Just-In-Time Lean Manufacturing

Mon, 2011/03/14 - 12:32pm | Your editor

 

After Chile suffered its second earthquake in 2010, the bookies were taking bets on where the next Big One would hit. New Zealand was not among the sites you could bet on. And for Japan the only site on which odds were offered was Tokyo. That means the bookies made money because the latest Rim of Fire earthquakes were in unexpected places, Christchurch and Sendai.

Which is why bookies, also called turf accountants (even if they are laying odds on things other than horse-races) make money with their oddball bet offers. Earthquake science is still in its infancy and punters are even less well informed.

The latest news is that the Japanese quake has been raised to 9.0 on the Richter scale. It is a logarhythimic measure, so every whole number increase in the scale is equal to a factor of 10 times, and a boost from 8.9 to 9.0 being the worst intermediate increase.

Japanese nuclear engineers who built the country's generators (with GE) 40 years ago prepared for an earthquake. The engineers also prepared for a tsunami. But they did not expect both to occur together. So desperate innovative Tokyo Electric Power Corp. (TEPCO) staffers are flooding the reactor towers with sea-water to try to cool them off, as the diesel backup engines were flooded out, and do not function.

This leads to an inevitable riff about just-in-time lean manufacturing a la Japonaise in the supply chain, invented in Japan a couple of decades ago. Its risks are much higher than imagined. So too are the risks of zero-interests rates, another Japanese invention. And those of deadlocked governments, yet another. We have to put on our thinking caps and create a bit of redundancy to protect our lives and our livings.

Lest I sound too gloomy, I am also thinking about what happens after disasters in Japan. The country rolls up its sleeves to rebuild and grows very fast. Instead of bridges to nowhere build by venial or silly politicians to pay off constituencies with more votes than people, the country with real needs gets its politics out of the way. The central bank stops worrying the impact of its actions resulting in pennies one way or the other on the exchange rates and floods the economy with liquidity to finance desperate needs for electric power, water, roads, and buildings. Dysfunctional old holding companies get religion or die.
How do I know? Because I can remember the incredible rise of the Land of the Rising Sun after World War II. Over two decades, Japan built its way to economic dominance in electronics and autos, in consumer goods (remember the Sony walkman?) in pharma, in movies. This was an after-effect (or after-shock) of the rebuilding of its flattened cities and its infrastructure after the War and the Occupation. Japanese are very nationalistic and like to join in a crusade to help their country when given the chance.

Japan has slipped out of the innovation mode into a holding pattern focused on nonsense products and silly trends so far in the 21st century. But maybe there will be an economic revival now.

Nintendo (NTDOY) said the U.S. launch of its newest handheld videogame player will not be hampered by the earthquake that struck Japan. Amidst the tragedy gamers will be relieved at the news.

 

From India, Mohammad Habib Khan reports on the repercussions there:

With fears of a nuclear disaster in Japan, some analysts are predicting small-scale panic about nuclear power in India.The number of people exposed to radiation due to the potential breakdown at Tokyo Electric Power Co.’s nuclear plants in Japan could reach 160, a figure made all the more ominous because we are just over a month away from the 25th anniversary of the Chernobyl disaster. Japan’s nuclear agency has already gone on record to say that 15 people have shown exposure to radiation since the explosion, and the government has declared a nuclear emergency. The nuclear stocks in our portfolio will be hurt. Countries sitting on the fence or in a pre-launch phase with nuclear programs are likely have to deal with political pressures and renewed nuclear nay-saying.

India in particular, with its government’s infrastructure maintenance credibility seriously damaged by the collapse of structures prior to the Commonwealth Games last year, could be forced to rethink its blossoming nuclear plans. India had planned to spend about $175 bn on nuclear generation by 2030, after it won access to atomic fuels and technology in September 2008 from the 45-member Nuclear Suppliers Group, on a proposal made by the former US Bush Administration.

Following up, French President Nicolas Sarkozy signed an atomic cooperation agreement with India in December for 2 nuclear plants in Jaitapur, Maharashtra, for $9.3 bn and France agreed to support India’s bid for membership to the Nuclear Suppliers Group. The recent disaster is sure to reignite debate on the use of nuclear power. India has so far been eagerly looking forward to the project, and Nuclear Power Corporation of India (NPCI the state-run monopoly player) had already acquired 938 acres of land for the project.

Of course there will be a re-examination and tightening of safety measures, a good thing. But recall that India's two existing nuclear survived recent natural disasters without any significant damage or threat to life, says Shreyas Kumar Jain, head of NPCI. A reactor in Kakrapar in the western state of Gujarat was an unblemished survivor from an earthquake in 2001. Kudankulam in the southern state of Tamil Nadu, which faced a tsunami in 2004, also was undamaged. Do not give too much credit to Indian technology. These were much newer post-Three-Mile-Islands, post-Chernobyl plants than the troubled Japanese relics of the 1970s.

Growing international competence will further reduce the risk. Mr. Jain did however state that the potential meltdown at TEPCO could be a “serious dampener” on India’s program. He said, “We and the Department of Atomic Energy will definitely revisit the entire thing, including our new reactor plans, after we receive more information from Japan.”

India’s recently passed liability law, intended to ensure the safety of nuclear operators, serves as something of a deterrent to an otherwise lucrative market for nuclear companies. However, Areva’s not going out of business anytime soon, as the huge gap between power supply and demand in India, and the blistering growth rates that the country is experiencing, should limit any significant impact on the Areva plan, except perhaps lead to a tightening of security measures, which can only be a good thing. The reasonably good nuclear safety track record, of course, can only help.

 More for paid subscribers about the companies which were affected so far follows below, from Ireland to Israel, from France. And a report from Chris Loew in Japan. And some non-quake news from Canada and China, Latin America, Germany, Britain, and Belgium.

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Tsunami Friday

Fri, 2011/03/11 - 10:12am | Your editor

Richard Jerram of Macquarie Securities in Hong Kong writes about the likely economic and stock market impact of the huge
Japanese earthquake (reprinted with permission):
 

"The Tohoku region has been hit by a major earthquake and tidal wave. Damage seems likely to be less than the Kobe quake on 17 January 1995. The magnitude of the earthquake is reported at 8.8, but it was well offshore, compared to 6.8 in Kobe (Hanshin), which was very close to the city. Around 6,400 people died in the Kobe earthquake and early reports suggest that the damage is far less in Tohoku.

"Japan improved its disaster response systems in reaction to poor performance in the aftermath of the Kobe earthquake, and disruption from the 2004 Chuetsu earthquake was limited. The BOJ has systems in place to provide liquidity if necessary.

"Miyagi (home to Sendai and the most affected by the quake) accounts for 1.7% of the population and the same proportion of GDP. Tohoku as a whole is abut 8.0% of GDP. Initial reports suggest that Tokyo has not been badly damaged (Kanto accounts for nearly 40% of GDP). By contrast, Kobe made up almost 4.0% of GDP and the importance of its port and its geographic position between Osaka and Western Japan meant that the disruption was significant.

"There are two basic economics-related concerns. The first is that the fragile economic cycle is not in a position to withstand significant disruption. The second is that the combination of a softer economy and the additional strain on public finances will put upward pressure on bond yields.
Despite the scale of the disaster, it is hard to find much evidence in the macroeconomic data of the effects of the Kobe earthquake. Industrial production dipped 2.6% MoM in January 1995 and then bounced 2.2% in February and a further 1.0% in March. Costs were put at about ¥10tr. GDP growth was 3.4% QoQ annualised in 1Q95.

"The equity market fell 8% in the week following the Kobe quake. The currency did not move significantly at the time, although it rose in subsequent months to a peak of just past ¥80/US$ in mid-April, but this did not seem to be related to the Kobe earthquake (there was significant trade tension with the US at the time). The BOJ cut rates in April in response to the strong currency, not the earthquake. Significant yen repatriation that could push the currency higher and, at an extreme, disrupt global markets, looks unlikely.

"Similarly, bond yields did not move much in the immediate aftermath of the Kobe quake (although public finances were not in bad shape at the time), but yields fell in subsequent months as the stronger yen helped to reduce growth expectations and the economy headed into deflation.

"Inevitably there will be microeconomic disruptions, as there were after Kobe and even Chuetsu. However, many firms reportedly diversified supply chains in the wake of Kobe, so the impact should be lower."
 

My grandson Claude, 10, home for a snow day in Cleveland, edited the above and pointed out that the magnitude of the earthquake has been raised to 8.9 on the Richter scale.

Vivian adds: We will suffer in our insurance sector positions, however, one a Pacific Rim centered insurer and the other a British-listed Bermuda specialist reinsurance firm. I reported yesterday on the impact of the New Zealand earthquake on one of our shares, and it will obviously suffer more today. We will be thinking of averaging down but probably not yet. As the old adage goes, heartlessly, the time to buy is when there is blood on the streets.

I had planned to run material on the oppression of Shia Moslems in eastern Saudi Arabia but Allah the Compassionate and the Merciful has turned the world's attention elsewhere. Heartless as it sounds, the time to buy is when there is blood on the street. Our Asia based reporters are both fine; Chris Loew used my concern to send me an invoice, as he will need cash if there is any disruption in his life, writing: "We are well. I could feel some minor shaking here, but no damage."
 

Mohammad Habib Khan wrote an exclusive on the impact of the tsunami on one of our companies for paid subscribers. I wrote another 3 notes. Subscribers read on!
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Macro vs Micro

Thu, 2011/03/10 - 11:19am | Your editor

First of an apology for the delay in sending your issue yesterday and then sending it twice. I am in Cleveland on a mission of mercy and not on top of things. Today's blog calls upon our team from around the globe to spare me.

Richard Suttmeier of ValuEngine writes about the reasons why he recommends booking profits now:
1. The fundamentals showed that stocks were overvalued and we have had three ValuEngine
Valuation Warnings when more than 65% of all stocks are overvalued: The January warning was ignored by the market but so far stocks peaked with the warning issued on February 18th and reiterated on March 3rd. During this period we have seen many days where all sixteen sectors have been overvalued, with eight to eleven by double-digit percentages. The Dow high was 12,391.29 on February 18th.
2. I believe that the Federal Reserve will allow QE2 to end at the end of June and that there will be no QE3. At that meeting the FOMC will remove “extended period” from their statement. The federal funds rate has been zero to 0.25% since December 16, 2008.
3. The weekly chart for the Dow Industrial Average has been overbought since the week of October 9, 2010. Momentum needs to fall below 8.0 and the Dow must have a weekly close below the five-week modified moving average, which ended last week at 12,017. A negative weekly chart confirms the market top.
4. It will be hard to maintain a bull market with European Debt issues, African, and Middle-East political unrest, problems at US state capitals, and inflationary pressures in China.
5. The housing market remains depressed and community banks remain stressed.
 

Here is a response from one of our team of reporters, Chris Loew in Japan, who sums up our market philosophy. We do micro, not macro:
 

Marc Faber (according to Bloomberg) predicts monetization of the yen to pay off government debt. This, he thinks will weaken Japanese bonds and boost Japanese equities.
I think it more likely that the government will just increase its borrowing, as does the US. A more immediate risk is further downgrading of Japanese bonds and a rise in interest costs. S&P downgraded Japan's debt from AA to AA minus in January. The dollar rose by less than 2 yen. A bigger downgrade would have a bigger effect, but probably not back to the 110 yen/$ level many exporters were basing projections on until recently.

As for moving cash into equities, given the wariness of the public here about job security, it is more likely that easing will lead Japanese to pay down debt rather than invest in equities. After all, eliminating a loan is a surer return than stocks. Japanese households and companies have too much debt. The US now has a better savings rate (5% in 2Q 2009) than Japan (average of 2.2% for 1997 - 2007 decade).

A better strategy than trying to predict major economic events is to simply select companies that can do well regardless of the general trend, and to be contrarian when the market mis-values a company based on news or sentiment.

 

Here is a note from Mohammad Habib Khan about the latest outbreak of India Shining enthusiasm:
 

Big Business in India remains positive on the outlook of the Indian economy. India’s foremost business maharajah, Mukesh Ambani (head of Reliance Industries), stated that India will be a $5 trillion economy by 2022-25.
 

This astonishing forecast, with gross national product currently at $1.2 trillion, echoes the US Consul General’s statement last year that India will become a $5 trillion economy “very soon.”

But somebody needs to explain this to the more than 30% of India's population living below the poverty line, as many as the entire population of the USA. Almost a third of the world’s poor live in India. The question any rational observer must ask is this: Where does all the money made at the top of the pyramid go before it trickles down to the bottom?

The sad answer comes results from the alarming levels of institutionalized corruption that seems to pervade the Indian system at every level in every branch of the system: administrative, judicial, even defense. A roundup of known scandals only during the reign of the latest government tells us as  much. Even without the scandals we don't know about, India lost as much money as its entire defense budget in a scam involving the auction of the 2G spectrum (yes 3G is as advanced as it gets here).

One would expect thos statistic to alarm the Army, except that its top brass was apparently busy helping itself to apartments allocated for distribution to war widows, in the Adarsh Society Scam. International image is apparently of no concern to the corrupt, as last year’s Commonwealth Games, a big Indian image-building opportunity, were preceded by a media blitz indicating that the games organizers had pocketed half the total budget. 
 

Of course, there is a regulator to keep an eye on things, the Chief Vigilance Commissioner (CVC). The only problem is that the current CVC himself has a corruption case pending against him. Surprisingly enough, the CVC was appointed by none other than Dr Manmohan Singh, the Prime Minister– a Cambridge graduate whose virtue is generally considered beyond reproach.
 

Amidst the congealed morass of corruption in India, though, hope shines in the form of the businessmen that have taken it upon themselves to build India, representative of the dynamic Indian entrepreneurial spirit visible in its busy bazaars.
Led by the highly ethical Tata Group, business has been driving growth in India since 1991 – the year India was liberalized, dubbed “India’s second independence” by many. Tata has steadily acquired many big international names since 1991. According to The Economist this week, from 1995-2003, Tata acquired one company each year; 2004 saw it acquire 6, and 2005-06 saw it acquire a massive 20. In 2007 Tata acquired Corus, Europe’s second biggest steelmaker, and in 2008 it bought the iconic brands Jaguar and Land Rover, making Tata the biggest manufacturing employer in the UK. Mukesh Ambani himself has been busy recently, inking agreements with oil major BP and Intel’s technology investment fund. Ambani is currently the 4th richest man in the world adording to the Forbes ranking.
 

The 5th spot is held by Lakshmi Mittal, who created the biggest merger of all time in the steel industry, ArcelorMittal.

Contrary to what one would expect, in India the state appears greedy and the capitalists benevolent. Small wonder, then, that the man who heads the eponymous group, Ratan Tata, owns less than a 1% stake in the group that bears his family name.

So yes, a $5 tillion GDP does not seem like a farfetched target. But the figure means little to the billion-strong population of India, who are unlikely to see much of it.
 

Vivian adds: the impressive performance of non-resident Indians where they are not constrained by caste and class, like the US and Canada, is another reason to believe India can grow quickly to a $5-trillion economy. While nobody named Tata or Ambani or even Mittal can be a self-made man, many of the Silicon Valley and Wall Street Indians rose to the top thanks to brains and ambition rather than family wealth. 
 

Note also that the world's richest man, Carlos Slim Helu of Mexico, is the top performing non-resident Arab in the world, but also part of a cohort of other NRA entrepreneurs. So I have an eye on the Middle East as well.

 

More for paid subscribers from Singapore, Spain, Bermuda, New Zealand, Denmark, and Brazil below.
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Bulls and Cows, from Cleveland

Wed, 2011/03/09 - 10:21am | Your editor

Ida Cheung of Macquarie Securities Asia writes bullishly about the outlook:
"We expect 2011 will be a broadly positive equity return environment, bolstered by still expansionary monetary policies and still accelerating economic growth. Globally, valuations (12x-13x fwd PER’s) are not challenging. Crucially, equities appear to be discounting bond yields well above current levels.

"Hence, continuation in the sell-off in bonds on the back of inflation concerns should boost equity returns as funds flow from bonds to equities accelerate.

"Investors appear to have reacted recently to the change in the 'delta' of growth – developing to developed, which is now widening. Emerging economies and their equity markets were the first to recover after the lows following the GFC, leading to a positive growth delta. This cycle has now shifted to the developed world, as continued upgrades to the EPSg forecasts for key developed markets - US, Germany, UK, France, as examples, are now in clear view, fuelled by a strong and increasingly synchronised manufacturing upswing.

"Conversely, emerging markets’ growth may now be stalling (i.e. the delta of growth flat to negative), given slowly tightening monetary and other restrictive policies. We note however that the valuation differential between markets – developed and developing, is narrow. Thus the respective earnings revision trends should drive equity markets returns in the next 3-6 months."

I opened a can of worms in my blog yesterday by publishing comments about First Nation deals in Canada from two analysts talking about a specific stock, one from Canada and the other from Nevada. About 15% of our subscribers are located in our neighbour (sic) to the north. I'm just across Lake Erie from many of you right now in Cleveland, Ohio. The comments were about a share tip and we will not publish any more rhetoric, invective, and abuse on this issue because it is not our 'beat'.

About 8 years ago I last visited Argentina, finding some really great bonds we bought, now redeemed, and observed lots of curious native customs. Among them were pregnant ladies with their belly-buttons showing under short t-shirts, dog-walkers, and women using udder cream developed for milking cows on their hands and faces. After my face cream was confiscated by the security guards at La Guardia airport yesterday, my daughter-in-law came up with a cow gloop from Salem OH called "Udderly Smooth", just what the Argentines had got from the dairy supply shop. Argentina sets the trend. I have to go back to BA to find another set of innovations and perhaps an investment idea.

More for paid subscribers from Canada, China, Israel, India, Qatar via Berlin, Britain, Thailand, and Switzerland follows. This is stock-specific portfolio advice and is only sent to those who pay for it. Join them. Your portfolio will benefit.

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TRADING ALERT

Mon, 2011/03/07 - 6:01pm | Your editor

Trading alerts are only for paid subscribers. This one is particularly nuanced and will not be tradable until Tuesday, so we are being even more careful to only let those who subscribe for the full edition read the tip.

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A Hot and Disputed Canada Pick

Mon, 2011/03/07 - 5:55pm | Your editor

 

I got a medical appointment right before flying away to Ohio on family business so the Tuesday blog is being written late Monday. I am seeing a dermatologist about a sore on my nose, which will not affect my survival chances, I think. We have news from Canada, Britain, Israel, Ireland, Japan, and China today. Apologies to Italy, but there is no follow-up on what I wrote this morning except to note that the Libyans own a lot in Italy.

 

I should have foreseen the down market today. Richard Suttmeier of ValuEngine put a valuation warning out over the weekend calling all sectors of the US market overpriced. He is a great macro forecaster whom I got to know when we were both victims of the late and unlamented Rightside Advisors. Some of the fallout is discussed for paid subscribers below.

 

Gen. Joe Shaefer manages money at Stanford Wealth Managment LLC and writes Investor's Edge, a newsletter. He came up with "a rather compelling agglomeration of companies in the right industries and sectors" and adds that "if management is half as good as they seem, I think they'll steadily grow this into something of real value." Paid subscribers can read on about an incubator with perhaps the right stuff, written by Joe:

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Italian-Libyan IR

Mon, 2011/03/07 - 11:32am | Your editor

 

Today's blog is particularly long because there was none on Friday. And there will only be a short blog on Tuesday when I am traveling for family reasons. To spare my faithful readers too much eyeball fatigue I am starting off with an off-color note for paid subscribers only.

But before that I wanted to share an anecdote. A half dozen years ago when we had a stringer in Italy he arranged for me to be given lunch by the IR of Finmeccanica, the large Italian conglomerate in businesses like defense, aeronautics, and security. As the charms of the company were pitched at me I asked my host how he had learned English so well. “I studied at Jew York University”' he told me.

So of course we did not buy the shares. To an Italian, I do not look Jewish, just vaguely Mediterranean.

Finmeccanica now is in deep trouble. Not only does it sell much equipment to Libya across the Med, but the Qadaffi regime owns a chunk of its capital.

Now to work in Britain, Colombia, Israel, Australia, Brazil, Argentina, Ireland, France, Belgium, Souths Korea and Africa, China:

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Plagiarizing and Ranting Part II

Thu, 2011/03/03 - 12:38pm | Your editor

This morning's newsletter was foreshortened so I could attend a Capital Link conference about a new ETF to invest in global corporate bonds, from Powershares Capital Managment Invesco. The webinar was late, chaotic, and a piece of marketing, but I write it up for paid subscribers below, along with another bit of delayed news from Thursday. There will be no blog tomorrow as my office will be refurnished.

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Plagiarizing and Ranting

Thu, 2011/03/03 - 10:41am | Your editor

 

IndexUniverse reports on Feb. ETF fund flows:

$7.6 bn flowed into U.S. exchange-traded products, lifting assets 0.72% to a record $1.056 trillion.

Investors, spooked by the unrest sweeping through the Middle East and North Africa, dumped emerging markets holdings. The world's biggest developing markets fund, the Vanguard MSCI Emerging Markets ETF (NYSEArca: VWO), had outflows of $1.41 bn. The iShares MSCI Emerging Markets Index Fund lost even more, suffering outflows of almost $2.4 bn.

 

As a former PhD candidate who never wrote her thesis (my degree is an ABD: all but dissertation) I am troubled by the spate of doctorates tainted by plagiarism. First Theodore-Karl zu Guttenberg, the German Defense Minister, who holds a rather posh baronry and is moreover married to a Von Bismarck, felt he lacked enough handles and got a doctorate in his native Bavaria. Now it turns out he simply cut and pasted articles from scholarly publications... and newspapers to create his dissertation. (Of course serious German newspapers do read like theses.)

Then Seif al-Islam Qadaffi, son of the beleagured Colonel, was accused by the London School of Economics of cribbing his PhD thesis in economics. Seif also is a painter and architect, as well as the closest to Papa, and again it is unclear why he needed a PhD.

Another hot trend is anti-Semitic tirades by men under the influence of alcohol or drugs. It was started by Mel Gibson, the movie producer and star a couple of years ago. Now TV personality Charlie Sheen did an anti-Jewish rant fuelled by drugs or drink.

Then Julian Assange, Wiki-leaker, accused The Guardian, a British newspaper, of hatching a plot against him because the editor allegedly is Jewish. But in fact the edtior is not Jewish although he has a Jewish brother-in-law. Tony Blair has a Muslim sister-in-law. Does anyone listen to their in-laws?

And then the blond braided Christian Dior designer John Galliano had to resign for a pro-Hitler outburst in a bar in the Marais neighborhood of Paris, where the Bobos (bourgeois bohemians) of the rag trade are pushing out the few remaining Jews.

Brazil raised its discount rate to 12.75% to try to ease inflationary pressures today. It's not easy being a fast-growing BRIC country is a slow-growth world.

My report on the ADR Small Cap Edge is now available for sale on the website.

There will be no blog tomorrow as we are having new office furniture installed.

More for paid subscribers follows from Britain, Israel, Korea, Singapore, and Chile. I am off to listen to why we should be buying bonds so we are posting early.

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Denial on The Nile

Wed, 2011/03/02 - 12:07pm | Your editor

 

 

John Thomas, my pseudonymous former colleague on The Economist, AKA The Mad Hedge Fund Trader, is becoming a cheerleader for the proliferating of exchange traded funds. He writes:


The current near monopoly enjoyed by the top three ETF issuers, Black Rock, State Street, and Vanguard, control 83% of the market. At last count more than 1,100 ETF’s were capitalized at more than $1 trillion. The result has been grasping management fees, exorbitant expense ratios, and poor structural designs which create massive tracking error.

The good news is that new entrants are flooding into the ETF space, and the heightened competition will help curtail the worst of these abuses. This development will accelerate the demise of the bloated and arthritic mutual fund industry. Not only will management fees and expense ratios plunge, there will be a far broader range of offerings, as new funds are launched from a diverse range of institutions coming from differing areas of expertise. Failure to enter the newly lucrative ETF market by the remaining giants sitting on the sidelines means that their existing mutual fund businesses will be cannibalized.

Look no further than bond giant PIMCO, coming out with a plethora of fixed income related funds, Van Eck’s expanding list of ETF’s for commodities, and the even growing list of inverse and leveraged inverse ETF’s presented by ProShares.

 

“Not so fast, John.” Consider EGPT, the ETF investing in the stocks of Cairo and Alexandria, creating by the Van Eck group whose commodity expertise you cited. With the bourses of Egypt shut by the Tahrir Revolution (the reopening has been further delayed until Mar. 6), the ETF pricing is in limbo. With no market trading for all but a handful of Egyptian shares with Global Depositary Receipts (amounting to at most a quarter of Egyptian market capitalization mostly from the Oraascom group of  Naguib Sawiris), ETFs cannot track an Egyptian index. The prospectus-designated role for institutional investors, creating and destroying ETFs by trading the underlying shares, has been suspended. The reason: underlying Egyptian shares will have not traded for 24 days if the Markets only reopen next Sunday as scheduled. And Egyptians who own shares are demonstrating (they do that) to stop the opening because they fear a market drop.

So Van Eck Market Vectors Egypt Index is trading at a 10% premium over the net asset value and the fund could plunge when the Egyptian stock market finally reopens, accordign to Aaron Pressman of Reuters. Actually the EGPT ETF is being priced by the market as if it were a closed-end fund, since new shares cannot be created or destroyed. The only ETF shares trading are those from before the bourses of Egypt closed. They are being priced by supply and demand like a CEF.

Pressman only is guessing at the premium to the stale net asset value. When the market reopens NAV can fall further. Van Eck can cite force majeur but it hardly will enhance market confidence in the newbie ETF creators among investors.

Full disclosure: your editor owns shares of State Street.

More for paid subscribers follows from Brazil, China, Belgium, Thailand, Britain, South Africa, and a few other places.

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