Not Enough Gold!

Mon, 2016/09/26 - 12:38pm | Your editor

My NYC apartment building co-op board cleverly called a meeting about controversial changes to the terms of our leases for tonight knowing that everyone will be rushing home to watch the Clinton-Trump debate. So the chances of the apartment owners challenging the board's self-serving increase in charges it can impose is less.

The result is that I am one of the few people I know who can predict in advance something important that will result from the expected confrontation.

I can recall the first TV debate, which took place well before I was qualified to vote, between John F. Kennedy and Richard Nixon. It set the superficiality standard which has applied ever since, as Nixon was penalized by the public for a 5 o'clock shadow and sweating under the TV lights, while Kennedy looked cool. Read more »

Selichot and Stocks

Sun, 2016/09/25 - 10:26am | Your editor

Today's tables have been posted on where you can view the ones your status permits. Everyone can see the closed-positions table but only current subscribers get to see our advice on stocks, bonds, closed-end and exchange-traded funds.Use the printer-friendly button to better view the spreadsheets. Read more »

Losses and Bankruptcy

Fri, 2016/09/23 - 12:50pm | Your editor

Give to Harvard, give to Harvard, with your blood and your sweat.

She needs more, billions more.

Give to Harvard, give to Harvard, with your blood and your sweat.

She needs all she can get.

In its worst performance since the global financial crisis of 2009, The Harvard Management Co., which runs the now $35.7 bn endowment, managed to lose 2% on its investments in the year to June 30th. The internally-promoted manager resigned in May “for health reasons” after a high turnover on the equities and natural resources investing side. Stock and resources investments had a negative 10.2% return in the last year, according to the New York Times. Chances are the endowment will move to placing part of its wealth with outside managers or “use a hybrid approach”, the newspaper wrote.

I'm not volunteering to run a global investing portfolio for my alma mater, mainly because I don't like Harvard's plans to colonize Allston, across the River Charles (well beyond the area around the Biz School and the football stadium which are already there.) My Boston aunt and uncle owned a shop and an apartment in Allston during my college years, when it was an affordable middle-class neighborhood. Harvard doesn't need to expand its campus as distance learning technology can replace classrooms and dorms.

Said interim CEO Robert Ettl, “with a backdrop of slowing growth and rich valuation, endowment returns could be muted for some time to come.” So they will seek more donations from alumni. I donate to my high school, but not the Harvard, among other things because I attended its female arm, Radcliffe, and suffered sexist discrimination during my college years, for example not being allowed to use Lamont library for course-required reading. This discrimination was only eliminated after Radcliffe merged itself into Harvard.


The EU countries are aiming to move closer to monetary union with an initiative to harmonize different national rules on bankruptcy and insolvency. Britain had opposed the move as part of its anti-centralization position. In theory the new regs will encourage smaller businesses (which are likelier to go bust) and second-chances for serial startup entrepreneurs. Moreover, the idea is to boost the protection of equity investors who now are unlikely to get much when a business fails, since most of the assets are used to bail out lenders and bond-holders. More on bankruptcy below.

More for paid subscribers from Canada, India, Britain, Pakistan, South Africa, South Korea, Cameroon, Uganda, Zambia (all three new investment sites), starting today with focus on military deals and reports on losses and bankruptcies.

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SWIFT Not Swift

Thu, 2016/09/22 - 12:10pm | Your editor

SWIFT, the member-owned global cooperative for financial messages and transactions,which has been run from Brussels for over 40 years, was penetrated by a February heist of over $1 million from New York Fed reserves held for the central bank of Bangladesh, which the country can ill-afford. This was part of a $951 mn attempt, most of which was spotted in time to block the transfer.

The stolen money then went via Filipino casinos (which offer anonymity to gamblers) into accounts unknown. Earlier thieves had attempted to hack SWIFT accounts of banks in Vietnam and Ecuador

This shows how vulnerable the decades-old SWIFT transfer system is to hacking via defects in the security systems of member banks and central banks.

Now SWIFT is investigating using standardized distributed ledger (block-chain) technology and smart contracts to enhance security for the financial transfer system. The standards would cover formatting shared data, business processes, and which different players are responsible for what security measures to enable SWIFT to use new automation systems.

However, the first reports on the study appear to show that a new initiative will face many obstacles. "The promise of DLT is the synchronisation of financial data between multiple organizations, while smart contracts can further provide self-executing efficiencies on the ledger," admitted Stephen Lindsay, SWIFT Head of Standards. "This paper addresses questions about how DLT/SC automation can run smoothly in a multi-party network environment and highlights the importance of avoiding 'reinventing the wheel' when it comes to business definitions that facilitate interoperability”. He pointed out the risks of “fragmentation of global standard” if the SWIFT members fail to “coordinate efforts over common messaging and data standards.”

Mr Lindsay concluded: “the paper recognizes that full-scale standardization of DLT/SC use is premature.” while adding that “SWIFT stands ready to work with the community to conduct further studies.” Besides leakage, SWIFT also suffers from double-billing of fees on bank transfers it makes, in my personal experience.


More from Israel, Britain, Australia, Argentina, Canada, Chile, China, Colombia, Brazil, Denmark, Finland, Hong Kong, Switzerland, Germany and a few other places today. We start with good news and funds.

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Not So Random Walk

Wed, 2016/09/21 - 1:20pm | Your editor

U.S. large-capitalization stock funds are a commonly cited example of how difficult it is for actively-managed funds to outperform their indexes. Fidelity, a fund manager, examined Burton Malkiel's “Random Walk” theory, that markets are efficient so current stock prices reflect all that is known. Malkiel famously wrote that “a blindfolded monkey throwing darts at a newspaper's financial p;ages could select a portfolio that would do as well as one carefully selected by experts.”

Malkiel's book came out first in 1973 and argued that index-tracking passive funds do better than active ones. He later toned down his assertion but it still is used to justify investing in index funds because they allegedly perform better than managers. However Fidelity found exceptions with its examination of active fund performance.

When corrected for fund size and how low the fees are, over decades active rather than passive index funds do better. The edge from index funds, it appears, comes from lower fees rather than using indexes.

Fidelity found even more out-performance with active funds doing global investing. Because apart from the category of U.S. large cap, the average active funds out-performed regardless of their size or fee structure! Fidelity's research has shown that in the other largest equity fund categories besides U.S. large cap, international large cap and U.S. small ca), active managers outperformed their benchmarks consistently, even when all funds were considered regardless of size or fees. This means their return is not random.


The Harvard Republican Club has published its reasons for not backing the official candidate: “Donald Trump holds views that are antithetical to our values not only as Republicans, but as Americans.” There is no room for hate and bigotry in this tent” the campus group said when Trump refused to disavow support from the Ku Klux Klan.

We have news from Australia, Brazil, Britain, Canada, China, Hong Kong, Israel, South Korea, and Spain. Today's blog is late because the latest upgrade from windows 10 managed to delete what I was writing. Twice. I do not write in Windows programs.

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Ladies on the Rise

Tue, 2016/09/20 - 1:12pm | Your editor

Like in the USA, you get French nationality by being born in the country, a system lawyers call jus soli, law of the soil. Many other countries distribute nationality only by ancestry, according to the nationality of your parents (or sometimes only one of them), called jus sanguinis or law of blood.

So a Muslim born in either country faces no test to prove he or she is worthy of citizenship. A baby with Mexican or African parentage born in Paris or Hawaii is a citizen of France or the USA at birth.

As the French pols try to stop moves against Islamic citizenship led by far-right presidential candidate Marine LePen, some extraordinary positions are being taken by mainstream opponents.

My favorite is by Nicolas Sarkozy, a former chief of state defeated by the left. Citing the classic French comic book Asterix le Gaulois which tells the tale of how some people living in what was now France opposed the Roman invasion, ex-Prexy Sarkozy says those who claim French nationality will have to accept that their ancestors were “Gaulois.” Nos ancêtres les Gaulois” was the opening of a 19th century elementary school history book, which Goscinny, who wrote Asterix, was mocking.

Mr Sarkozy is no Gaulois himself. His father was a Hungarian count whose ancestors, had they been French (they weren't) would have been guillotined during the French Revolution. His mother had French nationality her parents got by being Jews from the right Greek island. His current wife is Italian.

I am reminded of Donald Trump who knows better than to require that Americans have ancestors dating back to Roman times. He mocks Sen. Betsy Warren as “Pocahontas” because she claims American Indian ancestry. Trump is a latecomer whose family didn't come over on the Mayflower or in the 18th century. His mother was a Scottish immigrant to the US in the 20th century as all his wives also seem to have been, but from eastern Europe. Papa Trump, his father, was the US-born son of German immigrant parents who emigrated here late in the 19th century.

We need to go back to jus soli without a dress code or religious tests for citizenship. I think there is nothing wrong with requiring that immigrants who want to become citizens study some of our laws and history, preferably in English or Spanish, the only official languages in the US. That was imposed on my German-born parents and also on Trump's grandparents, who by the way claimed to be Swedish during World War I.


Our son was born in France and although his birth was registered for US and British citizenship he also was considered to be French. When he turned 17 and got his draft papers (the French didn't abandon conscription until later), we were living in Washington where there was a special military attaché at the French embassy whose job was arranging for 17-year-old boys to renounce their French nationality.


I am proud that the Afghan-born bomber Ahmad Khan Rahami was known to the FBI because his own Afghan-born father, Mohammad Rahami, reported him as a terrorist. And less impressed that he was cleared of the charges two years ago despite doing jail time for attacking his own brother.

More for paid subscribers from Britain, Finland, France, Germany, India, Ireland, Israel, Mexico, and Spain.

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Catching Up With Our Holdings and With Michael Lipper

Mon, 2016/09/19 - 1:53pm | Your editor

Sunday the blog of Wall Street fund performance tracker Michael Lipper was quoted by a a UK group, CityWire. He wrote that he thinks US portfolio managers and savvy investors are keeping their portfolios “frozen in place with very little” trading. Mike then set out to find out why with a round robin of calls to institutional investors, analysts, portfolio managers, NYSE specialists, trust lawyers, and a very successfully private global investor. What's up?

Lipper concluded that these Wall Street veterans are facing “a political/economic/market environment they had not seen before”. “And if you slice a securities analyst, a historian will bleed.” Here are some of the comments he quoted:

“Americans are losing faith in institutions and concerned about government intrusion.” As are Britons who voted for Brexit.

“Central banks' interest rate manipulation is not working.”

Lipper went on: “Market prices are above average with one exception. Price divided by free net cash flow is trading below average. Either the market is doubting the soundness of financial statements or suggesting that cash is less valuable than it was in the past. The latter view might suggest that other assets are more valuable than cash to both stock and company buyers.

“The former doub the quality of net free cash flow calculations because of the widening gap between price earnings ratios published and more conservatively constructed GAAP earnings according to strict accounting rules. (Ed: GAAP stands for generally accept accounting principles, the gold standard in accounts which many company override with non-GAAP reporting.)

“I learned that our brains are wired to use memory as a critical filter in making judgments. To all of us who served in the investment wars, our memory does not recognize the current situation. We are perplexed. When people are perplexed their action orientation tends to shut down until a somewhat familiar pathway is found.”

Lipper is former president of the NY Society for Security Analysts and was the founder and president of Lipper Analytical Services Inc. before he sold it.


This week is crunch time for central banks particularly in Japan and the USA. As I know nothing more than the rest of the world about how they will act, I am refraining from comment.

However, I think China's market rise today was a one-off. Japanese markets are closed for a holiday and Samsung was sold off heavily in South Korea after the recall of its smart-phone which risks catching fire.

To make up for last week when I was out of the country, we have much news today including a company annual report and news from Argentina, Australia, Canada, Cayman Islands, China, Denmark, Germany, India, Ireland, Israel, Japan, Russia, Slovakia, South Africa, Sweden, and Switzerland.

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Tinker, Taylor, and Tables

Sun, 2016/09/18 - 12:41pm | Your editor

Economic consultant Silja Sepping writes that “one size does not fit all”, an argument for Tayloring central bank policy to individual country needs (pun intended.) This, she argues, is why “the convergence of the euro area economies hoped for from the single currency has proven elusive”. Operating at the level of the EU, the stimulus has failed to generate growth. Instead, “incongruities have grown” because the system does not allow for custom-made policy.


A simple Taylor rule, based on studies by John B Taylor, works out how much a central bank should raise the nominal interest rate to respond to changes in economic conditions like inflation, growth in output, and other factors. Interest rates should be set by the CB so that the difference between a nominal and real interest rate reflects the current vs the potential GDP, corrected by the the GDP deflator (or the inflationary impact of changed interest rates). A Taylor rule works less well when the CB should be lowering interest rates. But it has support there too.


Ms Sepping uses the Taylor rule to work out what interest rates should be, generating a range, from plus 4% in Ireland to minus 5% in Greece based on levels of growth and unemployment in bloc countries. The EU is a diverse region with different rates of growth and unemployment which cannot be addressed by the monetary union. debates have tended to be particularly charged


“Austria and Belgium, with core inflation rates near 2%, and the ‘small but vibrant’ economies of Estonia and Ireland, with tight labour markets, are at one end of the spectrum, while acutely-depressed Greece is in an unfortunate league of its own at the other end,” she writes. “ECB policy is too loose for a number of ‘core’ economies, including Germany, but too tight for Greece and much of the periphery.”


Varied inflation rates further complicate making monetary policy. Countries with high inflation rates “experience relatively low real interest rates, which, by boosting aggregate demand, encourage even higher inflation rates,” she warns. (Ms Sepping's paper was published by London's Llewellyn Consulting, I cannot reproduce Taylor rule formulas  or copy and paste them here but roughly translated them into English. You can find them with google.)


The tables this week have been posted on our website, where closed positions may be viewed by everyone but open ones only by paid subscribers. Use the printer-friendly button to view spreadsheets on your devices. More for paid subscribers follows.

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TINA: There Is No Alternative

Thu, 2016/09/15 - 7:34am | Your editor

Yesterday night, shortly after 11 pm, our missing baggage was delivered by BA's courier, not quite 10 days after it went missing on Labor Day. I lost my bet with my husband that we would not get the baggage before we fly away to the USA, scheduled for tomorrow. There will probably be no blog.

To catch up, here is the opinion of a German history professor (married to a Protestant lady pastor) on why Angela Merkel came out in favor of allowing immigrants into Germany.

First came shame for the pastor's daughter. Her normal decision process is to gather information on which way the political wind is blowing, and only after due deliberation come up with her own position. In this she is acting like a trained scientist, which she is, as well as someone who learned about politics in the non-democratic DDR, former East Germany, where she cut her political eye-teeth.

She violated her normal mode of operation. The spate of support for immigration from the Socialist and Green parties to the left made Merkel ashamed of the hesitancy being shown by the coalition she heads. Her father had returned to East Germany because the need for religion was obviously greater there than in the West. His daughter felt that there was a greater need for support of refugees from her coalition than from the soft and idealistic German left.

There was also a second reason not being discussed, the professor and the pastor added: Germany's need for young workers. The average German woman has fewer than 1.4 children, not enough to either finance pensioners or grow the economy. The only population segment still bearing children in Germany are Gastarbeiter, Turks admitted to the country decades ago, supposedly for temporary work, and East European Orthodox Jews who settled in German cities in waves since World War II. So there is an argument to be made for more Muslims and more “exotics”.

I am quoting the professor and pastor who also say they are unsure if Merkel will run again because of the very negative German reaction to her volte-face over immigrants. They think she again to defend her policy and because of TINA: “there is no alternative”, which was the governing slogan for the former East German regime. In German: EGKA, es gibt keine Alternative.

Since the couple are very liberal and international (one of their sons lives in France) I am not sure if their prediction is right. It really reflects their own wishes on how Germans should treat foreigners and that Merkel not suffer for doing the right thing. She may opt to retain her office to handle EU crises like the British exit or the need to refinance Greece and a few other Club Med countries. But this will not be easy or fun and she may just throw in the towel and leave it to others. And moreover she may not win even if she runs.

There is one thing that I haven't yet shared with you about Hillary Clinton's health. When we first heard of her leaving the 9/11 events on Sunday afternoon in Germany, the news reports said she had suffered a stroke—not a heat-stroke or pneumonia. Those reports may still have an impact not just abroad but in the US. My reaction is TINA. As former Secy of State Colin Powell wrote in a hacked e-mail “Trump is a national disgrace and an international pariah.” Its authenticity has been confirmed by an aide.


More for paid subscribers from Canada, Kenya, India, Mexico, Britain, Colombia, Germany, Israel. Yesterday rather than belabor the fate of Oi and Portugal Telecom in the blog I sent it as a report.

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Oi, Oi, Oi: An Update

Wed, 2016/09/14 - 9:43am | Your editor

The death of Portugal Telecom (PT)in the wake of the fraud by the Banco Espirito Santo banking clan continues to reverberate even more than two years later. Brazailian Oi SA CFO Flavio Nicolay Guimaraes resigned and was replaced by board member Ricardo Malavazi Martins a week after the Brazil  telecom operator submitted to court its plan to dig out of almost $20 bn in debt it is unable to repay. Oi was supposed to be bought by PT before PT's treasury went into a Boca Negra, a black hole. Read more »