O Oracle, Speak!
We really need the Oracle of Delphi in the current Greco-Euro crisis. Yesterday, after the Eurostat official statistics office put out nasty revised figures for the Greek budget deficit, the spread on what Greek debt costs rose to 609 basis points (bp, or 6.09%) over the level paid for German debt. Since both countries are in the same currency union, that means the market expected Greece to leave the EU and devalue. The yield on 2-yr Greek notes moved to over 10%.
This morning the Greek govt called upon the IMF and the EU to shell out some of the euro 45 bn in available bailout money. This amounted to US$60 bn and a few hundred million bucks in change at the time it was announced but since the euro has also fallen in the current total may be lower. This appeal was hardly news. The money had been gathered for getting Greek debt refunded. Read more »
Ash and Cash
Ash is like cash. The airline eruption disruption now is blamed on 'too much modeling, too little research'. That sounds familiar. Big picture forecasts of how the wind would blow took the place of micro examination of just what the impact on actual engines would be.
In investing too, beware the broad brush. For example, the speedy recovery of the 'fear index', the VIX, a measure of volatility, may not mean that all is now well again. There are a few alternative ways to view this indicator. One is to say that the trend reversal a sharp VIX move heralds has already happened, which I think is overstating Wall St.'s drop.
Alternatively, you could argue, as does Tom McClellan in his Oscillator that the VIX rebound came too fast and is 'a sign of trader complacency'. For all that, I remain skeptical of Tom's astonishing forecast that there will be a real correction by April 27. Such precision reeks of voodoo to this fundamentalist. Read more »
Baa Baa BA
We're still in London. Baa baa BA. Having been told our flight to JFK was on, but would leave 2 hours late and that we were expected to check in at the normal time, we schlepped ourselves to Hethrow only to told upon arriving at the BA terminal that our flight had been cancelled while we were en route to the airport via the Underground. BA failed to use our mobile number or email address to update us.
The departure hall was full of other people in the same boat many of whom had spent far more than we had getting there. There were about 80 BA staffers around to add to the chaos none of whom seemed to be trying to phone passengers. We got rebooked to a flight leaving April 26. About 4 hours later the British reopened their airspace and flying began again. But we had left the airport for Mudchute Manor, our London base.
Being in London helped me get more very important infomation about three yield stocks in the model portfolio, for paid subscribers only of course. And a general update on the outlook for a 4th British share.
Being across the pond, maybe I was too European in my reaction to the SEC charging Goldman Sachs with civil fraud for misselling the Abacus mortgage-backed synthetic collateralized debt obligation. Wrote subscriber Dr. AA, 'are you serious? A synthetic CDO is composed of credit default swaps on mortgage bonds. How can you purchase a credit default swap if there is nobody on the other side. This was a private placement with Goldman functioning as placement agent, not underwriter.'
Dr. AA added: 'I personally read the Abacus flipbook and I have heard it would have been a violation of SEC rules .. had they identified counterparties of the CDS.'
It would not have violated SEC rules but it certainly would have violated standard customer privacy protection. I do not think the Goldman error was failing to identify John Paulson & Co, as the short seller of the CDOs but in failing to inform buyers going long that there was a short seller who had selected the tranches to include.
Further supporting my view is the fact that Goldman has stripped the trader at the center of the alleged fraud of his license to operate here in London. Mr. Fabrice (Fabulous Fab) Tourre has been de-registered with the UK Financial Services Authority but he has not been suspended and continues to be paid for the work he is now not allowed to do.
Here is the news about the British stocks, plus updates from Brazil, Panama, Israel, India, and Britain about other shares we cover.
We fly tomorrrow, we hope
It is 10:30 pm Greenwich Mean daylight savings Time and it looks like the word is that we will fly home tomorrow. So there will be no Tuesday blog assuming all goes according to plan. We have packed. Lots of presents for the grandchildren. Lots of useless paperwork. And our passports.
Goldman Does Not Glitter Now
As with Nixon so with Goldman Sachs; it is not the fraud but the cover-up which will hurt its business and finances, and bring down the house.
The defence Goldman and its legal advisors came up with amounts to a claim that every sophisticated player in the market knew that it was allocating collateralized debt obligations to satisfy short-sellers, and moreover that other investment banks were doing the same thing. Were these claims true, there would have been no reason to hide or cover-up the role of short-seller John Paulson in placing his favorite candidates for collapse into designated CDO tranches. The prospectus would have spelled this out rather than pretending that a neutral outside body was allocating mortgages into different risk categories.
With the Dow over 11,000 still, the market here has further to fall. It is helped along by global news. Toyota is having to pay another great lump of money for safety failures and withdraw more lines from the market. China's latest measures to try to pop the threat of a housing bubble drove down that market. Thailand's crisis has reached a peak with armed troops guarding downtown Bangkok. The Kirghiz crisis risks fomenting a civil war between the North and the South.
And Europe is grappling with an ash crisis from Iceland while still trying to cope with a cash crisis from Greece. You can expect claims and suits from Britain and Germany, home of the leading Goldman victims: IKB in bankruptcy and ABN-AmRo-taken over by Royal Bank of Scotland and bailed out by the UK government.
There will be US political impact from the Goldman civil fraud charges coming just now in the run-up to financial reform regulations and (oh yes) the midterm congressional elections. Wall Street, taking a leaf from Goldman's claims, will drop on expectations other US and maybe Swiss investment banks will also face investigation and claims.
I expect to fly back to NYC on Tuesday. But I am not doing much packing. Unlike most stranded passengers, we have a pied-`a-terre with beds and a kitchen and Internet (of sorts) so we aren't going bankrupt because of the flight bans and delays.
The Internet is of sorts because Mudchute Manor is located in the doughnut and not the hole. When Canary Wharf went live 20 years ago, a new telephone exchange of the most modern sort was created for the financial center by BT, the local fixed line telco. But the rest of the Isle of Dogs (where our base here is) was left to the antiquated Poplar exchange which covers the non-skyscraper areas along the Thames. Internet links via ADSL keep cutting off to keep me on my toes.
By Christmas 2010 (when I surely will have flown home to New York), the doughnut will be rewired for fiber-optic cable. I may even abandon Sky (Rupert Murdoch's first great money-spinner) which brings television to my home from a satellite.
More for paid subscribers, some from the USA, follows about British, French, Japanese, Brazilian, Dutch, Portuguese, and Israeli stocks.
*The US FADA will shortly deal with Global Investing Pro French share Stallerg`enes (STLEF) which has successfully completed its first US phase III trials for Oralair, a sub-lingual desensitizing product against grasses pollen (including the evil ragweed). The VO61.08 trials, so-called gold-standard (double blind) for 5 grasses allergens, were run by STLEF itself. Currently the co. sells a standard injectable desensitizing program (ASAD Retard Pollen5) in the US, not special as the no-jab one. Related to the US trials, Stallerg`enes now has a US ticker symbol, so it is going into the standard Model Portfolio now.
Your editor when she moved to France for the first time developed allergic sneezes to pollens she was not used to in post-chestnut blight USA. To avoid this young mother having to go weekly to the only Paris allergy clinic, my husband gave me the shots (in my thigh, easier than the upper arm) using desensitizing material we could buy in France and throw-away needles we had to smuggle in from Switzerland. We also had a French drug for any extreme reaction so he could jab that one too. So I am a great expert on French allergy medicine, which has come a long way in 40 years from being viewed as an American excess. Read more »
Contributor Frida Ghitis wrote the headline.
Among the acts of God which have occurred so far this year, the volcanic eruption in Iceland was relatively benign. Icelanders living on the banks of a river beside the volcano were safely evacuated after it flooded. There were no deaths in the huge blowup of the mountain.
But for Katie, my cousin's daughter who was due to be married in Malaga tomorrow, the volcano has been a trauma. Only her immediate family reached the venue before the eruption, and the best man (with the ring) had to drive all last night and probably tonight as well to get to the Ayuntamiento de Malaga on time. She booked a hotel and a private restaurant area for the British contingent (and us) and of course we cannot use the facilities. Read more »
Good News and Bad News
*GlaxoSmithKline plc (GSK 39.51 NYSE – yield 4.90%) faces good news and bad. The bad is that Glaxo’s Wellbutrin anti-depression drug faces generic competition from Sun Pharma of India which got FDA approval for its ANDA for a clone drug in 3 sizes. The good news is that France’s Vivalis will create a seasonal and pandemic flu vaccine based on its EB661 cell-line under its contract with GSK and gets milestone payments. The new process avoids the slow growth of vaccines in chicken embryo eggs, which is ineffi cient and costly. The other good news is that another partner of GSK, Chemo Centryx, delivered a fourth target against infl ammatory disease, Chem R23 which will be orally administered. This builds on an agonist to chemarin ligands which fl ow around in human blood but are activated at infl ammation sites. GSK is paying a $5 million milestone for this.
Lava and Love
What slowdown? What recession? Today China reported that its Q1 growth rate was a whopping 11.9%. This makes it even more likely that the country's currency will be allowed to appreciate, not to satisfy US demands so much as to prevent China overheating. Inflation fears will squelch export enthusaists' desire to keep the currency cheap.
Fear of inflation also is why today China boosted the minimum real estate down payment to 30% and the minimum for 2nd residences to 50% from 40% earlier. It also again called upon banks to raise interest rates for mortgages and called for measures to prevent homebuilders from holding back available homes to push up prices even faster.
The family plan to all fly off to Malaga (Spain) to marry off a cousin's daughter tomorrow have been thrown into disarray by the grounding of flights out of Britain, France, Germany, Switzerland and Scandinavia because the air over northern Europe is full of dangerous grit from the volcanoes erupting in Iceland. Read more »
Milk and Beer
If you drink enough beer you can forget about milk.
Your editor does not speak Chinese but three Chinese-Americans keep an eye on things for her. Some moons ago, one of them mentioned that there was going to be a second Sanlu affaire, a bankruptcy by a maker of milk products. But unlike Sanlu, which went bankrupt after adding melamine to boost the protein content of its milk products, my source told me “the new Sanlu will be one of the companies which did not adulterate its products.” Shortly thereafter, there was a profits warning by American Dairy, which we owned, an integrated milk producer with dairy farms in Inner Mongolia, in China, and a misleading name. I had expected ADY would benefit from being untainted by the melamine mess in China. But given the gossip my source shared with me, I decided we would bail out of ADY.
The second shoe dropped yesterday in a Cayman Islands court where Hunan-based Taizinai filed for bankruptcy. This firm sold probiotic yoghurt drinks to the Chinese and the pre-IPO was invested in by Actis, a major fund, along with Goldman Sachs and Morgan Stanley. It borrowed from hapless Citigroup most of all, but also owes money to Development Bank of Singapore. And we are talking real money, 3 bn yuan, or $440 mn.
You could say that we sold the wrong stock. But the disarray in dairy in China has now claimed an innocent victim, since Taizinai did not add melanin to its yoghurt drinks. And world brands like Nestle are not rushing to buy out the startups in China because there will be more disasters. We bought a second beer brewer instead.
While on the subject of the demon drink, yesterday I sold the last of the ADRs of Diageo in the Covestor account I run. This allows other investors seeking yield to track my moves. We sold DEO at $63 for a nice profit, mainly because its net yield is the lowest of the shares I had placed in this account. The account is for shell-shocked investors able to raise $10,000 who want to be gently guided back into the stock market by me, and pay only $1 per trade (which I keep to a minimum). Full disclosure: I get a fee per account. For more information, visit covestor.com/
And while on the subject of liquids in China, I'll share with you the outlines of the deal made with US Treasury Secy Tim Geithner, as spelled out by The Economist Intelligence Unit. “China”, the IEU wrote, “is bending but not bowing.” In return for not being designated a currency manipulator, Beijing is cooperating (sort of) with the US over nuclear Iran and will allow its currency (sort of) to appreciate slowly.
Just Washington's Congressional fire-eaters want to loudly and publicly fight Chinese dumping to win votes, in China itself the Central Bank's sensible desire for a stronger Yuan is being opposed by the Commerce Ministry and exporter companies who fear the consequences. Given that China ran a trade deficit even with a cheap Yuan, they say letting it rise would hurt trade and their businesses. China is not democratic of course, but that doesn't mean there is a single dictator setting the country's policy parameters as there was under Chairman Mao. There are legitimate and corrupt interests both at the center and in the regions and municipalities which push policy in different directions. The emperor has to balance the different forces, just as the US Administration does.