2014 Forecasts Begin!

Wed, 2013/11/13 - 1:32pm | Your editor

Michael Kurtz at Nomura, Hong Kong, is looking for ideas for investing in 2014. He writes his bold forecasts:

"Equities will increasingly require more of a straightforward growth rationale for upside, rather than systemic-risk compression. Honing in on robust earnings stories – largely green eyeshade-type work – will do more for you than nervously indulging sensationalist 'stocks are all doomed' rants from the unreconstructed tabloid strategists. But this equally begs the question where superlative earnings growth will be found. Our expectations for the year ahead are fairly modest -- though with a few exceptions that still get our pulse reasonably elevated:

"We expect recurring profits in Japan (Overweight) to maintain strong momentum through the (Mar. 31) end of the current fiscal year as the economy’s reflationary recovery continues — for total FY13 recurring profit growth of 28% before normalizing to a more mundane 10% for FY14. This blends to calendar 2014 EPS of 19% and delivers our end-2014 TOPIX target to 1,500, implying 28% upside from current levels.

"Developed continental Europe (Overweight) is in the early stages of a substantial EBITDA margin and earnings rebound, which will take pan-European corporate earnings up 14% next year, in turn ushering the FTSE AW developed Europe index to an end-2014 target of 207, 14% above current levels.

"Conversely, in the US (Underweight) our concerns over margin mean-reversion as capital costs rise and labor markets strengthen leave us unexcited about earnings prospects. Our full-year S&P 500 EPS forecast of $112.50 implies just 6% market-wide earnings growth and an end-2014 index target of 1,925 – or 9% upside from here.

"In Developed Asia ex-Japan and Global Emerging Markets, our economists’ cautious view on Chinese GDP growth and our FX strategists’ expectations for a medium-term resumption of US dollar upside both leave us largely cautious. Asia ex-Japan constitutes our only EM Overweight – and we expect its (slightly above-consensus) 15% 2014 EPS growth to be concentrated in the region’s more DM-exposed exporters. This will deliver the regional index to an end-2014 target of 785, 17% above current levels."

On the other hand, Elaine Garzarelli, Pres. of Garzarelli Capital, writes: “If you have any cash, get into the market now. There is no bubble."

"We have earnings estimates at 111 for the S&P 500 for next year, 10% below the consensus. The model we have for the price to earnings ratio, put on those earnings, is 17.5x at current interest rates. So the stock market is 10% undervalued.

"Even if we were [in a bubble], you don’t have a bear market until the Fed tightens and we get an inverted yield curve. [This] means short-term rates above long-term. Currently, short-term rates are close to zero and long-term rates are 2.7%. So the Fed would not only have to taper, they would have to raise interest rates by 25 basis points every meeting, which means you’re talking about two years from now before we can even have a problem with a bubble.

“The stock market may fluctuate here and there but the long-term trend is always determined by fundamentals: earnings, interest rates, and Fed policy,” Ms. Garzarelli continued. “We could have a correction in the stock market, but it would be limited to 4 to 7% because our overall indicators suggest a bull market."

Today brings a batch of earnings reports with a bit more color in their cheeks than the last lot, and news from Israel, Canada, Finland, Norway via Bermuda, Dubai, Britain, Japan, Brazil, Spain, and Mexico.

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Female Scientists

Tue, 2013/11/12 - 1:50pm | Your editor

It's not just Larry Summers who undervalued woman Harvard scientists. Thanks to a new exhibit at the Grolier Club, reported on by today's New York Times, I know more about Cecilia Payne-Gaposchkin whose course on astronomy, Nat Sci 9, I took as a Radcliffe undergraduate. She is now considered to be the founder of modern astrophysics, but in 1923, Harvard would not let her into its graduate program because of her sex. Luckily, she was mentored by Harlow Shapley, director of the Harvard College Observatory, who accepted her as a student.

Within 2 years she had published 6 ground-breaking papers and written a brilliant doctoral thesis in astrophysics. She was granted her doctorate by Harvard and allowed to advise doctoral students, but was paid a pittance compared to what men earned, and was denied a faculty position. Only in 1956 was she made a full professor and named to head the Astronomy department, both firsts for women at Harvard. (She had married a Russian mathematician and borne a son while waiting.)

Your editor, after doing basic science courses in biology, chemistry, and physics at Bronx Science, decided to try something new when she arrived in Cambridge Mass. So I signed up for Prof. Payne-Gaposchkin's elementary course. I also often bicycled up the hill to the Observatory. I got an A.

Every time it appears, despite my better judgment, I read The Financial Times' magazine: How to Spend It. I discovered a major error in last Saturday's issue which wrote about a demanding and sophisticated wine club in Bordeaux for select connoisseurs vetted carefully for membership in this exclusive outfit.

Hélàs the club is called Le Grand Société, such bad French you would flunk niveau 1, because société is feminine. In the same issue, Lucia van der Post's article entitled A la module shows the reverse error. It should be au module because module is masculine.

I e-mailed my contact on the FT writing staff, LK, who replied: "Wow! Delighted to point this out to How to Spend It. It makes my day!"

Readers looking for a bargain price to subscribe or renew should visit www.biddingforgood.com/auction/item/Browse.action where the price for a year's sub is now a $213 payment to Lilith, the Jewish feminist magazine. There are only 5 days to go.

More for paid subscribers from Israel, Dubai, Portugal, Britain, Singapore, Japan, Canada, Brazil, Belgium, Ireland, and Wall St.

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D, E, F Triple Minus Trades

Mon, 2013/11/11 - 1:29pm | Your editor

The last time I questioned a brokerage trade execution, a sale placed in euros which Fidelity then booked in US$s, I was so annoyed at the screw-up that I went into arbitration against the broker. As a result Fido closed my accounts and said they would never allow me to open another with them.

So now facing another round of hassle with E-trade, to which I moved my accounts, I finked out. I opted to let them split the difference between the ADR price I was charged on a purchase of a Mexican share and the 30% lower price in Mexico City. I am settling for a 15% rebate because I don't want to again fight against the system. It favors brokerages, allowed to get away with poor execution despite the law to protect customers from sloppy or erroneous order filling. Also encouraging me to settle is the fact that both variants of the share are up today.

By denying customers recourse through arbitration, brokers stop the SEC making sure trades are done in the interest of customers rather than market-makers and broker-dealers. The SEC collects quarterly data on customer complaints, and the brokerages make sure that the complainers are bought off or no longer have accounts on reporting dates.

A platinum E-trade client, supposedly best treated, I might settle for being merely silver or gold. Paid subscribers may read on to see why. There is news from Canada, South Africa, Brazil, Mexico, Japan, Israel, and Sweden. Today is a half holiday commemorating our Veterans, and the bond market is closed. The big news is that China is regaining mojo despite the fact that its people cannot breath the country's polluted air.


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Model Portfolios Updated

Sun, 2013/11/10 - 1:29pm | Your editor

As I do most Sundays, I have just updated the model portfolios on our website, www.global-investing.com

Please visit to see what's new. Everyone is allowed to see the closed positions, which shows our performance record, but only paid current subscribers get to see the latest advisory.

To view the spreadsheets, it helps to click on the button that reads "printer-friendly" under the masthead--even if you don't want to print the tables.

More for paid subscribers follows:

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Mayors

Fri, 2013/11/08 - 1:06pm | Your editor

Mayorality races are fun, a chance for localities to make known their general political views. New York City, where I live, has just swung firmly to the left, replacing millionaire businessman Michael Bloomberg with ex-Sandinista volunteer Bill de Blasio. The reverse happened in London where "Red Ken" Livingstone was ousted by Boris Johnson some years ago.

But the changes are superficial. However keen de Blasio may be on raising city income taxes on the rich to finance day care for all 3-year-olds, the Big Apple cannot impose income taxes without the approval of Albany, NY's capital. Gov. Cuomo, another more centrist Democrat, will have to agree.

Boris Johnson vents publicly about many matters but he too doesn't have the power to set taxes or spending without oversight. In both cities, property taxes and bond issues are the only funding sources available for city hall programs. Both mayors successfully persuaded banks to finance their city bicycle renting programs. London forces real estate developers to include lower cost homes for the poor to get permits to build for the rich. Legitimate city power is limited.

But if you go rogue, as His Honor Rob Ford has done in Toronto, there is more to gain. The Globe and Mail, Toronto's daily, investigated the shady lives of Toronto Mayor Rob Ford and his siblings, like City Councillor Doug Ford.

Doug Ford was identified by the newspaper as a top drug dealer in Etobicoke (a Toronto suburb). Doug Ford allegedly supplies low-level dealers and gang members, many of whom are junkies and petty criminals. Doug may also have supplied crack cocaine to his brother the Mayor, who has now admitted that he smoked the stuff after a video of his crack hit was published widely in Canada. Rob says he smoked crack when he was drunk.

Another brother, Randy Ford, was arrested for taking part in a kidnapping, allegedly over a drug deal. Mayor Ford's sister, Kathy Ford, allegedly has ties to the Canadian chapter of the Ku Klux Klan, and she is said to have been involved in drug-related violence.

Today another video of Mayor Ford has surfaced in which he threatens to commit 'first-degree murder' against someone threatening his siblings. Again his excuse was that he had been 'extremely inebriated' when the video clip was made. Mayor Ford, 44, is under pressure to resign.

More for paid subscribers follows from Mexico, Spain, Sweden, Mongolia, Finland, Panama, Israel, and Canada. As has been the pattern with quarterly reports lately, the results are definitely mixed.


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Alternative Investments?

Thu, 2013/11/07 - 1:18pm | Your editor

A note about alternative investments for those tempted by them.

Fine wines and fabulous watches are a no-no in today's China, as they are believed to be on the tables and the wrists of corrupt officials. Their owners are busily regifting them to others because they are hot potatoes. Of course I would take a magnum of a vintage Bordeaux first growth or some jewel-laden wrist candy if offered to me by a fearful Chinese bureaucrat. But I wouldn't pay the full price at auction.

Art is also questionable. I am not thinking of Ai Weiwei who is banned in China, but of mass-produced fakery which has apparently been stuffed into Chinese channels. And in the west, things are not that much better, despite Christies' modern art having sold marginally better this week in New York than Sotheby's.

Both art auctioneers face two price threats. Firstly, the fabulous collection of Steven A. Cohen, who has to pay $1.2 bn to stay out of jail for insider trading by his firm, SAC, is overhanging the market.

Even more so, great chunks of the the Munich cache of entarte (decadent) art stolen, removed from museums, or bought for a song during the Nazi years will also hit the market.

As for hedge funds, most of them are doing less well than the overall market--despite higher fees.

And the surprise cut of euro interest rates to a quarter percent today caught currency traders on the hop. Nobody forecast that. (Unlike our Fed, the ECB knows how to keep a secret.)

If you must buy alternative investments, think real estate, but not in China where the boom is also under threat as a mark of corruption.

Samsung Electronics, of South Korea, may create listed American Depositary Reciepts, its CFO Lee Sang-hoon said at its first analysts' meeting in 8 years. It also may double its dividend payout to 1%.

As I was out of the office yesterday, we have a full-news day today. More for paid subscribers follows including some fair to middling okay results from our companies from Brazil, Britain, Canada, Colombia, Switzerland, Spain, Mexico, and France.

No, I did not buy Twitter.


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Link to Link

Tue, 2013/11/05 - 2:01pm | Your editor

Stephanie Link delivered the keynote at the Inside ETF Trading Conference at the NYSE yesterday. Politely, the co-portfolio manager for stock pundit Jim Cramer's charitable trust spoke mostly about Exchange Traded Funds.

While Cramer picks various categories of stocks, she confined most of her remarks to macro-economic trends. She discussed only the US, Europe, China, and Japan--nothing on other emerging markets.

Link is bullish on Japan, which she called "my favorite market" citing the huge stimulus of Abenomics. She thinks the rally has further to go to, the Nikkei still being 9% below its all time high and at only 1.6 times its book value. "It's hard to fight this kind of accommodation," she noted, calling it similar to Fed policies. Japanese retail and manufacturing will gain from the stimulus.

She is less bullish on Europe, and admitted that her fund took some profits there last week selling part of its holdings in Vanguard FTSE Europe ETF, VGK. “We own the VGK; that’s the one that we would be playing,” she said. Apart from ETFs, she thinks you can play Europe via US shares, saying "I can't find any US tech companies that are not exposed to Europe."

She cited auto companies Ford and GM as ways to play the sharp Oct. rise in European car registration, up 5.2% (vs 2.5% in Sept.) she noted. But she said nothing about Fiat, or other Europe based global carmakers. She also admitted that the charitable trust she runs sold GSK and Unilever recently.

However, she spoke only of ETFs in these developed markets and said little about individual stocks which rather left me hungry despite the NYSE lunch. For Japan she recommended MSCI Japan Index ETF, WEJ, and WisdomTree Japan Hedged Equity Fund DXJ. Pick depending on your outlook for the yen. You wind up buying the market, not stock picking.

China Ms. Link called "the wild card" and cited the new leadership's need to boost GNP and accept monetary accomodation to achieve its ends. She said she "wouldn't buy a Chinese bank but might buy Yum Brands, a consumer share.

She thinks that there will be new capital spending next year on semiconductors and mentioned Samsung and Taiwan Semiconductor as stock ideas. Ms. Link used to analyze tech stocks.

The fund she runs uses screening, looking at 6000 stocks, ranking them A to F. Then technical and fundamental analysis is run for the A and B shares to create a portfolio and sometimes short the E and F shares. But she shared none of this with us.

HSBC today reported a modestly higher Chinese Purchasing Manager Index, 52.6 in Oct. vs 52.4 in Sept. This comes as the new Beijing government tells Communist offices at its 3rd plenary session what its plans for the next decade amound to. Two conflicting trends can be observed in the margins: Maoist symbolism and reforms of the system. It is, to quote Chou En-Lai, too early to tell which will dominate.

The old symbols include self-sacrificing Communist heroes, old red songs, and pictures of Mao Tse-Tung. The Economist this week told China exactly what reforms are needed. China should put state-owned enterprises under a sovereign wealth fund rather than state and local government. It should allow peasants to sell their homes to raise money to buy apartments in the cities. It should end the hokou system which discriminates against those moving to the cities. It should allow banks to offer higher interest rates on deposits.

Bid for a bargain subscription to www.global-investing.com at www.bididngforgood.com/auction/item/Browse.action in the next 12 days. The money is being raised by Lilith, a Jewish feminist magazine, and I donated a sub.

More for paid subscribers follows from Britain, France, Israel, Spain, Canada, Czech Republic, Mongolia, Poland, Mexico, Colombia, and Brazil.


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Franco-American Spaghetti

Mon, 2013/11/04 - 12:03pm | Your editor

After the Boston atrocity, marathon races are firmly linked in our minds with terrorism. The New York race yesterday provided some sort of closure for Kenya, where an attack on a shopping mall was the most recent mass murder by Islamic extremists. Both the fastest man and the fastest woman in the race were from Kenya. Each won 6-figure prizes in dollars, which go a long way in Africa.

Anne Sinclair, the French journalist who recently divorced her disgraced sex-fiend politician husband, Dominique Strauss-Kahn, has won a consolation prize. Yet another Matisse stolen by the Nazis from her grandfather, art dealer Paul Rosenberg, has been found, hidden in Munich. Her father changed their name to Sinclair, using his monicker from the Resistance, after moving back to Paris after World War II. Sinclair was one of the few French reporters who could manage English during my years working in France. She now works for the French edition of The Huffington Post. She has a new partner, historian Pierre Nora, brother of the late financier Simon Nora.

More for paid subscribers from Israel, France, Switzerland, Ireland, Mexico, and South Korea. I'm off to the NYSE (another high security venu) for the ETF conference. There will be no blog Weds.

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Model Portfolios Posted

Sun, 2013/11/03 - 1:13pm | Your editor

The Model Portfolios have been posted on our website, www.global-investing.com

Paid subscribers can see all three spreadsheets; pre-subscribers may only view the closed-positions table. To make it easier to view spreadsheets, please click on the printer-friendly button under the masthead, even if you do not want to print the tables.

More for paid subscribers follows:

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Another Marathon Issue

Fri, 2013/11/01 - 12:43pm | Your editor

Today's blog will attempt to make up for errors and omissions in yesterday's marathon of reports. So once again the pre-subscribers will be left hungry so I can do what people pay me for.

 

Mostly bad news follows from Israel, Britain, Canada, Mexico, Colombia, Ireland, and Australia. Today's issue is late because the Internet went down in mid-town Manhattan.

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