Blow Out Prevention

Thu, 2013/02/07 - 1:10pm | Your editor

After there were two fires late last year in my building, the handyman put smoke and CO2 detectors in the back hallway. Last night I grilled calf's liver for our dinner and the device put up a banshee wailing. So I climbed up the step-stool and turned it off. Many of my neighbors have done the same thing, the door-person tells me.

Safety devices can over-react. The big current overreaction is by deep sea drilling systems' blowout preventor (BOP) equipment, which they had to install after the Macondo disaster in the Gulf of Mexico. Yesterday Bloomberg reported that regulators have ordered drilling to be halted because the BOP bolts were faulty. Replacing BOP bolts will cost a fortune.

So we got lucky. Last week we sold Seadrill, the Norwegian-Bermudan drilling rig firm, which had to delay its leasing operations because of BOP problems, creating a risk for its lease revenues (and our near 9% dividend.) BOP was not the only reason for the sale.


I am heartened by learning that Spanish university students in Almeria will be able to park their cars in the shade of a solar panel filled roof being put up by Conergy on campus I am heartened not because this will save Spain importing energy, but because I thought young Spaniards were all suffering from 50% unemployment and forced to live with their madre and padre. Where do they get the cars?

More for paid subscribers about three stocks reporting today and news from Canada, India, The Netherlands, Britain, Panama, Israel, Singapore, Spain, Sweden, and China.

Read more »

Harry Lime Lives

Wed, 2013/02/06 - 1:43pm | Your editor

The Third Man, Harry Lime, who was played by Orson Welles in the movie, a seller of fake penicillin in postwar Vienna, is alive and well. The US FDA reports that a Turkish drug firm is selling fake Avastin, a Roche cancer drug, which contains no active ingredients. As in the movie, people die if they get counterfiet drugs which do not work.


This year is the 75th birthday for The Bronx High School of Science, of which I am an alumna and also the 750th anniversary of Balliol College, Oxford, where my husband studied. We are working hard to celebrate both events with parties and donations. The Oxford events include a reunion in Madrid, following one 3 years ago in Berlin, which shows the global nature of the UK university.

My own high school years also included an international event, the arrival after the defeat of the 1956 Hungarian uprising of new students from the Budapest Polytechnical High School, admitted without having to sit the same tests as New Yorkers had to pass.

This resulted in a furious campaign against the Hungarians by a young student of West Indian heritage who claimed that special favors were being given to white (and Jewish) students. I have no idea about the religion of any of the Budapest boys (they were all boys, which I was too stupid to consider significant then!) He also protested against the special admission of a rabbi's son from Cleveland, which probably was outside the rules. The young man, Joe Lelyveld, later became my husband boss as editor of the New York Times. The rabbi was a famous civil rights marcher who was stoned in the south.

The protestor, Stokely Carmichael, later moved to Africa, changed his name to Kwame Toure, married the much older South African singer Miriam Makeba, and then developed fatal prostate cancer which he believed he had been infected with by the CIA.

Balliol was often the choice for exotic Rhodes Scholar students from foreign lands, hence the foreign gatherings. Among them was Adam von Trott zu Solz, a conspirator against Hitler who was hanged on a meat hook. Coincidentally, Von Trott attended the same high school as my father, the K. u. K. Hochschul in Bad Herzfeld and both families came from a nearby village called Nentershausen.


More for paid subscribers follows including Q4-2012 results from India, Britain, South Africa, Israel, Brazil, Panama, Canada, Mexico, South Korea, and lots from Japan.

Read more »

Currencies Out Of Whack, part II

Tue, 2013/02/05 - 3:07pm | Your editor


Currencies out of whack followup for 3 readers who asked: What are the causes and effects of the over-valuation of emerging market currencies by 3%, on which I quoted Bank of New York-Merrill Lynch economists yesterday? It's fair to say that the third world nations are suffering impact on their currencies from wide-spread quantitative easing efforts by the rich world central bankers. This leads to capital inflows to Latin America in particular in search of yield which cannot be found at home in the rich world. These inflows are hard for the developing-country banks or their regulators to quarantine or counter.

And these inflows can be volatile, as perceptions of risk rise and fall. So the capital inflows can turn into outflows. Instability is hard to deal with.

In general, higher emerging market currency exchange rates make it harder for therm to sell their raw material and manufactured goods in export markets than before. And the inflow of cash can trigger inflationary pressures by encouraging imports of goods from cheap-currency countries. That is the main thrust of the Alberto Ades report on currency imbalances I quoted yesterday.

There is also an indirect effect thanks to the largest outlier in the currency world, China. Chinese policy alternates between subsidizing exports by lending to consumer nations like the US and encouraging a lot of Chinese domestic spending to offset currency inflows. The on-again off-again policy, on which Karl Marx failed to advise, in turn impacts on nations supplying China. Does it want steel to build railways and bridges or does it want polyester and gizmos to make stuff for Walmart? So trade inflows can also turn into trade outflows. The balance of payments of a raw material producer can fluctuate between surplus from selling to China's growth and deficits as China wipes out local production with cheap exports.

Just to add to the volatility in the current situation, quantitative easing in the rich world is highly politicized. French Pres. François Hollande, amidst calls for more protection for French farmers against lower food prices, found the time to call for lower exchange rates for the euro. He argued that the present improvement in the single currency's prospects made the Euro zone "vulnerable to irrational developments." "A monetary zon must have an exchange rate policy to prevent it becoming subject to an exchange rate that doesn't match the true state of its economy", he charged. In effect he is calling for a cheaper euro to support exports and growth without structural reforms in France. To bring down the euro, he wants stimulus by export-winner countries in the currency bloc (notably Germany) to boost home demand. Encouraging Germans to spend might help French exports of wine, cheese, fashion, and steel.

I think Hollande is racing for the bottom in economic policy-making against Cristina Fernandez of Argentina.

We risk seeing the beginning of an economist's nightmare, the revival of "beggar-my-neighbor" policies which were tried in the 1930s by government trying to get their countries out of the slump of the Great Depression. To stimulate exports, they slashed their currency exchange rates. But by all doing the same thing, they wound up getting in each others' way.

I received two huge packets from a Queens astrologer MS about the prospects of Orocobre (OROCF) which we sold years ago, based on its date of incorporation. He didn't go on about Elbit Imaging, EMITF, also sold years ago, an Israeli real estate operation, which is at risk of default on its mortgage borrowing.

If any readers want to figure out how to invest based on the zodiac they can contact but I won't. Today's blog is also delayed by a friend seeking to resolve a school crisis involving an adopted Ethiopian Christian boy, 8, in a Jewish-Buddhist household. I have no idea what to do. I was called because a mutual friend who might have the answer is recovering from open-heart surgery and not available. And I also dealt with an attempted denial of service attack on our website. No one who doesn't provide a proper address will be allowed to sign up for the free version of this newsletter since we are being tracked by Hostmonster for allegedly spamming when we send out too many emails.

More for paid subscribers starting with a British company which reported today, whose conference call also made me late to file, plus news from Belgium, India, Canada, Japan, Israel, and elsewhere.

Read more »

Currencies Out of Whack

Mon, 2013/02/04 - 12:47pm | Your editor

Power is ephemeral. I am not referring to political power but to the stuff that comes out of the plug in the wall. After the snafu at the Sunday Super Bowl, surely even fans of BBC costume dramas will agree that we depend on electricity for our lifestyles a century or more later.

I want to pursue US energy independence now that it is achievable with shale gas and tight oil. This is not because I like messing up the landscape with ugly machines, but because Opec oil comes with some dangerous hidden costs in a period of dynastic decrepitude, terrorist conspiracies, and the faint stirrings of revolt. So I want to pump the stuff at home, of course with regulations to protect the water supply, the environment, and endangered species of birds, fish, and suburbanites.

There is nothing particularly new except fracking technology about extracting hydrocarbons from rocks. The very word "petroleum" means rock oil.

Currencies are out of whack. Emerging market currencies are overvalued by 3% on average, according to Bank of America-Merrill Lynch, notably those of Latin America, which are 12% above "long-term equilibrium estimates". The only LatAm exception is the Mexican peso which is only 1% too high. Also too high with the exception of Hungary are emerging European currencies.

In Asia the brokerage thinks the Philippine peso (18.8%) and the Thai baht (15.6%) are the most undervalued against the US$. Also misaligned, but less dramatically, are the South Korean won and the Indian rupee, 11.5% and 4.9% too low. I'm not sure Korea is an emerging market; Israel, another border case, has a 7.3% undervalued currency with its shekel. (It counts as an emerging European currency for some reason and is the most undervalued Middle Eastern money.)

The published exchange rate valuations were included in BOAML's new and improved "Compass-Cycle" report for 2013 prepared by macro-economist Alberto Ades and his team in a copyrighted report I have permission to share with you.

More for paid subscribers from Israel, Canada, Ireland, India, Spain, Norway, and Britain plus some of the currency countries in the BOAML report above.

Read more »

Portfolio Tables Posted

Sun, 2013/02/03 - 12:57pm | Your editor

The portfolio tables have been posted on our website, and you can sign in with your email and the password you created to see the ones you are allowed to view. Pre-subscribers can view the closed positions table; current subscribers can view the current holding in stocks, bonds, exchange-traded and closed-end funds. Remember that if you click on "print friendly" it is easier to view the tables.

More for paid subscribers follows in reply to reader comments and other developments over the weekend:

Read more »

Mayorial Naming Rights

Fri, 2013/02/01 - 1:30pm | Your editor

Your editor was always worried that the Queenborough Bridge, the nearest one to my office, had been named after long-time mayor Ed Koch during his lifetime. The US tradition is to only name after dead people. The Russians named Stalingrad after the dictator once they won the battle there 70 years ago, but it is now called Volgograd again, causing a few problems during the anniversary festivities. Its mayor wants to change the name formally to Stalingrad for 5 days each year including VE Day.

Today Mayor Koch died at New York Presbyterian Hospital so I can use the official name of the nearby bridge without qualms. His funeral will be Monday at Temple Emanu-El, a synagogue not far from the bridge. Like current mayor Bloomberg, Koch was a bachelor and an outspoken nonoconformist.


While the Wilhelm Tell Overture plays in the background, the Swiss right-wing party, the SVP, proposes that the country hold a referendum on resisting foreign pressures to lift bank secrecy. This comes from the USA and Japan as well as Switzerland's neighbors Germany, France, and Italy. The SVP initiative wants to exclude Swiss citizens and companies from being outed by a constitutional amendment supporting bank secrecy. Switzerland has a long-tradition of direct democracy and independence which the anti-foreigner SVP appeals to.


More from Norway today along with other news from Singapore, Mexico, Canada, India, Israel, Britain, Russia, Ireland, Finland, Brazil, Belgium and The Netherlands.

Read more »

Norwegophile Response

Thu, 2013/01/31 - 1:40pm | Your editor

This year, the pony-tailed Swiss editor of the Boom, Gloom, and Doom Report, Mark Faber, didn't turn up for the Barron's Roundtable from his Bangkok base. Had he joined, this is what he would have said according to an interview he gave yesterday to CNBC:

"I love this market because the higher it goes the more likely we will have a nice crash, a big-time crash." His reasoning is that the Fed money printing didn't "flow evenly into an economy" but flowed "to some people or ...sectors first, and in this case it flowed into equities, and until about 5 months ago, bonds. I believe that markets will punish central banks at some stage through an accident."

So it's Gloom and Doom to come. Ja und nein, I think.

Mark is right-on for warning that the risk of accident is high in our increasingly coordinated and automated markets, running algorithms untouched by human hands or brains which dominate the equity and derivative order-flow. This does not result from money printing but from lack of regulation of the market systems, in my view.


Here is a note from a Norwegophile reader responding to our FH's filing for paid subscribers from around Scandinavia yesterday. Writer FH warned that Norwegians are "very sensitive" and suffer a "little brother syndrome" because of having been colonized in turn by Denmark and Sweden over the centuries.

JS responded:

"I must provide the antithesis to the revisionist history from your delightful but woefully misinformed Danish friend [FH]. He may be forgiven a bit of Norway-envy. You see, Denmark did not exist until the last ice-age, during which some excess Norwegian dirt was pushed south to add a tiny bit of land north of German [which] became the quaint little country of Denmark, famous for cows, butter, and Lego-toys [ed: and the Little Mermaid.]

"Norwegians kept the mountains, fjords, waterfalls, and warm Gulf Stream current, which may be why FH is now in Sweden, probably desperate to sneak into Norway.

"As for that nonsense about being colonized, Ikke sant, kjaereste! [To the contrary, sweetie.] What really happened in the Dark Ages everywhere else [was that] strong Norwegian Vikings decided fishing was less fun than plundering. So they sailed to what is today England, Denmark, Sweden [ed: and Normandy in France] and took the finest linens, prettiest baubles, and most beautiful women back to God's country.

"One they had all they wanted, they never looked outward again. But when Danes and Swedes realized they were bereft of the best things in life they decided to 'annex' Norway--but they never dared tell the Norwegians. If they had, one or two Vikings would have marched south and disabused them of that notion. So Norwegians lived happily in their stunningly beautiful world surrounded by fine linens, pretty baubles, and beautiful women, both domestic and (ex-)foreign, unaware that Danes and Swedes were squabbling over them. When Danes and Swedes discovered how difficult it is to speak an intelligent language like Norwegian, they gave up, 'granting' Norway its independence.

"Norwegians thought this was charming, as they had never to submitted to Danes and Swedes, and they graciously condescended to consider themselves as fellow-Scandinavians. This permitted Danes and Swedes to work in Norway, inter-marry, and spend large sums of money to see what they could have been had they only been born Norwegian. One day Danes and Swedes will even learn to speak Nynorsk and say things like '24 hours' instead of the stilted throwback of '4 and 20 hours'."

To which FH responded: "JS takes credit for Norwegians invented the Gulf Stream and admits that stealing women was their only strategy for maintaining the population since woman have been escaping from Norway ever since. Med et blink i øjet" [ed: whatever that may mean].

FH then called JS adolescent and irrational, and was censored by your editor. This correspondence is now closed. I do find the inter-Scandinavian ribbing to be a bit of comic relief in a world where tribal differences are usually much more lethal.

More serious news today for paid subscribers from Canada, Israel, India, Britain, Spain, Mexico, Singapore, Rumania (our first), other Mitteleuropa, Mongolia, Japan, and South Korea but nothing from the Nordic lands at all.

Read more »

Another Monster Failure

Wed, 2013/01/30 - 1:58pm | Your editor

Bad news from the Italian oil patch today hit Italian bond spreads not just in Italy, but also in the rest of the Eurozone. Meanwhile both Spain and the USA reported negative Q4 gross national product figures, surprising credit markets. The US drop in GNP was blamed on declining military spending.

There is nothing like a contracting economy to scare stock markets.

Today UBS analysts downrated Hikma Pharma, the UK listed Jordanian generics drug firm which we recommended last Nov. We could not buy it because the US discount brokerage community doesn't deal in London-listed Global Depositary Receipts like Hikma's and doesn't operate in Amman. Our Jewish biotech maven and your Jewish editor were both frustrated trying to buy Hikma.

Hikma was, of course, a play on the Arab Spring, and it recently finalized the acquisition of the Egyptian Co. for Pharmaceuticals and Chemicals in the largest population Arab country, with 84 million people, and one of its fastest-growing drug markets. Hikma is to pay EGP 142.4 mn on the planned closing on Feb. 14. It was then $22.2 mn. But the size of the deal has fallen since then because the Egyptian pound is weakening. UBS turned negative as did the currency because of Egyptian political instability.

We got lucky.


We also got lucky with Hostmonster which lifted the 150 emails per hour anti-spam limit they placed on our paid newsletter emails. The the server went down so our blog is again delayed. The Internet doesn't offer Instant Gratification despite our wishes.


More for paid subscribers follows starting with some good and not so good Nordic results, plus other updates from Britain, Brazil, Chile, Israel, Singapore, India, Mongolia, and Canada.

Read more »

Apology for a Monster Mess

Tue, 2013/01/29 - 1:13pm | Your editor

A combination of factors has led to a screw-up partly my fault, so an apology is in order. Yesterday morning I had problems getting out of bed. I had watched the Hitchcock movie classic "The Lady Vanishes" on TV way past my bedtime the night before.

Then I got a really hot macro-economic note from a new publication by an old friend from the days when I covered the OECD in Paris. I wanted to use it which required some work.

Then I wanted to update my Dominican Republic stock recommendation, and there was an elusive "new free research report" on the share allegedly offered by my brokerage, E-trade by Traders Insight that I couldn't access. (It turned out to be an ad for a paper that produced no insight, but I had no idea this was so until I had extracted it by hand.)

Then, to top things off, my web-hosting firm, hostmonster, decided that it would no longer send out more than 150 emails in an hour, to prevent "spam", meaning our sending our subscribers what they paid for. The webmaster is working on getting that silly ceiling lifted.

As a result, this morning I got from, which may reprint any of our articles they find of interest, a note about the same Dominican stock by another writer and me. Luckily it is a Big Board major so the impact on my paid subscribers who suffered the "spam" delay will be moderate as they head to market alongside the many readers of Chloe Lutts' daily. I am watching the share volume on this one and it is perfectly within the borders of normality.

But we had an unfortunate combination of circumstances and are working to prevent happening again. We will probably ask DDD to give our readership a couple of days' head start before reprinting.

More for paid subscribers follows from around the globe along with a stock switch in Canada by Martin Ferera. And two further bits of bad news from me and one from Abhimanyu from India:

Read more »

Capital Controls and Inflation Risks

Mon, 2013/01/28 - 3:34pm | Your editor

Economic pundit John Llewellyn of London's Llewellyn Consulting writes in his first "Global Letter":

"The [US] fiscal sustainability issue is not about the ‘fiscal cliff’: it is about the massive fiscal tightening that, the IMF reckons, the US would have to undertake progressively were it to take its public-debt ratio down to a sustainable 60%-odd of GDP. US politics would scarcely tolerate this, so the public debt seems set to build, mild growth recovery notwithstanding.

"The prospect of energy self-sufficiency, or more, will free a President and country weary of foreign excursions, of the need to be polite to foreigners. Able both to feed and fuel itself, the US will be able to slip back into a pre-WWII-like stance of standing-off from the problems of the world at large.

"Agreeable though this prospect might be to a US president, however, having to tax Americans ever more to service the national debt is not. At present, with bond yields only around 1¼%, it takes only about 2% of GDP in taxes to pay bond holders. But as bond yields revert to a more-normal rate, say 5%-odd, the President will have to raise around 5% of GDP in taxes – about the same as the defense budget – to service the national debt.

"Politicians hate paying debt service. They like spending tax dollars on schools, roads, education, even defense: but not debt service. While formal default is out of the question (presumably) the President is bound to ask his new Treasury Secretary 'How can you get me out of this?'

"The stock answer is ‘Inflation’. But by itself [it] is not sufficient. The 1980s proved that higher inflation merely turned up as higher bond yields. The complete policy is a package: inflation; bond yields held down by the Fed; capital controls to prevent people from taking their money abroad in search of higher yields; and perhaps regulations to force savers (pension companies and the like) to hold government bonds. This is exactly what the US, the UK, France, and other Western countries did, successfully, to bring down public debt ratios after WWII.

"There is no guarantee that matters will turn out in this way. But there is a risk. Watch for: unusually low yields for unusually long on government paper; regulations forcing savers to hold greater amounts of government bonds; strengthening rhetoric against foreign countries that are large holders of US government bonds; and perhaps even hints of capital controls."


Here is a current example of capital controls. Last year I wrote about the problems of my Paris American expatriate buddy Barbie, a retired California-born widow had tried to simplify her life after her parents died by closing the US bank account she had mainly used to pay for their needs. She had her pensions from her days as a teacher and her retirement and widow's pensions from Social Security paid directly into her French bank.

Big Mistake! The USA went after her for allegedly having an offshore account to hide her wealth from taxes, although she filed with the IRS every year. (Her Paris-based son is a CPA with a joint bank account with his French wife to avoid these hassles.) She was sued for huge amounts for alleged tax evasion, and had to hire counsel (pro bono from her late husband's multinational law firm, in fact.)

Barbie's problem is about to afflict every American expat retiree, many of whom blamed her for the mess she found herself in with Uncle Sam. The US Social Security system from the start of 2013 will cease sending checks. Every recipient has to designate a bank account for money to be directly deposited. By the way, it had better be stateside even if the recipient is living abroad. All our mutual friends from my years in Paris will be in the same situation as Barbie: telling the US Treasury about a foreign bank account which in the course of a year may well have more in it than the legal minimum Americans are allowed to hold abroad--even expats.

The conflict is ultimately between badly-written regulations against tax evasion and labor-saving measures taken by our US payments systems. I am not sure how many non-resident American retirees and others (like journalists or business people) have foreign bank accounts but there are probably millions. Will they all be sued? Will they actually have to pay for legal representation as Barbie did not? One of my writers, a long-term non-resident, asked to be paid into a US account, inconvenient as he eats and pays his rent in a foreign land. And banks charge for shifting money around.

Wholesale capital controls on Americans living abroad are potentially harmful not just to the victims of the "crackdown", but also to the interests of our US global economy. Our fellow-citizens working abroad are a major support for US industry and US exports. They should not be sued for having a local bank account in the country where they live. Retirees abroad including ones with less money than Barbie are also at risk from the "crack down" on foreign bank accounts. Along with immigration reform this is an economic necessity.

The Lenin musuem in Ulaan Baator will be turned into a museum of dinosaurs, of which many have been found in Mongolia.

More for paid subscribers from India, Israel, Britain, India, South Korea, Canada, Ireland, Sweden, Brazil, Argentina, Chile, Britain, and Mongolia, plus more comment on the risks of inflation and capital controls Dr Llewellyn wrote about.

Read more »