Les Halles de Chirac

Fri, 2011/10/14 - 6:43am | Your editor


The big news in Paris is that a mere two decades after the surface level construction at the Forum des Halles replaced the great 19th century greenhouse Baltard market halls, these banal walkways names after great poets, the polluted canals, the mirrored turrets blocking views of 17th and 18th century churches and buildings, and the keep-off-the-grass parks are being torn down and removed.

In their place will rise a partly-sheltered partly-open park with seats and access to the greenery, a public library, a skating rink, and an auditorium featuring events for deaf people. Fashion however will remain as before, despite having become somewhat old-fashioned. The mall under the Forum, a popular shopping site for suburbanites who hit Paris via the RER long-distance subways, will remain in place. It has the highest sales per square meter of any site in Paris despite being distinctly lower to middle class. Forum shops appeal not the Ritz-y tourists staying at that hotel and its competitors, but to people from banlieus nobody outside the city knows about, young ethnically-challenged customers for electronics and music, buyers of what in euroland counts as cheap clothing, fast food, eyeglasses, shoes, cosmetics. God must love the poor suburbanites because he made so many of them.

Who is paying for the reconstruction of the huge site? The taxpayers of Paris under the city's gay Socialist mayor of course including the stores renting in the Forum who will also collect from their customers. And surprisingly enough Mayor Delanoe remains very popular. Meanwhile the mayor who build the old Forum, Jacques Chirac, later president, has gotten off from his long-delayed trial for corruption when he ran the city of Paris, mainly because he is now gaga.

Spain has been downrated yet again by Standard & Poor's and France is now in the gunsites. S&P cut Spain's rating for a third time this year to AA-. What this means for our shares and other news follows for paid subscribers.

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Shifting Sands

Wed, 2011/10/12 - 7:36am | Your editor


The sands are shifting in unexpected directions.

With newly freed Egypt turning its army against its Coptic Christian minority in defiance of its own interest in maintaining links between the army and America, on news that Iranian assassins were trying to kill the Saudi ambassador to the USA, the fault lines in the Moslem world are shifting in unexpected ways. The disappearance of Qaddafi has clearly not ended the support of some regional governments for state terrorism.

Meanwhile 1000 Palestinian prisoners will probably be released from Israeli jails to free one Israeli held by Hamas in Gaza for 5 years, Gilad Shalit. The young soldier also has French nationality. I am writing from Paris where the news is being greeted with incredulity. The calculus of valuing life is not easy but Israel is clearly taking an important step both for PR and diplomacy with full cabinet support for Netanyahu. I hope it works out.

There will be no blog tomorrow because of the Jewish Succoth holiday. There are rather a lot of them at this time of year.

More for paid subscribers from Thailand, Canada, Israel, Bermuda, Belgium, Japan, France, Russia, and Spain today.

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Keystone to Oil-Sands

Mon, 2011/10/10 - 12:11pm | Your editor


I overstated the problems of Belgium last week. In the end, the country decided that despite national debt equal to its GNP, it would spend euros 4 bn (about $5.4 bn) plus to buy up the Belgian part of Dexia, the local government finance bank, with France and Luxembourg taking on their bits.

Negotiations to create a new government continue, the lead candidate being one Elio di Rupa, a socialist. He has the immense advantage of being neither a Fleming nor a Walloon, but is, to judge from his name, an Italian heritage Belgian.

In a different bit of the world, thinking of how China has used control of the world's sources for rare earth elements to limit supplies, do we really want to unleash China into controlling part of the northern Alberta oil-sands deposits? The Chinese state sector is actively buying in Alberta. Conoco sold just under 10% of its share of the Syncrude oils-ands project to Sinopec for $4.65 bn. Now Daylight Energy, a Canadian producer of oil and natural gas, agreed to be acquired for C$2.2 bn by Sinopec, a state-controlled Chinese company whose formal name is China Petrochemical Corp. Together with another state company, CNOOC, it has spent some C$30 bn acquiring facilities in Canada's booming but cash-short oil patch, particularly the Athabasca oil-sands. Daylight gives China access to 300,000 acres of exploration land.

But me, I want that secure nearby oil to flow south to the USA not eastward to China. Let's not shoot ourselves in the foot.

Instead of fighting to get a jobs bill through an obstructionist Congress, here is an alternative for the beleagured White House: get the TransCanada Corp's Keystone XL pipeline approved.

It would be a way to send that Alberta oil-sands crude to the USA, some 4 bn barrels per day which will be looking for a market in the next four years whatever we do. Local governments along the XL route, belabored by NIMBY protesters, stand to make a windfall in tax revenues for rights of way. And extracting the oil and building the pipeline will create more real jobs than subsidizing alternative fuels a la Solydra.

The opposition to XL is really opposition to oil-sands because producing oil from the muck is not good for the environment of Athabasca up there in Northern Alberta which happily is very far away from centers of civilization, even Calgary. For some mad reason, the European Union countries want to put a 25% surcharge on oil-sands imports because they are "environmentally harmful." Moreover, being built by sensible Canadians for the most part (despite the Chinese money bags) tar-sands extraction will probably be no dirtier than other hydrocarbon production: petroleum, natural gas (not only by frack), and coal, especially if you count externalities.

If XL is not built the oil from Athabasca will still get to market. It will probably wind up in British Columbian ports to be shipped off to Asian markets, notably oil-hungry China.

I am not a big economic nationalist but I want that Alberta crude to be processed and marketed here in the lower 48 and not in China. Athabasca crude offers not only economic benefits, but also geopolitical ones. We need to lessen Western dependence of oil and gas supplies from the fragile Middle Eastern monarchies and emirates, Putin's enigmatic Russia, Chavez's hostile Venezuela.

I assume deciding to assign the issue to the Dept of State means there will be a focus on the energy independence a Canadian pipeline will enhance.


No blog tomorrow. I am travelling to Paris.


More today from Russian, Britain, India, Thailand, Israel, Canada, Brazil, and a first, Malaysia.

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Tables Updated

Sun, 2011/10/09 - 1:28pm | Your editor

I've just updated the tables posted on the www.global-investing.com website. The closed positions are visible to all; the current holdings are only for our paid subscribers. Log in with your email and password to view our performance.

Thanks to my daughter-in-law Margot's trick I fasted better than I have in years. Here is the trick. On Jewish New Year's day cut down on the amount of coffee you drink by 10%. Do that for every day during the 10 days of penitence. By weaning yourself off the drug of choice for most of us, you will avoid caffeine deprivation headaches during your fast. Alternatives are using decaf to fill up the cut, but that is a refinement. So is taking a caffeinated analgesic on Yom Kippur morn for "medical reasons" which moreover is cheating.

There is nothing else to report except that I not only called the bottom on Monday and Tuesday; I also was broadcast as having done so by both Covestor.com which tracks a partial Global Investing portfolio, and by SeekingAlpha.com, a website which picks up articles. So it is in the public domain.

My reasons were based on work by Jim Slater, a British accountant, journalist, and and sometimes shady stock market operator who is one of the few top investors who has a blog like mine, daily. Your guru does not have to be goody-goody to be good.

So much for penitence.

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A Lehman Moment

Fri, 2011/10/07 - 11:53am | Your editor


Many reasons for caution today. Although it is not Friday the 13th, there is a fraught weekend ahead. I won't be watching the stock market much since tonight is the beginning of Yom Kippur, the Day of Atonement, and I will be at prayer. But I expect there may be a bank run by non-Jewish Europeans Sat.

Jean-Claude Trichet, the stubborn, soon-to-retire head of the European Central Bank, has taken Europe to the edge of a precipice. Now he is proposing to take another step forward. It's a Lehman moment.

Greece opened the Pandora's Box, by admitting that it cannot meet its 2011 budget deficit targets which because of austerity will hit 8.5% of GDP rather than 7.6%. Now Eurocrats have to decide at the EU, the ECB, and the IMF if they will release the €8 bn to be provided to Athens under the existing loan facility, to say nothing of a second bailout. Greece is almost certain to default in the next few weeks whatever they do.

Greece and Greek banks will probably not be rescued by the Europeans. Greece will default and leave the common currency, mainly because Trichet's ECB for now has totally rejected any demand that it act like a normal central bank, being a lender of last resort to the Euro govts. While they are all politicos the impact is hitting Europe's banks, notable the French ones which have more Greece exposure. And I think (hope) that may result in a change of ECB policy at the 11th hour.

Already it is not just Greece. Pity poor Dexia, a Franco-Belgian-Luxembourgeoise entity cobbled together during the last crisis to keep money going to municipalities, which is heavily into lending to local governments worldwide, including the USA and the Club Med countries. Improbable as it seems, Dexia guaranteed $2.9 trillion of USA muni bond issues on behalf of state and local govts. While it reduced this high-risk position, the current Dexia US muni level is between $10 bn and $55 bn, depending on which expert you believe. Dexia also holds €3.5 bn in Greek bonds and €15 bn in Italian.

Although Dexia passed the silly European stress tests a few months ago, now it cannot tap the markets to continue to operate. Lacking a "rabbi", a single government responsible for its survival, all trading in Dexia stock was suspended. Tiny Luxembourg may figure out a way to keep its bit of Dexia alive. But the bi-furcated Belgians who fight over which language to talk to each other in, and France worried about more French banks than Dexia, are unlikely to come up with a solution.

So the focus is now not on the Athens budget deficits but on the banks, even in northern Europe, likely to suffer from a Greek default, and not just Dexia. Moody’s downgraded Italy’s debt rating by three notches to A2 and warned it might be lowered again. It growled at Spain. French banks have refused to realistically write down their Greek debt by marking it to market. On debt markets, Greek paper is trading at 50% of face value; but on French banque balance sheets it is carried with only a 21% haircut. Even Mighty Deutsche Bank lowered its profits forecast because it would have to take a loss of €250 mn on its Greek debt.

Moody's has down-rated a dozen British banks and mortgage lenders, including Royal Bank of Scotland and the local UK arm of Banco Santander, neither of which the rating agency thinks will get help from the UK government. RBS is in fact already owned by the UK govt so this is mostly a formality and it insists that thanks to reforms of its balance sheet it doesn't need more help. But STD has been blocked in capital raising for its British arm by a series of unfortunate coincidences and is vulnerable.

In fact the Bank of England, the British CB, pro-actively anticipated the problems and entered into a further round of Quantitative Easing (despite UK inflation risks) precisely because banks are exposed.

Moody's then downrated eleven Portuguese banks and now threatens to do the same to seven Spanish banks in Spain.

European officials admit banks need to boost their capitalization ratios now. A couple of weeks ago they all criticized Christine Lagarde, the newly-named Director of the IMF, for saying that European banks need more capital. That's because after Greece defaults, now viewed as inevitable, the panic will then spread to Spain and Italy, leading to a Lehman Moment in Europe: a massive write-down in valuation of sovereign debt on banks' books. But bank recapitalization is now too little, too late.

Disunity across the Rhein is a key. France wants to do something typically French under the table to help French banks, because things are always done this way in Paris. It wants to use the European rescue money to strengthen French banks. Germany wants use everything else first, because it put up the money for the Euro-rescue fund, so it wants rigor and discipline. Banks must rely on market forces and only can be rescued by the euros when private funding runs out. But even the German govt cannot recapitalize and protect the banks within its national borders alone. Europe has a single currency and banks lend all over the EU. So the risk of panic and contagion is very high. Ultimately there has to be a common rescue package. On Sunday Nicolas Sarkozy and Angela Merkel are meeting. I have no great hopes.

Efforts will be made to protect depositors who have money in a failing bank in Europe outside Greece. But the odds are that they will head for the ATM and pull out their money this very weekend, in a run on banks. Dexia stock may be suspended and untradeable (except on the ADRmarket), and shorting banks is now illegal in France and Spain (but can be done on Wall Street). But nothing is going to stop the ATM panic.

And then there are holders of prefereds and senior bonds issued by these banks. They will be sold in a panic too. I think the euros will intervene before that happens. Europe however now faces slow growth or even a recession as harried consumers cut their spending and harried banks cut their lending.

Geoffrey Bell, an economic consultant and my neighbor sums it up: "The world is experiencing three related crises: a European debt crisis which can be expected to include a Greek sovereign restructuring sooner or later; a European bank crisis with more institutions finding it difficult to borrow in the inter-bank market; and a serious economic downturn on both sides of the Atlantic."


There will be a blog Monday despite Columbus Day, but there will be no blog Tuesday as I am traveling to Paris. More news from Britain, Israel, Singapore, Canada, Germany, France, and Japan for paid subscribers plus a follow-up on our trades yesterday.

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Trading Alerts

Thu, 2011/10/06 - 1:30pm | Your editor

Only paid subscribers get our trading alerts to enable them to buy and sell without having to run interference from non-subscribers. Become a paid subscriber to fully benefit from www.global-investing.com

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Plegms and Balloons

Thu, 2011/10/06 - 1:04pm | Your editor



It is hard to work up a bank bailout if you can't get your countrymen to talk to each other. That is the problem in Belgium which is viciously divided between French-speaking Walloons and Dutch-speaking Flemings, aka Phlegms and Balloons.

In the autumn Journal of Portfolio Management, David B Chua, Mark Kritzman, and Sebastien Page write about the current failure of diversification in portfolio construction: "Perhaps the most universally accepted precept of prudent investing is to diversify. Yet this precept grossly oversimplifies the challenge of portfolio construction. Correlations, as typically measured over the full sample of returns, often belie an asset’s diversification properties in market environments when diversification is most needed. Moreover, upside diversification is undesirable.

The trio first describe the math of conditional correlations assuming returns are normally distributed. Then they present empirical results across a wide variety of assets, which reveal that, unlike the theory, empirical correlations are significantly asymmetric.

The problem is that diversified portfolios can lose more in falling markets than they make in rising markets.


The Bank of England surprised markets today with a further £75 bn in quantitative easing, bringing the toal QE program to £275 bn. The Old Lady of Threadneedle Street was expected to hold its fire until Nov.'s release of an inflation report. However, “severe strains in bank funding markets and financial markets generally” led the Bank to increase its gilt purchases. (Gilts are British Treasury bills.) Britain, the home of Keynes, believes that QE stimulates the economy. And the active approach of the Bank was welcomed by the stock market. However sterling dropped. I am off Monday night to London to spend sterling worth only $1.54 or less per pound.

There is nothing like a border to cause problems in Euroland, even one which is barely perceptible. Dexia Bank, which is half Belgian and half French proved this yesterday. The bank, a heavy lender to regional and locbal government entities both here and in southern Europe, needs bailing out and neither Paris nor Brussels is ready to pay up. After a few hours in London I am taking the train to spend a week in Paris and Brussels (a tough job somebody has to do.)


More for paid subscribers from Israel, Canada, Britain, France, and Germany including a new share selection.

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Revised Trading Alert

Wed, 2011/10/05 - 3:52pm | Your editor

Readers may be surprised that they did not get trading alerts after my tipping a few moves over the weekend. The main reason is that besides liking to buy low I also like to sell high. I used limit orders which except in one case kept my trades from being executed. So far.

The exception is explained below to paid subscribers. Join them; your portfolio will be grateful. This correction is for paid subscribers only.

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Trading Alert

Wed, 2011/10/05 - 2:29pm | Your editor

Readers may be surprised that they did not get trading alerts after my tipping a few moves over the weekend. The main reason is that besides liking to buy low I also like to sell high. I used limit orders which except in one case kept my trades from being executed. So far.

The exception is explained below to paid subscribers. Join them; your portfolio will be grateful.

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Courage or Cunning

Wed, 2011/10/05 - 12:18pm | Your editor


Today is not a big news day but happily the market shows less red ink than earlier in the week.

It takes a certain kind of mad courage or low cunning to say that markets may rise when everyone says they are doomed to fall. That's my line. I am old enough to remember the first man who ran a 4-minute mile, Roger Bannister, whose son now runs a company on our recommended list. Yesterday we had a 4% mile, or rather, a 4% rise in US shares in the last 45 minutes of trading. I was not responsible. I was having my annual checkup at the doctor's.

The main reason I retain my bullish stance is not because I think markets are never going to go down. It is because you cannot forecast when they will switch direction with any accuracy. So what you have to do is buy stocks in good companies whose characteristics meet your investment goals when the price is seriously down.

I am struck by the way governments in Europe and the USA are talking green against dirty, against Canadian oilsands development. The US Department of State is working hard to get permits to allow Athabasca (Alberta Canada) heavy oils to ship to the US Gulf Coast and heartland, opposed by environmentalists and locals in its path worried about leaks.

Europe meanwhile has imposed a 25% tax bite on oilsands imports because they are “unclean” not in how they burn but in how they are extracted.

A similar fate awaits oil and above all gas extracted from shale by fracturation (fracking) which breaks up the deep underground rock with injections of water and chemicals. This is a NIMBY phenomenon. People living over the shale worry that their water supply will become methanized. There are extreme example tap water coming out of a lady's sink in western New York State which can be set alight. But it is probably not from the Marcellus share at all. The water table is close to the surface while the gas is deep down.

France has just banned three companies from using fracking in sites on the French Riviera, which at least is more beautiful than Lackawana which already features the former Bethlehem Steel Acid Tar Pits and Agitator Sludge Area. And as we have noted before, despite being a physicist, German Chancellor Angela Merkel wants to shut in all nuclear power plants in her country.

I am struck by these moves against alternatives to pumped oil. Maybe it was because I read in the Financial Times today how Daniel Yergin thinks we have moved away from dependence on Arab oil. It seems senseless to allow drilling off the coast of Alaska for conventional petroleum but to ban fracking or oilsands development in areas where there are fewer real risks to the environment.

More for paid subscribers from Singapore, Britain, Canada, Thailand, France, Israel, and Denmark follows.

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