VIE, Shi, Hsieh Explained

Fri, 2012/07/20 - 11:57am | Your editor

I said to my husband last night that “sell in May is soooo last year because the stock market and our shares are doing well.” To which my Oxford grad mate replied: “don't say things like that. The evil eye will get you.” Or in the vernacular, “keena hora,” bad Yiddish for “kein ayin hora”:  'Kein' means none, and 'ayin hara' means evil eye, in German and Hebrew resp.

When I was a kid my rationalist German Jewish mother was shocked that my friend Ronnie's mother used that expression, because as a school teacher she should have been against rank superstition.

Today I got an email from a Brooklyn-based reader, CL, thanking me for noting that the heat wave had, keena hora, broken. She had simply holed up in her air-conditioned apartment until after dark.

 

More for paid subscribers from our newest China share, the Cayman Islands, the Dutch Antilles, offshore and onshore Israel, India, Britain, Brazil, and Finland. The headline is about Chinese elements to be explained to the full subscribers below.

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Trading alert

Thu, 2012/07/19 - 2:18pm | Your editor

Here is a speculative buy for risk-takers.

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Less Hot Weather, More Hot Stocks

Thu, 2012/07/19 - 12:04pm | Your editor

The NYC heat wave has broken and there is a refreshing air of 'fin de regime' in Syria. There is a bit more news about biotech in New York's east side for paid subscribers below.

US soybean, wheat, and corn crops are down. There will be a problem getting a sugar or chow high or paying for ethylene soon. This will probably lead to higher gasoline prices and smaller candy bars, and cracker box and soda sizes, which could lead to a healthier American lifestyle.

But other American trends are not so healthy. Our leading indicators number is down, homes remain a tough sell, and US weekly unemployment figures are up. Corporate profits are mixed. Notably the financial sector finds it hard to maintain earnings. The global economy is detaching from bank behemoths under a cloud, including where I have my personal account.

HSBC not only helped Mexican narco-traffic bosses move their dough, but also was a major ethics violator when colluding to set global interest rates.

My corporate bank, JP Morgan Chase, set up an offshore hedging vehicle which lost money we will have to find for Jamie Dimon. His bank will impose charges when we pay pay our reporters outside the country or for processing your credit card orders.

Yet despite the US gloom, several of our our foreign common and preferred stocks, and a bond, are in clover. European quarterly earnings overall are topping estimates, led by a phoenix tech share. China's index is up-up-up and its home sales rose 41% in June alone. I'll take that there Chinese slowdown any day.

Invest globally even if (like me) you are a locavore when buying lettuces, peaches or potatoes. And even if two private biotech investment groups are based in your neighborhood and like some of your shares.

More for paid subscribers from Israel, Finland, Scotland, Brazil, Canada, Belgium, Denmark, and China, mostly good news. Even one of Patti the biotech maven's US picks she shared with me is up 38% today; it is eye treatment developer pSivida, which I own but have no way to write up for the rest of you. However there are some small caps looking good for paid subscribers. And a trade.

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Shareholder Democracy

Wed, 2012/07/18 - 11:30am | Your editor

 

Emerging markets do not always work well together when politics intervenes. Jindal Steel & Power, an Indian major in steel, has terminated its contract to build a $2.1 bn iron ore mine in Bolivia because of cuts imposed by the new Evo Morales government on power supplies for the project, which Jindal singed in 2007 to produce 1.7 mn tonnes of steel and develop huge iron ore reserves. It has already spent close to $100 mn on the project.

The proxy for the meeting to vote on a Brazilian takeover arrived in the mail on July 17 from Farmingdale NY, not that far away, mailed late last week. It required that I vote my ADRs to have my wishes in hand by July 12 at 2 pm Brazilian time, meaning the night before. Since the deal was announced May 27, the collection of proxies to ADR owners did not respect shareholder rights.

Moreover, the farcical mailing was paid for by ADR fees the depositary bank charges. So it also costs me money. Down with this silly system.

Time proxy mailings right or drop them altogether.

More from Brazil, Israel, Canada, Panama, Britain, and Bolivia.

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Libor Beneficiaries and Victims

Tue, 2012/07/17 - 11:37am | Your editor

Nouriel Roubini's website, Econo-Monitor, published a note on how much banks made on Libor misstatements by Yves Smith (originally posted on Naked Capitalism) with some data from Morgan Stanley. It also tries to estimate how much they risk losing.

While the estimates are of necessity vague, it appears that the Libor-setting banks together made $2.9 bn over the 4 years of manipulation.

This was far more important to the pay and bonuses of the small trading desks at the banks than to the bottom line of the banks overall, to the tune of $2.9-3.6 mn per trader. The traders collected half of the benefit from Libor fiddles.

Against what they pocketed, Mr. Smith figures the top dozen Libor setting banks face regulatory fines of $550-850 mn per bank; plus litigation risks of an average of $550 mn per bank (or $60 mn to $1.1 bn per bank.) This does not cover the costs of new regulations and procedures to stop this happening again. Nor does it include anything for lawsuits by shareholders in the banks, like those of us who owned stock in JP Morgan Chase or Barclays during the fiddle period.

 

Your editor has long considered adding Aberdeen Chile Fund (CH) to the model portfolio because Chile is a stable, well-managed country with a major position in copper and other raw materials, and because like other commodity producing countries it is suffering from concern over slowing China growth.

But I have issues with the fund management. CH tends to trade at a premium to NAV and this is usually a no-no for me, especially for the home of lots of DRs which offer an alternative to a fund. We currently own a single ADR from Chile.

As of the end of May, CH had about 9.2% of its fund in the ADR we already own, its 5th largest position, and another ADR accounted for its 3rd largest position (9.9%) of its total portfolio. In fact, the concentrated fund's top 9 shares account for 73.3% of total assets.

What makes the fund even more unfavorable to investors, moreover, is that its shares price is goosed up by a level payout program. This is good for marketing but not very good for investors.

This means that about 25% of the payment shareholders get is not capital gains or earned dividends, but their own capital returned back, which for a closed end fund means a diminishing asset after they paid brokerage commission. Sometimes CH doesn't return cash but stock, as it did in late 2011, so net distributions are even more confused.

Of course you can reinvest the payouts even if they are not in shares, and avoid the return of capital. But this creates a dividend reinvestment muddle, a worse paperwork nightmare than a normal DRP.
 

More for paid subscribers from Chile, Britain, Colombia, Finland, Thailand, Singapore, India, Israel, the Channel Islands, and Canada follows with two sells and one buy advisory:

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Shocked, Shocked, Shocked

Mon, 2012/07/16 - 2:58pm | Your editor

Today's newsletter did not go out properly because of server problems and is being resent. If you got it already, ignore this missive.

EPFR, which tracks the flows into mutual funds, reported on fund flows to the middle of last week:

“July saw investors move aggressively into fixed income fund groups associated with higher risk and returns as they waited to see how the latest act of the Eurozone crisis -- the bailing out of Spain’s banking sector -- plays out. Flows into EPFR global-tracked high yield and emerging market bond funds hit 22 and 17 week highs respectively while mortgage-backed and municipal bond funds extended lengthy inflow streaks. Europe bond funds [saw] a 4-week outflow streak snapped but redemptions from Europe equity funds resumed after a two week hiatus.

“With income on their minds, investors warm[ed] to dividend equity funds, which pulled in a 5-week high of $746 mn, and committed nearly $700 mn to emerging markets equity funds.

“Overall, bond funds collectively took in $4.87 bn during the week ending July 11 -- an 8-week high that pushed year-to-date inflows over the $200 bn mark -- while equity funds posted net outflows of $327 mn. Money market funds had their best week YTD, with inflows driven by the over $20 bn committed to US funds.”

The New York Times is shocked, shocked, that brokerage analysts give big clients a head start over retail customers on changes coming in their ratings and recommendations. But you don't need an inside edge if you read our paid blog. We put a sell on G4S the moment we saw (in The Financial Times) that GFSZY was having trouble meeting its London Olympics contracts. Today it dropped nearly 9% more. I didn't even wait for our reporter on the stock, Martin Ferara, to concur.

We also sold Barclays Bank on news of its Libor woes. Sometimes a journalist is quicker on the draw than a financial analyst who may worry about his reputation for consistency.

More for paid subscribers from our companies, starting with our most recent buy for the yield portfolio, with news from everywhere from Singapore to (a first) Sri Lanka, from Israel to Canada, from Denmark to Finland, from Spain to South Africa. Plus a new stock idea.

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Shocked, Shocked

Mon, 2012/07/16 - 11:31am | Your editor

EPFR, which tracks the flows into mutual funds, reported on fund flows to the middle of last week:

“July saw investors move aggressively into fixed income fund groups associated with higher risk and returns as they waited to see how the latest act of the Eurozone crisis -- the bailing out of Spain’s banking sector -- plays out. Flows into EPFR global-tracked high yield and emerging market bond funds hit 22 and 17 week highs respectively while mortgage-backed and municipal bond funds extended lengthy inflow streaks. Europe bond funds [saw] a 4-week outflow streak snapped but redemptions from Europe equity funds resumed after a two week hiatus.

“With income on their minds, investors warm[ed] to dividend equity funds, which pulled in a 5-week high of $746 mn, and committed nearly $700 mn to emerging markets equity funds.

“Overall, bond funds collectively took in $4.87 bn during the week ending July 11 -- an 8-week high that pushed year-to-date inflows over the $200 bn mark -- while equity funds posted net outflows of $327 mn. Money market funds had their best week YTD, with inflows driven by the over $20 bn committed to US funds.”

 

The New York Times is shocked, shocked, that brokerage analysts give big clients a head start over retail customers on changes coming in their ratings and recommendations. But you don't need an inside edge if you read our paid blog. We put a sell on G4S the moment we saw (in The Financial Times) that GFSZY was having trouble meeting its London Olympics contracts. Today it dropped nearly 9% more. I didn't even wait for our reporter on the stock, Martin Ferara, to concur.

We also sold Barclays Bank on news of its Libor woes. Sometimes a journalist is quicker on the draw than a financial analyst who may worry about his reputation for consistency.

More for paid subscribers from our companies, starting with our most recent buy for the yield portfolio, with news from everywhere from Singapore to (a first) Sri Lanka, from Israel to Canada, from Denmark to Finland, from Spain to South Africa. Plus a new stock idea.

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Trading alert

Sun, 2012/07/15 - 11:56am | Your editor

Trading alerts are only for paid subscribers. Join them to help your portfolio performance, your return, your financial security. As reported on Thursday, maintenance work on my brokerage's website rules out a complete update on the portfolios, so I am skipping it this weekend.

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New Recommendation

Thu, 2012/07/12 - 12:21pm | Your editor

Recommendations are only for paid subscribers.

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The Knight of the Dining Table

Thu, 2012/07/12 - 6:36am | Your editor

The Knight of the Dining Table, Lord Sainsbury is not just the CEO of the eponymous supermarket chain founded by an ancestor; he is also a City of London Grand Poobah, head of the former commission charged with reforming the financial services sector during its last era of wickedness. So when he told the store shareholders yesterday that its staff is carefully examining whether the supermarket firm overpaid for loans because of bank fiddles over the Libor rate they were paying to borrow from each other, it is important. Following US state and municipalities and at least one ruined financial advisor suing over the misrepresentation of the interbank cost of money, the way is now open for non-financial client corporations to join in the attacks. Even British gentlemen who do not call in their lawyers with the rapidity of Americans.

Libor rates determine what a corporate borrower pays for swaps, hedging ithe floating rates they pay for money they borrowed into fixed rates they write on their books..

Wearing a helmet made from a checkout separator, his steed a trusty Sainsbury trolley, and holding aloft his fanion (an English cucumber carefully wrapped in plastic), His Lordship leads the charge. However, reportedly some firms in Continental Europe are not pursuing banks over Libor manipulation because they do not want to mess up their banking relationships to chance a payout over a complex and unclear charge. Suing is so Anglo-Saxon.

 

Meanwhile the hard-nosed Finns will go along with EU bailout plans for Spain but they want shares in Spanish banks as collateral. How this can be worked out may require a few hardboiled meetings in the sauna. Meanwhile today Spanish 10-yr loans are costing only 6 ½ % vs 7% Monday.

 

And South Korea cut interest rates by 25 basis points to 3% triggering worry that its economic outlook has soured, hurting Asian markets. China reports Q2 growth tomorrow and I expect it was 7.5%. A Reuters poll says 7.6% but I am being conservative.Chinese GNP rose 8.1% in Q1.

 

There will be no blog tomorrow as I am travelling home to seek the sun. There will be no portfolio updates this weekend because my broker is doing maintenance (E-trade). More for paid subscribers from Israel, India, Canada, Britain, Korea, Spain, and Finland.

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