Today the Cold War resumed as both the USA and the European Community imposed new economic sanctions on Russian companies and banks, because the Putin government had violated international treaty commitments by furnishing eastern Ukrainian separatists with banned weaponry. And because it was not changing tack despite the horrible results including the death of hundreds of innocent airline passengers.
The impact of sanctions is greatest on companies which operate in the Russian energy sector, but there are further implications affection some of our holdings as well. They are detailed for our paid subscribers below.
Having studied the Russian language for two years when in college, chatting over tea with little old Tsarist ladies who had escaped the Revolution as children, I developed what then (and now again) is called a St. Peterburg accent. But if I ever got to chat with Vladimir Vladimirovich Putin, I would not trust the Russian I had barely used for decades, and would revert to my first foreign language, which was German which he speaks fluently.
Cornering Putin, what I would tell him is that expansionist populist hysteria coupled with corruption masking itself as socialism is not a good long-term foundation for political power. Good propaganda produces short-term foreign and economic policies. The outcome is dangerous: embargoes, deprivation, more crude nationalism, and perhaps a slide into a war nobody wants.
Saying this has far more impact in German anyway, because that was what how the Nazis tried to run Germany.
More for paid subscribers from China, Finland, Mexico, Canada, Portugal, The Netherlands, Britain, Japan, Colombia, Brazil, and Spain, plus fund updates.
Id Al Fitr in the East End
Today after Eid El-Fitr I have hopes of getting my notebook computer repaired here in the East End by my friendly Pakistani expert. I managed to break the monitor screen when I dropped it Sunday. He is working on getting the spare parts needed from Samsung and then installing it on my computer. I am terribly dependent on technology as I wander around Europe.
When I went yesterday afternoon to the computer shop, the area was full of people dressed to the nines to go to parties celebrating the end of Ramadan. The level of smartness and cost in ladies' outfits was wide, with some of them meeting the sophisticated standards for bridesmaids in a US wedding. The men were more boring, either in long white robes or Bangladeshi suits, but one little fellow barely more than 5 was dressed in a perfect British 3-piece white suit.
Many little girls barely older than he was both had their hair covered (although they were well below puberty) and also wore adult makeup, lipstick and mascara, which I found jarring. This may represent a compromise between their old-fashioned mothers and their new British freedom. Read more »
Blake and Paine and Computer Outage
We saw yet another play this weekend, a revival of "In Lambeth", by Jack Shepherd, an actor friend of my brother-in-law. It tells of a fantasy meeting of Thomas Paine and Wiliam Blake, along with Mrs. Blake. The famous opening has the couple sitting in their wild garden in the althogether, which upsets even Paine. And the closing has Blake rejecting the Brave New World Paine wants to build by ending the rule of monarchs and even of republicans in the fledgling USA. It was the best of the lot so far in our London theatre-going, and the only play I can expect might transfer to the USA.
Mexico topped the charges for global emerging markets inflows last month according to Bank of America-Merrlll Lynch. We have Mexico exposure including a share which hit a new 52-week high after an extremely bold move last week. We tell our paid subscribers about that below. We also report on the conversion plans by one of our yield stocks, and how this will play out, and about another tax inversion play discovered by Morningstar Friday, which I reported on weeks ago. Then too yet more restructuring at yet another drug firm is coming. In addition there is news from Britain, China, Singapore, Canada, Ireland, Belgium, Israel, and Mexico.
Today's blog is late because there are major issues with my prefered browser, Mozilla Firefox, which seems to have caught a virus which is now off the desktop here. But the effort at cleaning the notebook has failed and moreover I dropped it. After this blog has been written I am off to Mr. Shah the PC repairman at Mile End, a Pakistani whom I sent Abhimanyu Sisodia to buy a computer from (they can communicate in Hindi or Punjabi.) Unfortunately Shah is half-closed now because of Ramadan. There will be no blog on Thursday as I am off to Paris on business (believe it or not.)
I am writing this note directly in my website so it may not be as well edited as normal.
Another British satirical play viewed last night, Handbagged, this one poking fun at relations between the Queen and her contemporary, Margaret Thatcher, during the 1980s. It was to make up for not being able to get tickets for King Charles the Third. Both the prime characters were played by two actresses on the stage together, presenting the public persona and the private thoughts of the monarch and her Prime Minister. The really funny bits, I thought, were the Reagans, Ronald played as a cowboy by an actor who also played Dennis Thatcher, Rupert Murdoch, Michael Heseltime and other politicians who ultimately ousted Thatcher. Nancy in bright red from head to toe was played by a cross-dressing male actor of Indian heritage who also played a palace servant, an African revolutionary, and other pols.
The Queen was much more concerned with social and racial justice than Maggie in the play which helps us seque into a report for paid subscribers on our own African Queen.
Mayor Boris Johnson won local Newnham council approvals for a GBP 1 bn Chinese offer to build a Chinese business and residential area at Royal Albert Dock down the Thames from Canary Wharf and even further down the Thames from our Mudchute Manor hideaway. The Asian Business Port and associated offices and shops will replace rundown and abandoned public housing estates and car parks across the water from the London City Airport where a new esplanade is planned. City's runways will remain too short to allow planes to fly the Atlantic without a stop in Ireland for now.
This is the largest commercial deal struck since Johnson became mayor and the largest UK-China deal yet. The idea is to create a third financial district, adding to the City of London and Canary Wharf thanks to investment by China's Advanced Business Park outfit, Oxley Holdings of Singapore, Ireland's Ballymore Developments, and British builder Stanhope.
The plan will create 20,000 jobs and already 60 Chinese companies have applied for office sites and serviced apartments, according to ABP. Helping lure them in is the vast Crossrail network to be completed in 2016 which will link Heathrow Airport, central London, Canary Wharf, and Albert Dock direcgtly and also feed into the Docklands Light Railway, our petit train link to the Underground (London Transport System).
It looks like Argentina will default on its debt to avoid having to pay hold-outs who didn't accept its early refinancing terms. Mediation ordered by a US court seems to have failed in NY.
Today we have results from two of our companies, an update on one of my fund recommendations, and news from around the globe: Britain, Holland, Canada, Jordan, Colombia, Panama, Finland, Brazil, Portugal, Mexico, Ireland, and African countries.
Thanks to our Mudchute Manor address we count as East Enders and were able to visit the Acelor Mittal Orbit, the London version of the Eiffel Tower, at a discount yesterday. The iconic maroon and steel thing sits in the midst of the relics of the London Olympic Games two years ago. Despite the hot weather, the Olympic Pool building was firmly shut. The Olympic Stadium was undergoing major construction work and could not be entered. Balfour Beatty, a British construction firm, was lopping off the top two ranks of seating to reduce the size of the building so it can be the home of the West Ham Football (soccer) Club and be used for rugby matches. Besides cutting about 40% of the seats they were also adding a roof to protect against rain and snow, not needed during the Olympics.
The Queen Elizabeth Park is still a work in progress and will soon have an International Quarter to house financial regulators and their prey. Another project to start up in the autumn is called Manhattan Loft Corp. The vast Olympic site around Stratford will become a new center for something, perhaps feeding customers into the huge Westfield Shopping Mall, although I am not sure the areas will live up to the Manhattan or International names.
The Orbit, about 350 ft high, which we visited with a group of blasé French tourists, is no Tour Eiffel, as they kept remarking. Being located so far from central London, it offers the visitor few glimpses of historic sights. You can see the Gherkin and the Shard and other new skyscrapers. But not St. Paul's or Westminster Abbey or even the Thames. I just made out the old BT TV transmission tower and Battersea Power Station, now a museum.
In fact the older London Eye ferris wheel, which I have ridden, appears to be the better site for viewing the sights. Unfortunately we would have to pay full price and devote an hour to the circuit. My husband has already done it once with his sister so I may have to visit (terrified of course) by myself.
On our way back to Mudchute we happily read a 40-odd-page section in The Evening Standard about the boom in Docklands real estate which seemed to confirm our paper profits on the London pied-à-terre we bought at the turn of the century.
From London I am developing a finer sense of how hard it is to be a central banker. Bank of England Governor, Canadian-born Mark Carney told the world that interest rates would have to rise but then worried that British mortgages (most of which float) would become unaffordable. He sounds more and more like Janet Yellen, another two-handed economist. Pres. Harry Truman once quipped that what he needed was “a one-handed economist” Meanwhile the pound gets driven higher because investors think in fact he wouldn't dare raise yields.
I also got an insight into why the British are so negative about the new European Union President, Jean-Claude Juncker. Before he took over in Brussels, as finance minister and then prime minister of Luxembourg he was the defender of its banking secrecy and tax avoidance, protecting the Grand Duchy from pressures to create sorely-needed Europe-wide regulatory and tax systems or normal minority shareholder protection rules. Britain was forced to impose Common Market rules on its own havens in the Channel Islands, but Luxembourg escaped them at least until now. Juncker may cave because of current scandals and the continued British sniping at him, in my view. More about the Luxemburger Polka for paid subscribers below.
The US is a piker on penalties for banking wrongs.. UBS had to post bail at euros 1.1 bn ($1.5 bn) before the Swiss bank's trial for aiding money laundering and tax fraud in France.
More on Luxembourg, Britain, Portugal, Panama, South Korea, Mexico, Ukraine, Canada, Israel, Switzer-, Fin-, and Ireland follows for paid subscribers.
Battling Boko Haram
I have been advised by a marketing consultant to talk more about insights from my foreign travels. In London this summer there is a steady drumbeat of propaganda against female genetic cutting and the marriage of underage girls among the immigrant community, which of course I support.
Some days ago I went with my sister-in-law to a rather posh party where the most striking woman present was dressed in an African gown with a gorgeous gold gossamer headdress, so as an instinctive snoop (or journalist) I went to speak with her.
While Vanessa (not her real name) was only Obama-colored, she had a memorable Ibo accent which I associate with our au pair in Paris, Joyce from Onitsha, who stayed for years and helped me raise my children. I and my grown children love that accent.
Like Joyce too, Vanessa was also strongly Roman Catholic. And she put the touch on me to contribute to funding female education in Nigeria, which I approve of in any case. The education I donated for will probably be by nuns. But based on what Joyce was like, nuns encourage an independent spirit in their alumnae.
So shocking my sister-in-law, I pulled a 5-pound note out of my evening bag to donate it to Vanessa's cause. The exotic beauty then gave me an elastic bracelet in the papal colors of yellow and white with a small Maltese cross, a card about the teachers, and a charm reading “love”. Because she is jealous of these goodies, I will give them to my sister-in-law when we next meet.
I also learned from Vanessa something unstated in the vast press coverage of Boko Haram kidnapping boarding schoolgirls in northeastern Nigeria. Boko Haram officially states the educating girls is ''haram'', not kosher for Muslims. But more is going on.
She told me that the school and the villages the girls are from belong to a Christian enclave amidst the Muslim Nigerian north. I cannot imagine why this fact is not mentioned elsewhere. Sectarianism should not be encouraged, but sometimes it helps to know the facts.
Thanks to Vanessa's blessing perhaps our Model Portfolios now are reported to have produced a 1-yr return of 18.82% . This was calculated by Mark Hulbert of Hulbert's Financial Digest, part of Dow-Jones Marketwatch. It was the best level in a decade, despite the headwind of a strong dollar. The benchmark Mark uses, the Wilshire 5000, purely US stocks, had a 24.92% return over the same period. While our portfolio is marginally more risky than the W5000, based on volatility (Sharpe ratios), in fact investing internationally cuts down on your risk thanks to diversification across countries, currencies, and industries from the US benchmark.
Today we have news from Belgium to Ireland, from Britain to Luxembourg, from Portugal to Canada, from Ethiopia to Israel, from Germany to The Netherlands, from Brazil to Finland including a poor quarter for one of our shares.
Arab Pharma Investments
The surprise runaway theatre success in London this summer is playing at the Lyttleton, a part of the National Theatre, called Great Britain, a title with British understated irony. It opened June 30 and has been a sellout virtually ever since. We paid heavily for two very good seats. It tells of the exploits of a politically connected newspaper mogul who will stop at nothing to sell many copies of his rag, which ultimately goes too far in an investigation of a murdered girl, cooperating with an idiotic police chief who has a full-time PR and a randy cop to hand to make love to the newspaper's news editor named (geddit?) Paige Britain.
This plus some attacks on the Queen results in the arrest of the editorial team. The proprietor, Paschal O'Leary, with an Irish accent, gets off Scot free thanks to his political and ecclesiastical network, but the news editor and her NY counterpart head for trial and maybe prison.
The Irishness of the boss is a red herring; the story is about News of the World and Rupert Murdoch, who has an Australian accent. It is uproariously funny and I would love to see it again to try to get the jokes I missed the first time round. But it is unlikely to run in the USA as it is a very British tale. But I suspect Time-Warner would like it to open on Broadway.
In Finchley, in north London, a Reform Jewish synagogue opened its doors to Muslims celebrating the daily post-sundown feast which is part of Ramadan after their mosque was burned down. In Sarcelles, a Paris suburb, Muslims protesting the Israel incursion back into Gaza (to stop missiles aimed at Israeli civilians) attacked a synagogue and a kosher grocery. France has about 20 times as many policemen per Muslim as Britain does.
One of my US shares, Illumina, a maker of genetic sequencing arrays and devices, is becoming a big player in Doha, where the Qatari government is building the Sidra Medical and Research Center which will use high-throughput genomics to find genetic links to diseases. ILMN via its partner Alliance Global will supply sequencing machines for exploring genomics. Our newsletter's biotech maven and its editor, both Jewish, are now deeply involved in Arab world drug discovery and pharmaceuticals. Th
More for paid subscribers from Portugal, Russia, Israel, Dubai, Jordan, Britain, The Netherlands, Canada, Spain, Indonesia, and the USA.
India and the Guns of July
India is in the news in London for lots of reasons. Firstly India is likely today to wrap up a brilliant victory in the (cricket) test match.
Secondly, Bloomberg focused today on the role of caste in business success. Marwatis dominate the entrepreneurial class, Chandrahas Choudhury writes. "As anyone who has ever studied business in India knows, the country does not offer a level playing field for new entrepreneurs. For at least two millennia, the 'jati,' or caste system -- the form of social stratification, and indeed suffocation, unique to Hinduism and India -- has regulated society into different orders of mainly hereditary occupations." Forget who has an MBA and think about their caste! If they are millionaires they are probably Marwaris, descendents of desert traders, as are 3 of India's 9 richest Indians on the Bloomberg Billionaire list, Lakshmi Mittal, Kumar Birla, and Savitri Jindal.
Of considerable importance is India's grain stockpile set up by the former Congress government to store for a possibly famine,. If the grain-buying is maintained by the new BJP rulers, it may bring the Bali Round of global trade talks to a halt.
But nobody knows which side the current government will come down on. Examining exactly what EconoModics requires is the current conundrum. Here is an attempt from Michael Kurtz of Nomura in Hong Kong who writes that Japan has what India needs:
After three years of prolonged economic weakness, the Indian economy is starting to turn around, cyclically and structurally. Inflation is abating, the current account deficit narrowing, FX reserves are accumulating and growth is just starting to rise. The landslide May election victory by Prime Minister Narendra Modi, combined with Governor Raghuram Rajan at the helm of the Reserve Bank of India (RBI), is a potential game changer for India - Modinomicsl.
The RBI's inflation fight will go hand in hand with the business-orientated Modi government's strong mandate to cut red tape and jump-start supply-side reforms. We expect reforms to revitalise real investment growth to 10%/yr lifting potential output growth to around 7% in the next 5 years; if reforms are fast-tracked, real investment could hit 15%/yr raising potential growth to above 8%. (We) expect India to stand out as the biggest EM turnaround story in the next 5 years.
Consider the low hanging fruit waiting to be plucked because of India's still-early stage of economic development: GDP per capita at market exchange rates is only about US$1,500; nearly half its population is under 25 years old, with 70% yet to urbanise; and the economy has been running far too long on creaking infrastructure. India's Planning Commission estimates infrastructure-funding needs total US$1trillion over 2012-17.
Enter Japan. The overseas production ratio for Japanese manufacturers was 20.6% in FY12, much higher than FY11's 17.2%, but the FY18 forecast for the ratio is 25.5% - the highest on record. Surveys of Japanese MNCs show that China is losing its attractiveness as an investment destination due to its rising labour costs, whereas India has moved up to now be Japan's most attractive destination over the next decade. Japan and India signed a Comprehensive Economic Partnership Agreement which went into force in 2011, and to illuminate the potential, India's accounts for only 1.2% of Japan's total FDI and 1.0% of Japan's total trade.
Serendipitously, much of what India needs, Japan can offer. Engineering and construction companies can help with massive infrastructure projects such as the Delhi-Mumbai Industrial Corridor - the poster project. High-speed railway networks, roads, power generation and renewable energy are areas where Japan can offer its cutting-edge technological expertise. Japan can bring India into Asia's vertical manufacturing supply chain, as it has done for so many other Asian countries. As it happens, infrastructure-system exports are a key plank of Abenomics, looking to target JPY30 trillion of infrastructure-system orders in 2020 (triple today's).
A recent Nomura survey of Japanese institutional investors revealed that they too have a positive outlook on India's financial markets, ranking India No. 1 among key EMs for investment potential. India offers opportunities for Japan to diversify its enormous financial assets (both public and private); Japanese households are have ~JPY1,630 trillion of funds, over half in investable cash and deposits.
In polite society it is not common to talk about another Indian infrastructure gap, the traditional Hindu means of elimination in the fields and on the side of the road, although this week's Economist raises the matter. While India's Muslims are much poorer than its Hindus, they are healthier because they are less reluctant to use toilets and wash their hands afterwards. What India desperately needs is not just fixtures but also sewage lines and septic tanks, perhaps also from Japan which is a world leader is lavatory luxury but which can also make basic toilets which are neither heated nor musical.
It is not yet August but two world leaders have stumbled into the guns of war without fully considering the consequences of a populist war move: Putin the Tsar and Netanyahu the Kaiser. Neither Gaza nor Ukraine vaut une messe to say nothing of a world war. What they need is not war but more. But the uncertainty is good for gold and dollar and not just for funerals.
More for paid subscribers follows from Israel, Portugal, Canada, Luxembourg, Hong Kong, and Britain:
Given the mounting restraints on press freedom in Hong Kong as China uses its clout, I think it is shocking that the Forbes family are selling their magazine empire to a group of investors from the former British colony which really no longer has a China-free political system.
Read more »
Surprise, surprise, despite the evil BT, I managed more or less to update our model portfolios today. Note that there are some gaps in the net asset value per share in the funds, but that is because of the usual poor reporting quality at some fund groups, and the impossibility of getting into the JP Morgan USA closed-end fund site from the UK. They want to keep this information secret, I guess.
More for paid subscribers follows:
The statistical odds against two fatal plane crashes at one smallish airline killing hundreds of innocent passengers in a matter of 3 months must be infinitesimal. Yet that has happened to Malaysian Airlines. Both crashes appear to have resulted from reckless human behavior and were not accidents.
The 100th anniversary of the outbreak of World War I has a similar resonance for us. A series of stupid high-risk actions by a bunch of autocratic governments in Austria-Hungary, Germany, and Russia and follow-ups from the rest of the powers of 1914 led to a world war which slaughtered millions, not least the Russian autocrats themselves and their supporters. The world was changed after a series of small missteps whose consequences were totally unexpected not considered. Read more »