Kung Hei Fat Choy
Kung Hai Fat Choy. And happy Robbie Burns Day. And watch out for solar flares.
My Dragon Power breakfast yesterday (focused on commodities) was sponsored by HSBC and moderated by the Economist Intelligence Unit which benefits from over 150 years of commodity price data. Two questions caught everyone's attention: 1) when will China overtake the USA in per capita production, if it hasn't already done so; and 2) the degree to which a fatal commodity shortage can be offset by alternatives, substitution, new technology, or more intelligent consumption—all of which of course operate on the demand side. But I struggled to find new stock ideas.
Maestro Placido Domingo conducted a 'Harmony' concert for two elementary school orchestras, inspired by the Venezuelan program to teach children to cooperate and focus. Hugo Chavez isn't my favorites presidente, but give him credit for this program. One of the orchestras was from P.S. 152 Manhattan from which I graduated. Inwood (north Manhattan) was then a center of the German-Jewish emigre 4th Reich; today it's mostly Dominican.
The head of British Man Group, a leading hedge fund manager, backs the reintroduction of the 'uptick rule' to reduce the risk of a market crash prompted by high-frequency computerized trading. Peter Clarke Monday at a London School of Economics Alternative Investment Conference called for bringing back the old U.S. rule, which only allow short-selling (bets that a stock price would fall) if the last trade price was higher than the previous one. He said this could help stop rapid-fire computerized hedge fund trading causing sharp, irrational market drops.
Quantitative hedge funds twice caused market sell-offs during the financial crisis. In mid-2007 quantitative hedge funds suffered heavy losses after being caught in a vicious circle of selling. Our Securities and Exchange Commission also partly blamed the March 2010 "flash crash," when the DJIA fell nearly 1,000 points in a matter of minutes, on high-frequency trading firms, which can make tens of thousands of ultra-fast trades daily. Clarke argued that high-frequency traders, whose strategies include making markets for other investors, do not contribute to overall market liquidity despite their claims that they do.
Clarke said the uptick rule could halt some "quant strategies from becoming systemic in certain markets over the short term".High frequency trading accounted for 56% U.S. equity volume and 36% of European in 2010, according to TABB Group (quoted by Reuters).
While I was otherwise engaged, the Bank of Israel boosted the Shekel-$ exchange rate by 0.32% yesterday to NIS 3.787/$. For euros the new rate is NIS4.925. It also cut the interest rate charged starting in Feb to 2.5%, down a half a percent.
The Reserve Bank of India, their CB, also cut the Cash Reserve Ratio it requires banks to hold with RBI by a half a percent, in this case to 5.5% while keeping its repo rate at 8.5%. The RBI seems to think the Indian inflation threat is moderating. While we do not have any way to play Israeli we do gain from CB easing in India.
More for paid subscribers from our companies,.with news from India, Finland, Britain, Greece, Israel, Canada, France, Belgium, Spain, the Netherlands, Ireland, Greece, South Africa, and Brazil. Because it is two day's worth, this is a (Kung Hei) fat (Choy) issue.
Today while attending the 2012 outlook conference at The Economist Intelligence Unit and HSBC Bank, I naturally celebrated Chinese New Year. Kung Hai Fat Choy. The hotel was designed by my neighbor, I.M. Pei.
I also did a stock trade based on a limit order, but of course I was not aware of it at the conference where cellphones and their latest clones were compulsorily turned off. I used a limit order because I thought the stock was rather toppy. The writer, Frida Ghitis sort of admitted it too, as did at least one Texas reader, RH. No, I do not tell people in advance about my limit orders lest they gazumph me by offering a mere penny more.
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As I am having a dragon~year-launching breakfast with The Economist tomorrow morning, Tuesday´s blog is coming a few hours early. It will be at the I.M. Pei desgined Four Seasons Hotel.
More for paid subscribers from India, South Africa, Britain, and Colombia.
The rocket keeps on rising. The year-to-date performance of our stocks has echoed that of US indexes, which are up the most in January since 1987. And if you are an old investor like I am, that will remind you what happened in the autumn of 1987, when the stock markets suddenly got the vapors and sank sharply.
The recollection along with the pretty rotten market performance of 2011 makes many investors trigger-happy now. So we are taking some profits in the coming week. Details for paid subscribers only who should please view the tables by logging in to www.global-investing.com
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A Hedge Idea
The nice thing about India, despite the corruption and backtracking is that it inherited from the British a respect for the rule of law. Yesterday the Indian High Court threw out an attempt by tax authorities there to charge Vodafone of Britain $4.4bn in capital gains taxes for buying out Indian interests of Hutchison Telecommunications in 2007. The $11 bn in assets were bought by the UK firm from a Cayman Islands one. After much legal hassle, the Indian court threw out the tax claim.
This will help other companies which made or are thinking of making investments in India.
However, the more I think about it, the more convinced I am that India is not the right emerging market to invest in short term. Analysts of a fund we own argue that the new I in ''BRIC'' countries should be Indonesia because of its fast growth. I am not sure.
We also have a new reporter who pitches many South African stock ideas at us, including a new contrarian one today. I am not sure about that either. But I do agree with his pick today.
I think the hot emerging market for 2012 can be spotted. In my view it is Mexico. It is achieving both growth of valuations of its stock and higher currency rates. That is a win-win.
More from South Africa, Spain, Britain, Indonesia, the Netherlands, France, Colombia, and lots from Canada today.
The Unflat World
It was impossible to buy the well-priced euro-denominated bonds of London airport operator BAA in the USA as a retail investor, because they are not registered with the SEC. We have to wait until they have been trading at least 90 days. (I also misstated the net yield yesterday because of a typo. It is 4.495%.) The supposed flat world is full of regulatory barriers. My US bank, HSBC, was one of the underwriters, but I was still not allowed to buy.
While I allign my interests with those of my readers by not trading for my own global account except after I have posted articles for those who pay for it, I do suffer other conflicts of interest.
The new threat to my way of life comes from the growth of Boris Island. That is the joke name the British are giving to the plan to build a new London airport in the sandbanks of the Thames estuary east of London. The new airport would back up Heathrow's 5 overcrowded terminals and enable the British to connect more flights to growth markets in Asia.
The news comes on a day when markets are focused on London airports. For someone with a pied-a-terre in east London the good news is that connecting to my main base in NYC will be easier without a 90 minute train journey to Heathrow. (As we commute constantly back and forth we do not indulge in taxis to and from JFK or Heathrow, but use public transport.) But I fear the gentle lap of the waters I hear at Mudchute Manor, our London flat, will be drowned out by planes overhead.
The focus on airports is because BAA Funding Ltd., a holding co. for U.K. airport operator BAA, owned by Grupo Ferrovial SA of Spain, today priced a euros 700 mn, senior secured 5-yr bond. Underwriters are BNP Paribas SA, Lloyds PLC, Banco Santander SA, and HSBC Holdings PLC. The yield is 280 basis point over euro midswap, or 4.375%, but the bond came out at 99.85% of par so the yield is 4.9%. This is a bit on the high side for an S&P/Fitch A minus issue. The tranches start at euros 1000 so retail investors can buy. Unlike normal US bonds, interest is paid only annually. You have to pay for the bonds by Jan. 25 in euros in London.
Since I have an account with one of the underwriters I will see if I can buy this issue in modest amounts. Watch this space. As you can see I am conflicted: I want better airport access but not to have to put up with the noise of planes.
Meanwhile Portugal debt holders are paying 12.5% for credit default swaps, worse than Greece, mainly because Portugal is making less noise and the EU is less actively involved. This is a sign of whack-a-mole policy-making. I am going to Portugal for a vacation in July.
More from Spain, Britain, India, Brussels vs Washington, Israel, Panama, Mozambique, Brazil, Panama, Canada, Norway, Finland, and New Jersey (two items) for paid subscribers follows. Plus two trading alerts.
Les Canadiens Errants
The AARP Bulletin reports on how Pfizer manages to keep its claws in Lipitor using an unprecedented price-cutting campaign of coupons to get users to stick with the brand rather than buying cheaper generics. PFE made deals to stop health insurance plans from covering generic Lipitor; instead they are covering only the branded version but are charging lower co-payment fees.
This sounds like it is good for customers, but the senior lobby writeup says it is not. If you are on a Medicare Part D plan there's a catch: after your first $2930 in 2012 drug costs based on the full price of your drugs, a coverage gap (called the doughnut hole begins) and your costs rise. So if a Part D plan decides to cover Lipitor but not a generic, you hit the doughnut hole faster because only the higher brand price counts toward the gap.
These arrangement will hurt lipitor customers until the end of May when more generics will cut prices and increase competition. but meanwhil other drugs going off patent in 2012 will copy PFE's strategy, the AARP writes.
Two Senate committees have asked PFE for details on its deals with benefit management companies that act as middle men between drug makers and insurance firms. Sen Mac Baucus, D-Mont charged that such deals ''may be abusing Medicare to boost profits and deny generic alternatives to patients.''
China's growth fell to 8.9% which is still a soft landing.
Europe handled the S&P credit rating downgrade with aplomb. France auctioned off €1.895bn of 12-mo bills at a yield of 0.406%, down from the 0.456% they paid only a week or so ago. The 3- and 6-month paper (over €8bn in total) also was sold at lower yields.
This is parallel to what happened when the US credit rating downgrade occurred last summer. Maybe it is time for Newt Gingrich to stop beating up on Mitt Romney for being able to talk French! There are almost now AAA sovereigns left: only Germany, Britain, and Canada among the G7.
There are another 9 AAA countries with illiquid bond markets outside the G7 industrial countries. After all the stock markets managed to rush off the worries about the euro and the German Dax, French CAC, and British FTSE all rose.
Since other markets were open yesterday there is a lot of news which I will try to be brief about. And we have a new Canadien errant pick written up by Martin Ferera with help from my eldest grandchild, Claude Lewis, 11. Martin, born in what is now Zimbabwe, has become a Canadian. Claude lives in Cleveland, Ohio, across Lake Erie from Canada.
We have news from Britain, France, Germany, Israel, Brazil, Peru, Canada, India, Singapore, and Ireland.
Just in time for Martin Luther King day, which celebrates a man of peace, the first part of the Barron's Round Table appeared this weekend, showing the pundits at a square table under the visage of Mary I. Bunting, who was the president of Radcliffe when I studied there, alongside a portrait of her then-Harvard counterpart, Nathan Pusey. The gathering took place on the 3rd floor of the NYC Harvard Club. The portraits did not fall down in reaction to Marc Faber (the Thailand-based fund manager who edits The Gloom, Boom & Doom Report) saying that ''World War III will occur in the next 5 years''. World War would be ''positive for stocks and negative for bonds.''
Herr Faber also preached breaking up the euro and cutting government budgets if war did not break out. He wound up tamely saying investors should go for emerging markets and diversification.
Your editor found that despite his gloomy-and-doomy outlook, perhaps to gain clients, this Swiss wearing a black shirt and a pony-tail shares some of my stock picks. More on this for paid subscribers below. While I don't expect World War III, I think diversfied equity portfolios with emerging markets positions make sense. ''This year the economy could contract and stocks could go ballistic as central banks print money,'' Herr Faber added. I am not sure if this is in the event of war or peace.