon was to support the development of O’Neill Colonies, where humanity could live free of the deep gravity forces of planets. Each rotating colony would be able to support an independent population of 1 million individuals.

Not one to be overly optimistic, Bezos realizes that building these colonies will take generations and require overcoming an unimaginable number of engineering challenges along the way. But through Blue Origin, Bezos is actualizing some of the most fundamental prerequisite steps to achieving his vision of a universe of dynamism and growth.

Now let’s take a look at the other major force targeted at making humanity a multiplanetary species. A man whose incredible engineering prowess and vision has redefined what is possible in space.

Elon Musk & SpaceX

Born in Pretoria, South Africa, Musk sold his first computer code at age twelve. After earning a degree from Wharton and dropping out of Stanford’s Ph.D. program, he repeated his software success with a $307M sale of Zip2. Musk followed Zip2 by building and selling PayPal (formerly X.com) to eBay for $1.5 billion.

With $180 million in his pocket, Musk set out to pursue what he considered the two most important missions for humanity: (1) Taking humans off fossil fuels via a thriving solar economy; and (2) Making humanity a multiplanetary species.

I first met Elon in late 2001 as he was selling PayPal to eBay and beginning to formulate his plans to open the space frontier.

SpaceX: Making Humankind a Multiplanetary Species

SpaceX was founded in May 2002 as Elon’s instrument to develop the rockets needed to get humanity off the Earth to the Martian surface. SpaceX is a company born out of Musk’s courageous persistence and commitment.

In 2008, after three failures of his proof-of-concept ‘Falcon 1’ launch vehicle, Musk had run out of money. Thankfully, after a life-saving infusion of capital from his friend and PayPal cofounder, Peter Thiel, SpaceX succeeded on its fourth attempt. In December of 2008, SpaceX was awarded a billion-dollar NASA contract to develop their next-generation vehicle, called Falcon 9.

Falcon 9 has transformed the space industry, reinventing what people consider possible and driving down launch costs 10-fold, making reusable rockets a reality.

While the Space Shuttle could deliver payloads to the International Space Station for over $54,500 per kilogram, the Falcon 9 does the job for less than 5% of that cost at $2,720 per kilogram.

In seemingly automagical fashion, in 2015, SpaceX landed their first Falcon 9. Now, landings are routine for Falcon 9, with 33 successful landings out of 39 landing attempts.

Next on Falcon’s development path was the demonstration of Falcon Heavy, today the most powerful operational rocket in the world. Falcon Heavy, which is composed of three modified Falcon 9 rockets strapped together, made its debut in early 2018 by launching Musk’s cherry-red Tesla Roadster past Mars and towards the asteroid belt. In April of this year (2019), Falcon Heavy flew for the second time, with the successful and spectacular landing of all three Falcon 9 boosters.

Beyond delivering large payloads to Earth’s orbit, Falcon Heavy is capable of sending significant payloads to the Moon and even to Mars.

But the true workhorse for SpaceX is a vehicle once called BFR (standing for Big F***ing Rocket), today named Starship. Starship is central to Musk’s plan to put humans on the Moon, Mars, and beyond.

Musk has hinted that development costs for Starship will total $5B. If this number is accurate, developing this interplanetary spacecraft will be an order of magnitude less expensive than the $50B (in 2018 dollars) required to develop the Saturn V used in the Apollo program.

The rocket is designed to be able to explore the full extent of the solar system, using Mars and its abundance of resources as a fueling depot.

Using these vehicles, SpaceX is actualizing Musk’s vision to open up the solar system for human colonization.

Long-term target: Making Mankind Multiplanetary

“I think fundamentally the future is vastly more exciting and interesting if we’re a spacefaring civilization and a multiplanet species than if we’re not. You want to be inspired by things. You want to wake up in the morning and think the future is going to be great. And that’s what being a spacefaring civilization is all about.” — Elon Musk

Musk views a Mars colony as a contingency plan for humanity and a beacon of inspiration for humankind. Each of SpaceX’s launch vehicles are tools in service of the movement towards building colonies and cities on the surface of Mars. Musk’s goal is to have humans on Mars before 2030 and a full city on Mars by 2050.

To achieve this goal, Musk and SpaceX are planning 10 launches between 2027 and 2050, one launch every 22-24 months, when Earth and Mars are at their nearest distance.

Outlined in Musk’s 2017 International Astronautical Congress presentation, these launches could begin as soon as 2024.

At the time, Musk addressed this bold timeline: “I feel fairly confident that we can complete the ship and prepare the ship for launch in about five years,” he said. “Five years feels like a long time to me.”

Moving beyond Mars, Musk wants to further explore the solar system, using Mars as a fueling depot on the way to other planets, moons, and asteroids.

Near-Term: Commercializing the Moon

Since Musk’s 2017 presentation, given the support and direction of NASA and the U.S. Vice President, SpaceX has been refocusing their Starship and Falcon Heavy development efforts towards bringing humankind back to the Moon, rather than going directly to Mars.

In September 2018, Musk announced plans to fly SpaceX’s first private astronauts and Starship’s first customer, Japanese fashion innovator and globally recognized art curator Yusaku Maezawa, around the moon by 2023. The contract with Maezawa is helping SpaceX fund Starship’s development.

Dubbed #dearmoon, Maezawa’s goal is to inspire the world through art, by selecting 8 artists to join him on his maiden Starship voyage around the Moon.

If you had your pick, which artists would you send with Maezawa?

Building on Musk’s Moon momentum, SpaceX won one of 11 NASA contracts to start developing a Falcon Heavy-compatible Lunar Lander.

While SpaceX hasn’t released details of their Lunar lander concept, it is possible that SpaceX will use their rocket-landing skills to land Starship directly on the Moon.

Conclusion

Both Bezos and Musk are driven by their passion and belief that Humanity’s ultimate future requires our expansion into space. Both are developing privately funded, reusuable, human-carrying vehicles, and both, in the near-term, are heading towards the Moon.

Beyond those similarities, Musk is heading towards the surface of Mars, and Bezos is heading towards the construction of large-scale space colonies.

One thing is for sure: regardless of who succeeds, everything humanity has ever held of value on Earth… metals, minerals, energy, real estate… are in near infinite quantities in space, and the greatest wealth ever anticipated will result as humanity reaches towards the stars.

Thanks to pioneers like Elon Musk and Jeff Bezos, we are on the verge of accessing this infinite cache of materials and energy for the continued expansion of humanity, and our progress towards increasing abundance. As a result, we are about to see the greatest economic boom in human history, leading to a period of prosperity beyond our comprehension.

I, for one, wish to thank both Elon and Jeff for their passion and persistence. I am clear that their hurdles ahead are the most difficult of any humanity has ever undertaken.

The work that Musk and Bezos are doing today, IMHO, is perhaps the most important for the continuation of our species.

Ad Astra Per Ardua (to the stars with hard work).

These New Board Games Run the Table

It was an amazing event! Three hundred tabletop enthusiasts gathered to review the year’s best new-to-market board games. And from the field of 71 submissions competing at Mind Games 2019, just five board games rose to the top to claim a coveted Mensa Select® seal. If you enjoy board games, check these out:

https://www.us.mensa.org/featured-content/these-new-board-games-run-the-table/

Saving with Reduced Fees

Last month a client referred his friend to me and when I applied our Family and Friends Discount to their investment management fees, they will each be saving several hundred dollars each quarter through reduced fees.

We give a volume discount based on the total amount of money we work with for a family or other grouping of clients, including friends. The higher the total amount of assets being managed for the group, the lower the fee percentage becomes for everyone in that group.

Would you like to save serious money, too? Simply refer family and friends to Hepburn Capital.

Besides being one of the nicest things you can do for us (and them), mentioning Hepburn Capital to your friends can save you real money. The easiest way to introduce someone to our work is to ask us to send them a complimentary copy of my new book, Why Bad Things Happen to Good Investments, or forward our newsletter to them. Here is a link that will allow you to forward the newsletter with just a click. {FORWARD}

Mental Floss

One day a little girl was sitting and watching her mother do the dishes at the kitchen sink. She suddenly noticed that her mother had several strands of white hair sticking out in contrast on her brunette head.

She looked at her mother and inquisitively asked, “Why are some of your hairs white, Mommy?”

Her mother replied, “Well, every time that you do something wrong and make me cry or unhappy, one of my hairs turns white.”

The little girl thought about this revelation for a while and then said, “Mommy, how come ALL of grandma’s hairs are white?”

Our Spotlight Strategy – Shock Absorber Growth

With our Shock Absorber Growth Strategy we strive to provide an acceptable rate of capital appreciation while experiencing one half of the risk of the S&P 500 Stock Index*, using primarily equity investments.

Your money will be invested primarily in stocks and commodities mutual funds and ETFs, both foreign and domestic, inverse and leveraged, and a money market fund. The proprietary HCM Safety Net indicator is designed to warn of potentially sudden declines in which case stock market exposure may be quickly reduced.

Click here to read more about Shock Absorber Growth.

A Slice of Life — You Get What You Think

I like being an optimist because I am a believer that you get what you think.

Gina and I had a good laugh about this on our recent book promo trip to California. We were listening to a wonderful audio book (Memoirs of a Geisha, from the public library. It is terrific.) and we both had been grousing about not having enough time on the trip to finish it. We didn’t know when we could both find time to listen to the remaining CDs before it had to be returned to the library. Then, just as we were getting home, we realized we left a bag in the hotel room and had to turn right around and drive back to San Diego to pick it up. Our extra 900 miles in 24 hours provided plenty of time to finish our audio book, so we got what we asked for.

The storage shed at the office was burgled a couple of months back. I had been grumbling about it being too full with unused office furniture and a washer dryer set among other things, wondering if I should get a bigger shed. Well, the burglars took care of my problem by taking the washer and dryer, leaving me plenty of space. So, again, I got what I wanted.

I may have to be more careful about what I wish for in the future. Life is funny that way. It seems to deliver what I think about, whether I want it or not.

As Henry Ford said about 100 years ago, “If you think you can do a thing or think you can’t do a thing, you’re right.”

* The model accounts mentioned in this article are hypothetical examples of how the strategy may work as designed. Performance and activity in client accounts may be different from that in the model in amount of each investment, specific timing of trades, and actual security used, which may vary from account to account. Not all trades are profitable. It should not be assumed that current or future holdings will be profitable. A list of all trades in these accounts for the past 12 months will be provided upon written request.

** Indexes are unmanaged lists of stocks considered representative of a broad stock market segment. Investors cannot invest directly in an Index.

This newsletter may contain forward-looking statements, including, but not limited to, statements as to future events that involve various risks and uncertainties. Forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause actual events or results to differ materially from those that were forecasted. Information in this newsletter may be derived from sources deemed to be reliable, however we cannot guarantee its accuracy. Please discuss any legal or tax matters with your advisors in those areas. Neither the information presented nor any opinions expressed herein constitute a solicitation for the purchase or sale of any security.

In all investing, past performance cannot assure future results, and as such, our efforts are not guaranteed. Losses can occur. All strategies offered by Hepburn Capital Management, LLC, adapt to changes in the markets by changing the investments they hold, therefore, comparisons to broad stock market indexes such as the unmanaged indexes mentioned may not be appropriate. Sometimes client accounts are invested in stocks or markets not included in these indexes. Past performance does not guarantee future results. Investment return and principal value will vary so that when redeemed, an investor’s account values may be worth more or less than when purchased. Mutual fund shares and other investments used in our managed accounts are not insured by the FDIC or any other agency, are not obligations of or guaranteed by any financial institution and involve investment risk, including possible loss of principal. Advisory services offered through Hepburn Capital Management, LLC, an Arizona Registered Investment Advisor. Adviser will not transact business unless properly registered and licensed in the potential client’s state of residence.