The Manchurian Candidate?

Tue, 2017/01/17 - 12:25pm | Your editor

From Bloomberg from Davos, a note about the possible Manchurian candidate who is about to take the oath of office as president of the US:

"Anthony Scaramucci, aide to President-elect Donald Trump and founder of SkyBridge Capital, discussed possible joint investments in a meeting in Davos with the head of a Russian sovereign wealth fund that the U.S. sanctioned in 2015, the fund’s press service said.

"The meeting with Kirill Dmitriev, head of the Russian Direct Investment Fund, a $10 bn state-run investment vehicle, is the first public contact between the incoming administration and Kremlin-backed business. Scaramucci confirmed the meeting in an interview with the Russian state news agency TASS, saying that Trump’s view is that 'there’s probably shared values or shared interests, that we can align ourselves with each other and this could be mutually beneficial'." Oy.

 

Wall Street's Best Investments sent me this note from my blog, www.global-investing.com, asoit is now in the public domain:

“The CEO of this global insurer recently remarked that the company was interested in ‘big takeovers’ in the U.S. This stock is a play on rising rates.

Allianz SE (AZSEY 17)
From Global Investing
“Allianz SE (AZSEY) has taken its time recovering from the walkout of Bill Gross, which was our motive for purchase. But with the global economy shifting gears after the shocks of 2016, for 2017 there is much to be said for the corporate bond market where Gross was rainmaker, then based at the Allianz sub in California.
“AZSEY of Germany still is the largest shareholder in Pimco, which is likely to benefit as US and global bond prices reverse as interest rates rise. Since the Brexit vote and the US election, the bond market has begun this switch to higher yields and lower prices, spooked by fear of inflation. This made interest rates rise more than expected above all in the US. The result is that after experimenting with low and even negative interest rates, the world is returning to normal. Normal means yields are positive and rising again. It also means that using stock dividends as a way to earn money with your money is no longer a slam dunk victory.
“It is uncertain if the reversal will continue long and high because of secular changes. Global debt levels are up and aging population in the industrialized world means they will be retiring and spending less. That will nip growth and inflation in many countries but probably not in the USA (given the Trump plans) nor in Britain (because of the fall in sterling post-Brexit.)
“Bonds will also become scarcer if the US tax report program of the new administration will include an end to the tax deductible corporate bond, widely used lately for share buybacks and paying dividends rather than for capital expenses. With fewer bonds available and the need for yield remaining, getting bond manager fund help will become crucial to investors.
“The bond market, unlike that of shares, does not work well with indexes and exchange-traded funds. You need real experts examining the market for the best returns at the lowest risk. For US investors, that probably means entrusting their pensions and assets to San Diego-based Pimco again. It won't be Bill Gross but we will need another bond king. The new ruler of the bond market will have to be able to invest in multiple markets, not just in the USA where Gross flourished. With greater integration with the insurance arm of Allianz in Frankfurt, Pimco is well-placed to rise to the challenge.” (Vivian Lewis, Global Investing, www.global-investing.com, December 30, 2016.)

 

More follows, if briefly, for paid subscribers today with news from Sweden, Finland, Denmark, Canada, Australia, Britain, Chile, Spain, and Mexico.

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Sunday Tables Posted

Sun, 2017/01/15 - 1:11pm | Your editor

Here are my Sunday tables, updated with the latest news and views for paid subscribers and showing our closed positions for those of you who are still holding off on coming on board. Please visit www.global-investing.com to view the tables, remembering to click printer friendly to view on small screens or cellphones. Now I am off to buy my Chinese carry-out. More for the paid among you follows:

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Friday the Thirteenth

Fri, 2017/01/13 - 12:33pm | Your editor

Not only is today the dreaded Friday the 13th, but also Monday is Martin Luther King Day when US markets will be closed. So Wall Street's tendency will be down, not helped by generalized worries about the future “Apprentice” President getting in over his head. Think Jimmy Carter.

Learning on the job is not usually the mark of a successful US Administration, and cabinet members digging distance between their view of the world and their supposed leader is a bad omen because Trump famously is a know-it-all who won't listen and learn.

 

More for paid subscribers follows from India, Brazil, Canada, Finland, Sweden, Israel, Ireland, Japan, Britain, Chile, Denmark, Swizerland, the Cayman Islands, and Germany.

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Unintended Consequences

Thu, 2017/01/12 - 1:18pm | Your editor

Legendary investor John Templeton stated in 1994 that bull markets are "born on pessimism, grow on scepticism, mature on optimism, and die on euphoria." While Sir John was the original global investor, his comments are likelier to apply to Wall Street than to global markets in 2017. They also die from unintended consequences when the powerful speak off the cuff as Donald Trump did yesterday.

What's sauce for the goose is not sauce for the gander.

It is much harder to manage the corporate ethics of an Amercian Depositary Shares from a financially serious country, like Germany, than from a country considered to be a global lightweight, like Portugal. To say noting about holding companies from a tolerated haven like Luxembourg. This is the lesson from the imposition on Volkswagen of securities fraud fines over its diesel emissions “defeat mechanism” last week.

Meanwhile outright fraudulent acts by the board at Portugal Telecom were not prosecuted under US securities laws and the perps went scott free. Yet Volkswagen shares traded only thinly on the over-the-counter pink sheets. Meanwhile PT stock was an NYSE-listed and regulated ADR easily purchasable by any US investor and many pension and investment funds.

Moreover the board of the German automaker which included representatives from German auto-maker trade unions and the local state government was not directly involved in fiddling its US share price, from all the evidence adduced to date, and barely aware about how it misled diesel car-buyers. Meanwhile members of the PT board representing its 15% shareholder, the Banco Espirito Santo, were directly implicated in its misrepresented acccounts, deliberately bled of cash for its publicly announced Brazilian purchase plans, absconded through a series of obscure Luxembourg family holding companies.

Under normal securities law standards, the PT “scandal” should have had greater American stock market repercussions in Lisbon than VLKAY faced in Wolfsburg. But in fact the reverse occurred. The American watchdogs let Portugal off the hook while Berlin was forced to pay up, even on behalf of the unions and local state government which had Volkswagen board seats but were probably totally unaware of the diesel emissions testing fraud. One reason the German firm was targetted for more severe penalties is that nobody could expect to raise $4.3 bn+ from Portugal.

The ball is now in the US court as Fiat Chrysler faces its own diesel emissions scandal with the US Environment Protection Agency accusing it of falsifying diesel emissions on 100,000 vehicles. FCAU, Dutch-incorporated with operations in Italy and North America, is the latest environmental sinner. It has less cash than VLKAY but is hardly Portuguese poor. We owned it until about a year ago, much more recently than any involvement in Volkwagen, sold in the 1990s.

More for paid subscribers follows from around the world today on regulatory matters and more news about the auto industry, aviation, real estate, heavy industry, and, alas drug-makers, the sector most badly hit yesterday by the rambling Trump so-called press conferences.

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Medical Agita

Wed, 2017/01/11 - 1:01pm | Your editor

Nancy Zambell writes today in Wall Street's Best:

“The 2016 markets were terrific. The Dow, the S&P 500, and the Nasdaq all made double-digit returns. But our contributors blew the doors off with their 2016 Top Picks! Congratulations to all of our experts, and special kudos to our top five winners:

  • Joseph Cotton, Cotton’s Technically Speaking, whose pick gained 118.5% ;

  • Vivian Lewis, Global Investing, saw her recommendation rise 83.6%;

  • Russ Kaplan, Heartland Adviser, third with a 57.3% return;

  • Alan Lancz, The Lancz Letter, saw his choice soar 52.7%;

  • Roger Conrad, Capitalist Times, chose a stock that gained 38.3%.

“Many thanks to our contributors for helping our subscribers add to their wealth last year!” Read more »

Transatlantic Disparity

Tue, 2017/01/10 - 2:01pm | Your editor

Another day, a lower pound and a higher FTSE for the ninth day in a row, an all time record. Another day and another uncertain run at a Dow-Jones round number of 20,000.

There is an increasing trans-Atlantic disparity between how markets are reacting to foreign exchange movements. The US is suffering spillover into stock trading as the dollar is taken down from its 2017 starting peaks. Meanwhile in other countries, like Britain, on the contrary, the currency's fall is boosting share prices. In both countries, political uncertainty is a factor, as untried leadership is set to deal with major economic changes. This probably means a “hard” Brexit for Britain which will focus on controlling immigration rather than maintaining special access for its financial sector. In the USA, a revival of protectionism coupled with deregulation may mark the end of post-World War II US global leadership of the nominally free world.

In my jaundiced view, both the excessive optimism shown by UK markets and the loss of zing by Wall Street, are based on misconceptions. PM Theresa May will not be able to ignore the demands of the UK's City—the globalized banking, insurance, and related sectors. And future President Trump will not have a free hand disengaging from relationships, commitments, alliances, and treaties, however much he may want to dump them, with Nato and other defense groupings; peace negotiators not just in on Israel-Palestine and Iran, but in other areas; Nafta and other trade overseers; organizations working on cooperation over taxes; market oversight, fighting corruption, counterfeiting, and just plain theft. To continue the cooperation it wants against terrorism, the Trump Administration is going to have to accept a lot of other global links.

It will also have to stop calling for a ban on Muslim immigration and give up plans to use torture on terrorist prisoners—according to Sen. Jeff Sessions, future AG. Similarly it will not be able to craft a border adjustment tax to penalize imports and favor exports under existing treaties, as the future Secy of State will have to tell his confirmation hearings. No Rio Grande wall paid for by Mexico. Neither will get the full reform packages they want out of their legislatures. Mrs May and Mr Trump will both have to compromise to achieve their main growth and nationalistic goals. Neither is likely to enjoy the gritty and boring details.

More for paid subscribers follows from Canada, Sweden, Brazil, Finland, Mexico, India, Trinidad & Tobago, and the USA.

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First New Year New York Letter

Mon, 2017/01/09 - 2:32pm | Your editor

Brown Brothers Harriman currency specialist Marc Chandler titled his article today “Backing into Smoot-Hawley,” raising the parallel between the proposed Trump discriminatory tariff plans and the way the world went into a self-defeating retaliatory tariff wars during the Great Depression. Chandler winds up reminding us that the international liberalization measures and the domestic regulatory ones of the New Deal remain in force. He writes:

We are bullish the dollar but are concerned that border adjustment may spur other countries to do the same thing, inadvertently spurring protectionism and further weakening international trade, which has not yet recouped the decline associated with the Great Financial Crisis. In a similar vein that some of the lessons of the Great Depression, like those embodied in Glass-Steagall, were either repealed, diluted, or unenforced, so too are the lessons of protectionism seemingly lost and now hidden in mental gymnastics based on an automatic adjustment of currency values and an outdated understanding of PPP” [purchasing power parity—which doesn't really function in pricing currencies.]

Our return journey to the US was surprisingly rough as both my husband and I got tummy trouble from the supposed wholesome Icelandic cod served at lunch on our first leg, London to Rejkyavik, admittedly while both suffering bad colds. We were so ill we took a taxi rather than a subway home from snow-covered from JFK.

Then I nearly disinherited my daughter who had stayed in our NYC apartment over the Christmas holiday because the dingbat on the top of the coffee machine which tells it that the pot is in place had gone missing. High and low search failed to turn up the little pot cover with a prong into the filter holder. So I made our necessary daily drug with my smaller office coffee pot. Only when I cleared the breakfast dishes did I find the dingbat in the dishwasher for some reason. She is very keen on sterile but is now my heir again. (My husband was very firm that we have to accept our grown children and half-grown grandchildren as they are rather than setting an excessive Jewish mother standard and I had already resolved to try this in 2017. So now it was justified. The dingbat was found and our daughter is back in my good graces.)

No sooner had we left Britain than Mrs Theresa Maybe opted to tell the world that Britain was more interested in halting immigration that operating a single market with the European Union, aka “a hard brexit”. The result in London this morning was a crashing pound but good performance from UK stocks expected to benefit from more foreign sales as a result. Our leftover pounds don't amount to very much but I'm glad to say my two pairs of British boots and a stockpile of Christmas puddings, among other goods we declared to US customs last night will prove to be a better investment than cash.

Meanwhile the FTSE 100 index ran up its longest winning streak in 33 years! (NB: Of course the FTSE index is calculated in pounds sterling.More for paid subscribers follows from Britain, Ireland, Israel, Mexico, Sweden, Denmark, Finland, China, India, Colombia, and Canada.

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Last London Letter

Fri, 2017/01/06 - 9:59am | Your editor

Your editor has caught a bad cold from Her Majesty the Queen (via at least 6 degrees of separation) also induced by our going out on the coldest night so far this winter to see the Wanamaker Theatre production of All the Angels last night, a period candle-lit play about how The Messiah was first performed. Staying in rather than infecting more relatives over dinner means I can watch British business TV which normally I have no time for.

The big news is surprise good results from a firm called Persimmon, PSN on the London Exchange, a very odd name indeed for a builder. UK analysts are all rushing to recommend it after the fact.

Another fool's game is buying the relics of Banco Espirito Santo which went bust 3 ½ years ago in Portugal. Now called Novo Banco it is being sold off by the govt bailout commission, which seeks to make a gain. US hedge fund Lone Star reportedly will pay up if the price is right. Bank of Cyprus is another recovery play the hedgers are after. Prosaki! Tem cautela!

Our future president is now taking on Toyota (over the Japanese firm making cars in Mexico) and the US intelligence establishment over whether Russia having interfered in the US election. James Clapper's contention that the Kremlin hacked Democrat Party computer files was supported by Sen. John McCain. I tend to follow the former head of the Republican ticket over Julian Assange, whom the PEOTUS seems to think is a reliable source. It reminds me of the nonsense during the campaign about the Clintons' alleged pizza parlor child molestation ring—if you believe Assange I have a big bluefin tunafish to sell you for $640,000!

Meanwhile Theresa “Maybe” (as renamed by The Economist) is losing control of the Foreign Office over who will negotiate British EU exit. Our leaders are no smarter at figuring out what to do in the future than stock analysts.

Today we updated at 8 am NY time on a firm we own. Meanwhile we have news from around the globe including a recent buy which benefits from the Persimmon frenzy. The report today will be the last from London as we fly back Sunday. Today we report first on the update sector and then on funds, insurance, heavy industry, and IT. We have reports from Australia, Bermuda, Canada, China, Denmark, the Dutch Antilles, Finland, Germany,  Hong Kong, India, Ireland, Israel, Mexico, and the UK.

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Revised Forecasts Begin

Thu, 2017/01/05 - 8:30am | Your editor

In defiance of a host of international treaties which the US ratified, Pres.-elect Trump has threatened to impose illegal import tariffs on Ford and Carrier products imported into the US from Mexico. Ford, the only US carmaker which did not get government handouts during the global recession of 2008-9, meekly capitulated to the pressure to satisfy its PR department.

If the new Administration wants to continue such cheap-shot protectionist actions once it has taken office, we will need to pass a new system for taxing corporate profits at the federal level, comparable to how some foreign countries and the European Union run their value-added tax systems. If not the US will be sued for violations of World Trade Organization and North American Free Trade Agreement treaties. A major tax reform to include VAT will be divisive but so also will other proposals being kicked around by the Trump team, ranging from lower taxes on capital gains, another round of allowances for repatriation of money held overseas in low-tax jurisdictions, and changes in the tax code to help the poor and cut back on the benefits to the rich by removing exemptions—and also getting rid of the so-called death tax (on inheritances). But the trade features, according the Larry Summers, amount to “voodoo economics”. Summers is a former (Democrat) Treasury Secretary and a member of the Harvard Economics faculty.

It is relatively easy to threaten major companies with retaliation for manufacturing abroad. But in real day to day business practice once in office, Mr Trump will find it harder to posture and pose as a reformer and friend of blue collar workers. It is comforting that the new Congress dominated by the Republicans will not start its session by allowing corrupt financing practices, but it is terrifying that the Affordable Care Act is now the first thing up for dismantling.

*The dollar yesterday fell the most since Trump triumphed in the election in part because the key London interbank offer rate or LIBOR went over 1% for the first time since the global economic crisis in 2009. Meanwhile a Sino-Trumpian goal—stopping outflows of the renminbi from China which cut the exchange rate against the dollar—is being fostered by the authorities in Hong Kong who have now set the overnight deposit rate to an all-time high of 80%. This boosted the RMB inside the country. Forcing money back into China boosts growth by making more funds available. State sector firms are also being forced to sell the forex holdings, according to Mark Chandler of Brown Bros. Harriman. This Chinese LunarNew Year, for the Year of the Rooster, begins very early, Jan. 28.

More for paid subscribers follows from Britain, Mexico, Canada, Israel, Denmark, Ireland, India, Bermuda, and Germany.

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Working Day

Wed, 2017/01/04 - 6:09am | Your editor

As the Indian fiasco over demonetizing bills worth all of 15 cents each plays out, I am holding back on new stock positions in Modi-Land, because I think he is proving as unpredictable and as inexperienced in monetary policy as other global current and future leaders like Xin Jiping, The Donald, Theresa May, and Francois Holland—to say nothing about the only other money-withdrawing currency, in Nicolas Maduro's Venezuela. It is astonishing that after sacking the well-regarded central bank head, the Indian PM went off on this novel experiment which risks hurting the country's growth and investment at least for some months in the short-term, and perhaps longer. I am a fan of Indian democracy and of its economic potential. But sometimes the two seem to conflict, like now. While I filed on the purchasing managers' indexes yesterday it was too soon to include the excellent US showing which boosted Wall Street and the dollar later. My copy is resisting formatting and italics and bolds, for which apologies.

More today for paid subscribers from India, of course, Ireland, Britain, Israel, Denmark, Finland, France, Brazil, Canada, Colombia, Cyprus, Germany, the Dutch Antilles, Hong Kong, Spain, South Africa, and Ireland. We also have a new stock purchase idea to start the year right.

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