Fascism and Anti-Fascism Today
George Friedman, founder of Stratfor, writes about the parallels between what happened in Europe after World War I and today's unemployment crisis there:
"Fascism had its roots in massive economic failures.. the financial elites failed to recognized the political consequences of unemployment. They laughted at parties led by men who had been vagabonds... promising economic miracles if only those responsible for the misery of the country were purged. [Citizens] plunged from the comfortable life of the petite bourgeoisie did not laugh, but responded eagerly to that hope. The result was governments [which closed] their economies from the world and managed their performance through directive and manipulation.
"...when we look at the unemployment rate today, the differentials between regions, the fact that there is no promise of improvement, and that the middle class is being hurled into the ranks of the dispossessed, we can see the parterns forming.
"History does not repeat itself.... Fascism in the 1920s-1930s sense is dead. But the emergence of new political parties speaking for the unemployed and the newly poor... is... occurring. Whether it is the Golden Dawn Party in Greece or the Catalan independence movements, the growth of parties wanting to redefine the system ... tilted.. against the middle class is inevitable. Italy was... once again the first to try it out."
This note is in memory of Ewald-Heinrich von Kleist who died this week at 90, the last survivor of the German officers' plot to kill Hitler. Before founding the European Security Conference the young wounder war veteran was a partipant in the July 20,1944 plot. Initially he was supposed to take the bomb-laded briefcase into a Wolf Lair meeting with Hitler but then Claus Von Stauffenberg decided to do it himself, and the bomb failed to kill the Fuehrer. Ewald-Heinrich's father, also in the plot, was tortured and executed, as was Stauffenberg. But the son managed to deflect Nazi interrogators and was first sent to a concentration camp and then allowed to return to active duty. Tom Cruise's movie left him out.
Two notes for readers. First we have posted our special report on My Best Yield Stock Idea on our website, www.global-investing.com on sale for $49. Note that it will be delivered electronically, not in print.
Secondly if you want to help the Southern Investigative Reporting Foundation for its work, including our sale of Brookfield Asset Management shares, you can go to firstname.lastname@example.org to make a contribution. I did.
More from Israel, Sweden, Britain, Canada, Brazil, South Africa, India, China, Spain, Hong Kong and Singapore today. Nothing from Ireland despite the country getting huge loan for St. Paddy's day on European bond markets.
Our Sale and New Buys
Thanks to the investigative journalist Roddy Boyd of Southern Investigative Reporting Foundation we have sold our Brookfield Asset Management shares in reasonably good order with a profit. The problems are not shared by other group companies with a specific portfolio, beyond the risks that their parent are overcharging for services. So we are not selling out of Brookfield funds we happen to own. Your editor thinks the fees are a feature of fund management and she tends to pay them when asked.
My main reason for bailing out of BAM is that our SEC is already looking into a couple of aspects of the group highlighted by the SIRF report, ranging from bribery in Brazil to get permits for a shopping center to how independent is board members are, from how BAM values its parent level assets inconsistently using unclearly defined terminology to the pyramic structure overall. ISo I think this movie will run and run. BAM is mainly listed on the NYSE and Toronto, but it also has a listing in Amsterdam. So selling will also go on and on as more and more investors become aware of the scent of wrongdoing.
The high rep of Bruce Flatt led me, among others, to let BAM fiddle its numbers when reporting a down quarter (the most recent one). But I am getting smarter. The next time someone tells me that total return including funds from operations and changes in the valuation of assets over the period mean that I should not look at net income for guidance, but trust the company's calculation of "fair value gains" or "equity accounted income" I will run for the exit. Consolidation based on cashflow cannot vary from one holding to the next, or from one year to the next as it did at BAM.
Using International Financial Reporting Standards rather than US Generally Accepted Accounting Principles, IFRS over GAAP, is clearly okay for a Canadian firm--but the accounting has to be consistent. At BAM it wasn't, either over time or internally.
I will remember how BAM used these metrics to con the market and me with its Q4 and 2012 reports just a month ago. What I am really embarrassed about is that I knew some of these guys back when they ran Edper and Brascan. When you get to the top of the BAM pyramid, to Partners Ltd., the mother lode which ultimately controls Brookfield, you find John Lorne Cockwell and his son among the 45 partners--but no members of the Clan Bronfman whom he squeezed out of the earlier pyramid holding companies. Mr. Cockwell, born in South Africa, a country full of pyramid-controlled companies, moved Edper and Brascan assets to Brookfield.
From Switzerland we learn that Interpol and 29 global drug companies are undertaking a campaign costing $5.9 mn to stop counterfeit drugs sold on land and via the Internet. Apart from hurting the sales of the drug giants, counterfeits also hurt patients because they do not contain the expected active ingredient. While most counterfeiting is associated with emerging markets, there is plenty of fake pharma being sold in the developed world too. According to the World Health Organisation, about half of the drugs internet users order are fake. About 700,000 buyers of fake meds to treat TB or malaria die every years because the fake drugs do not treat their disease. Overall, in Africa or southeast Asia, over a third of tuberculosis drugs sold are fakes without any active ingredient.
The fake drug network is contralled by criminal syndicates and operates in 124 countries, according to Interpol. In the US cancer drug Avastin was one of the faked drugs. As I wrote at the time, Harry Lime is alive and well. (I was referring to The Third Man, a great movie about that character, played by Orson Wells. Lime sold fake penicillin in post-War Vienna, which killed those it was supposed to cure.)
Also from Switzerland, news that shareholders of Novartis have filed a complaint in a Basel court against its board over the non-compete payoff given to Daniel Vasella helps explain why he is leaving the country. The Basel public prosecutor is examinging whether to charge Vasella and other board members over the SwFr 72 mn golden parachute "non-compete clause", according to Bloomberg.
Your editor, who put in her BAM sells after posting her article earlier today, got $37.03 to $37.0327 for her sales put in at the market. The share is still falling as I write, and pulling down the real estate industry overall. Volumes are heavy compared to about 1.1 mn shares trading on the NYSE on a normal day although in slowpoke Canada they are normal.
More from China to Denmark, from Israel to India, from Mongolia to Argentina, from Brazil to Britain, from Finland to Russia, from today.
Oh goodie, Daniel Vasella is going to become a US resident. The former chieftain of Novartis (who was deposed in a shareholder rebellion last month) has informed the township of Risch, near Zug, that he is leaving Switzerland. Because he is so notorious for his greed the Swiss newspapers have reported his self-deportation with considerable spite. Nobody knows exactly when the unSwissness move will take place, as Vasella has expensive (and controversial) real estate to sell before he heads westward.
Vasella was head of the Swiss pharma company and arranged a payment to himself of 72 mn francs in the form of a non-compete agreement to fund his retirement. This was then voted down after a shareholder rebellion. Now the country has passed the Minder law requiring all board payments to be voted on by shareholders.
Dr. Vasella may find the US is not the haven for greedy corporation managers that he imagines. We first put Vasella on our bad-list when he did a side-deal for NVS to buy Alcon from Nestle without paying US shareholders (like us) the same price as paid to fellow-Swiss. The protests of American members of the Alcon board were ultimately overruled by Swiss law taking precedence over US shareholder protection. While incorporated in the Alpine country, Alcon's assets and owners were largely in the USA.
Naturally, if Mr. Vasella tries to buy posh digs in Manhattan I will make it my business to inform the building coop board about how he operates.
Meanwhile Harvard is in deep trouble over how my Alma Mater tapped e-mail accounts of resident deans (who head its 16 undergraduate houses) to try to find out who had leaked information to the media about a student cheating crisis. Resident deans are members of the faculty but also employed to provide residentail support to students. The rules of academic freedom seem to have been violated when the college administration under President Drew Gilpin Faust authorized tracking their communications about a cheating scandal. Ms Faust, a Virginian, is the first Harvard prexy since 1672 who never studied at Harvard. She is however descended from ghastly intolerant Puritans like Calvinist Divine Jonathan Edwards (who sermonized on Sinners in the Hands of an Angry God which I studied in my Harvard history class).
Edwards' sermon argued that God alone chooses to grant or deny grace to anyone, including the President of Harvard, because He is absolutely sovereign. And if it is God's pleasure that you be a sinner, too bad for you.
About 70 Harvard students cheated on a final exam in a government course last year. Instructions on advising students accused of collaborating and plagiarism on how to handle their eligibility for collegiate sports teams was leaked. The Dean email search took place a half-year ago but the college has only just informed those whose accounts were hacked.
A Fitch downgrade for Italian bonds over its political impasse hurt European shares, particularly banks. Concern over Chinese inflation hurt emerging market stocks. But Japan is on the uptrend with a cheaper yen and more US jobholders. More for paid subscribers follows from Israel, Canada, Cyprus, Ireland, Britain, Argentina, Brazil, Chile, and South Africa.
Model Portfolio Tables Posted
Our model portfolios have been updated, a mark of my extreme self-discipline on a gorgeous sunny day which, following the return of summer time, heralds better weather to come. My grandchildren in Boston had what we hope will be their last snow day of the season on Friday.
To view the portfolios you are entitled to see, visit www.global-investing.com and log on with your password. To view spreadsheets more easily, use the "printer-friendly" button.
In the past week no fewer than three of our speculative stocks have been the subject of long articles recommending them in other publications. There are only 20 speculative stocks in our portfolio altogether, so this is a signal that we are getting something right. The publications are Argus, Morningstar, and a new Oxford Club publication from Agora Inc. of Baltimore costing $8000 a year, called Healthcare Profits Alert. For the record, my start-up of this newsletter (in the days of print) was financed by Agora's Bill Bonner. To read the whole story you can sign up for a free sub not to Healthcare Profits Alert, but to stockgumshoe.com (a website which specializes in undermining the hype with which investment publications are promoted. We employ as our marketing chief a middle-aged rabbinical student to avoid such ethical lapses.
The tipped speculative stocks are ADRs from Israel and Finland and a Canadian share. We also beat a Barron's Round Table selection and made more than 27% in gains on this Dutch share before it was mentioned in the weekly. More for paid subscribers follows about stocks, funds, and stock-tippers:
Toxic or Yield ADRs?
Despite grim forecasts of the impact of the pending sequester and the recent increase in payroll taxes, US unemployment actually shrank in Feb. The jobless rate fell to 7.7%, down 20 basis points, surprising those who called for a government spending cut and those who called for a tax cut alike.
And China's Year of the Snake began with a bang, as exports picked up, heralding a recovery in economic growth. Goods shipped to the US and southeast Asia were valued nearly 22% higher than shipments in Feb. 2011, marking a better export market for a country which runs on exports. The trade surplus was even more significant because it came in a month when the Chinese New Year was celebrated; in 2011, the lunar New Year fell in Jan.
So should we be fully invested in this rising market environment or will it all end in tears? With inflation and interest rates so low, a reader says "dry powder" is the best thing to hold now. He is not investing the proceeds of sales in new ideas, but letting the cash pile up. He is not necessarily fearful of a crash, but having problems pursuing his search for underpriced securities he can hold forever. Valuations seem too high to him now.
Your editor is in a similar position but it is not sustained by fear of a market drop. Her cash cache is needed for her 2012 taxes after she took lots of long-term gains to avoid higher taxation this year. Now Uncle Sam, Gov. Cuomo, and Mayor Bloomberg all want their share of my gains.
I do not normally support the hyper-Libertarian Paul family because we need a Fed. But I think Rand Paul's fillibuster to make sure that Americans in the USA are not targetted by drone attacks is for a worthy cause. Now that we will have a trial of an Al Qaeda leader in my city, Osama bin Laden's son-in-law, it is more important than ever that we show that the US operates under the rule of law even against terrorists.
A new watchdog publication called GSS Newsletter came from Global Securities Services. This is an investor activist organization working on American Depositary Receipts and how they are feeding profits at depositary banks. GSS's lead article reviews on a new book called "ADR-Mageddon". I was sent it by a former ADR manager at a large NY bank whom I know. For legal reasons I will not name the bank.
The book review charges that this bank paid over in incentives to foreign private issuers of ADRs over 10% of the Troubled Asset Relief Program funds it received (financed by US taxpayers) after the financial meltdown in 2008. The review also charges that the depositary banks have created ADRs to generate money for their balance sheets which "poisons investor and global shareholder portfolios." It states also that depositary banks are being pursued for failing to pay taxes on the fees collected from ADR owners to pay out money to issuers abroad.
GSS's editorial comment goes on to state that ADRs and Global Depositary Receipts are "toxic" to all market participants except the depositary banks. The leading depositary banks are Bank of NY-Mellon, Deutsche Bank (successor Banker's Trust), Citigroup, and JP Morgan Chase, although other Wall Street houses also sometimes dip their toes in the market. Readers who want more information should email globalssintl.com/
One alternative is present. The London Stock Exchange will buy LCH Clearnet, a clearing house on our side of the pond, for GBP 536 mn and Nasdaq will up its take in LCH too. While mostly about derivatives this buyout will also increase cross-border stock trading with Britain.
We have available on our website a special report on how to enhance your income with ADR stocks, available for $49 to paid subscribers and pre-subscribers. My single best stock idea for yield is the report's focus. I am not investing in handbag-makers and top smartphone rivalss. We are not looking for fashionable stock picks, but for value.
More for paid subscribers follows for perhaps toxic shares from Israel, Britain, Finland, Brazil, Spain, and Colombia and on non-ADRs from Canada follows:
Today the Swatch Group provocatively published its 2012 report in Schwitzerditsch, the German dialect used in Switzerland. The title page reads: "Gschäftsbricht". Since CEO Nicholas Hayek is of Lebanese extraction, his play on Swissness is a brilliant PR ploy. One of my friends from Paris, an American of Chinese extraction married to a Swiss, had to pass a test in Schwitzerditchs in order to get Swiss nationality. Now she likes to cause confusion among the locals by fluently chatting away in the dialect. The Swiss even have a shibboleth to find out if people speak their version of German. You have to say "kitchen cabinet."
After Mexico's Pres. Peña Neto took on the head of the teachers' union, who was arrested for stealing union funds for a luxury life-style, observers are trying to figure out who his next target will be. My opinion is that after one swing against the left, El Presidente will now try to improve matters by boosting competition in Mexico's overpriced telecoms and media sector. Among the potential targets would be Carles Slim Helu, who remains the richest man in the world, owner of the America Movil telecom empire, and the Salinas Pliego family which contols Mexican TV. Others expect him to take on the powerful Pemex union, which almost certainly also is corrupt, but I expect he will try for a left-and-right balance in where he aims his reforms.
Oops. In my commentary after Maurice's note on UK stamp duty, I said Brits use contracts for accounting to avoid paying the fees. In fact they use contracts for difference.
Yesterday we published a bullish note from Argus on one of our share picks; today we publish one from Morningstar about another, which is even more bullish. Our team aim to find these great stocks before the mainsteam analysts discover them. We have it easier, with a short hierarchy, less regulation (we are covered by Freedom of the Press and are paid by our readers and no one else), and smarts. We also aim to beat index-tracking exchange-traded funds, which are loaded down with big kahunas which may be too big to grow.
We have news today from Canada, Britain, Finland, Australia, Brazil, Chile, Ireland, and Mexico.
The Best Made Plans
To quote Robert Burns, "the best made plans of mice and men gang oft agly."
Forbes riposted to Prince Waleed bin Talal bin Abdul Aziz'S claim that his wealth was underestimated by a third, leaving him out of the top ten. The financial magazine said that the Saudi billionaire attempted to fiddle the share prices of stakes his Kingdom Holding owns to boost his ranking. If true, this will cause regulatory problems for the prince in the well-regulated Saudi Arabian stock market, being opened now to foreign investors.
The founder of Suntech Power, Australian-Chinese solar engineering prof. Zhengrong Shi, is fighting his removal from its executive chairmanship by a board vote. While the oversupply of solar panels has hurt Suntech along with other companies, Prof. Shi had to step down earlier as CEO because of side-deals he allegedly made to sneak off profits from STP (NYSE-listed.) We used to own STP because Fei Chen really liked Shi, but sold out over the scandal and oversupply issues.
The US sequestration was supposed to produce such horrific budget cuts that both battling parties would find a way to cut the deficit with tax and spending cuts.
Anti-US pro-Cuban populist president Hugo Chavez got Venezuela's legislators to remove term limits so he remain as the Caracas caudillo to continue his policies. But he died aged 58.
Oops. Maurice, a reader, says that I misstated the size of the UK stamp duty (which I reported on based on an article in the New York Times.) The transfer tax is payable only by the buyer and is 0.5%. It is not a Tobin tax because it is literally a stamp which must be put on the document. To stop British traders from moving to the ADR market, a 1.5% tax was imposed on converting a UK share to an ADR which is why ADRs trade at a slight premium to the UK shares they mirror. Marketmakers (jobbers) are exempted. The British like to use derivatives such as accounting for difference to avoid the tax.
More for paid subscribers follows from Canada, Finland, Chile, Israel, Sweden, Denmark, Scotland (of course), and Ireland, including another earnings report.
The Edhec-Risk Institute of Nice, France, reports on a study of 10 years of major Asian stock market indexes whose conclusions are startling. They "display a pronounced lack of efficiency" failing to provide "an efficient risk-reward trade-off" in comparison to European or US indexes. Asian indexes are heavily concentrated in a few large cap stocks, at levels up to 60% in some cases. This cuts diversification and increases risk.
In fact, the Edhec researchers found that indexes fluctuate madly in sector exposure and style (growth vs value, for example.) An example: "the weight of Consumer Staples in the Indian Nifty index fluctuated between 3% and 37%" in the last decade. The less developed Asian countries, also including China, show the highest variability in sector allocation. But they are not alone. Hong Kong's Hang Seng index weighted telecom services anywhere from 10% to 20% at different times in the last decade.
With our Dow Jones Industrial Index (a better gauge than the Asian ones) at a new high this morning, the argument for foreign investment becomes even more compelling. One factor I like to look at is currencies. One of my favorite far away lands saw its currency rise today on the assumption that interest rates there will be cut.
Two of our shares reported today, from Canada and Ireland. We also have news from Australia, India, Spain, The Netherlands, Japan, and Israel.
AIPAC and J-Street
Last night we went with J-Street, the new pro-Israel pro-peace lobby to see "The Gatekeepers", a European-Sony financed film in Hebrew (with subtitles) by Dror Moreh. He interviewed the last six heads of the Israeli security service (Shin Beth). These 6 men unanimously oppose the continued Israeli occupation of the West Bank because Arab discontent and terrorism against Israel are growing in a vicious cycle, and Israeli responses are unethical and counter-productive.
Israel fell into occupying Palestinian areas because "there was no strategy, just tactics," said Avraham Shalom, the oldest of the formerly hush-hush Shin Beth directors (1980-86) who looks somewhat like my husband. He called the "brutal occupation force similar to the Germans in World War II"--not the Holocaust but the occupation of Belgium, Holland, Czechoslovakia. Like his fellow-ex Shin Beth heads, Shalom backs a "2-state solution."
The occupation which the country fell into because is dangerous to Israel. "You cannot make peace using military means", said his successor, Avi Dichtor (2000-05).
This film's searing indictment of the Netanyahu policy of delaying negotiating peace will have impact not only in Israel, where it is almost as hard to create a government coalition as in Italy, but also in the USA. It won the National Film Critics Aware for best non-fiction movie and was nominated for an Academy Award.
It may mark an end to the knee-jerk US political response to demands for the American-Israeli Public Affairs Committee (AIPAC) which recently was defeated in its attempt to block the naming of Chuck Hagler as US Secretary of Defense. Despite vicious slander, the While House succeeded in getting the Senate to vote Hagler's appointment. What set AIPAC off against him was his frank disapproval of the excesses of the pro-Israel lobby in Washington.
Now AIPAC has another campaign it is pushing: excluding Israel from government spending cuts under the "sequester." This is such an unrealistic policy that it is clearly being mounted for US political ends, to try to legitimize a politically excessive pro-Israel position.
Back in the Dark Ages, when Jewish emigration from the former Soviet Union was blocked, Israel was heroic and admirable. But even then (in the 1970s, when she worked for the US Senate Foreign Relations Committee), your editor opposed the occupation of the West Bank. She wound up removing her children from the Washington Hebrew Congregation Hebrew school because they were being taught that the Biblical borders of Eretz Yisrael included "Judea and Samaria". (We moved them to Temple Sinai, another Reform Hebrew School.)
Another Israeli black eye is discussed below, in our corporate news section. More for paid subscribers follows from Canada, Israel, India, Spain, Britain, and Sweden.