Buy British

Mon, 2010/03/29 - 8:50am | Your editor

 

Today's troubled countries are Russia, where there has been a terrorist bombing on the Moscow subway, and Ireland, where the global hedge fund travelling circus has arrived to help push its weak banking sector into state hands. Nobody knows who did what to whom offshore South Korea. Meanwhile, attacking Greece is so yesterday. And Israel has cocked another finger at the USA by raising interest rates a further 1/4%.

This will be a foreshortened week because of Passover tomorrow and Good Friday.

Let's talk about Britain, where I am now. The UK is right in the sights of the Tea Party Movement in the USA, because of its redistributive taxation system, because of its National Health Service, and because it is the Mother Country from which our American Revolution was made. But actually, the UK is a good place to invest in despite the negativism swirling around it.

Britain sounds so has-been. Stock- picking here requires little special expertise, as they speak English. It is not exotic, not emerging, not hot. It is damp, with poor food, and thus unlikely to attract hot money flows from the luxury-coddled analysts who handle them. Britain is so old fashioned an investment idea that the first foreign stock listed in the USA came from here. Nobody likes the UK.

To quote Hugh Sergeant, head of UK equities at River and Mercantile Asset Management, where he runs a bunch of Britain funds, “if you share this anti-UK view you are not alone, in fact you are part of the biggest consensus club since the TMT bubble. And huge consensus trades are rarely right.”

I quite like UK companies. The Brit economy is actually doing rather well. Unemployment is falling.

Business surveys appear healthy and suggest there will be a normal cyclical recovery. The prices of assets such as housing and commercial real estate are picking up. Retail sales are rising. Both of these can under-pin an improving banking market. The corporate sector is seeing a very strong pick-up in profits and cash flow, so it too will start putting demand back into the economy by boosted investment in capital and people.

Yes, the British public sector deficit is very large and dangerous. That means whoever wins the forthcoming May election will have a mandate to sort it out.

Meanwhile check the valuation of the UK companies. Many are being given away. They have low p/e rates and often trade at discounts to book value. British banks' price to tangible book value will be a fraction of that of some hot emerging market one.

Buy British. More for paid subscribers on this below with a new stock idea.

VS writes regarding Demco PCL warrants from Thailand which he owns through Euro Pacific Capital: “Should we exercise single point parts? I never heard back so the 3/22 cutoff is past but I still wondered what to do. Should we exercise single point parts?”

Vivian replied: “I have not had any notification of the oversubscription rights from HSBC where my Demco Bangkok shares are held.

But I have horse's mouth views of the country. In favor would be the enthusiasm with which our correspondent Paul Renaud (of Thaistocks.com) views Demco. The negative is how deeply you should invest in Thailand On Sunday Premier Abhisit met for 3 hours with the Redshirt leaders and there will be another round today. After they dumped human blood outside his house, he is chatting with the Redshirts who are demanding immediate elections.

My cousins with whom I dined over the weekend (French; Thais eat French food in England) worry about the red vs yellow shirts, the succession to sickly king Bhumibol, the very unpopular heir Prince Muckamuck.

But they also think, particularly the British half of the couple, that there is something in the Redshirt protests. Poor country people are fed up with the half-Chinese court, and want more handouts such as they were given under the deposed Thaksin Shinawatra premiership.Then Thaksin was overthrown by the army for corruption, and the new man put in place without elections. In any event the royals, backed by the military and the yellowshirts, face a succession crisis because of King Bhumibol's poor health. The Crown Prince is now on wife No. 4 but all the earlier Princesses continue to lord it over the land and one ex-wife instigated a lèse-majesté case against a Frenchman whom she overheard say something nasty about the monarchy on an airplane. (The anecdote may have been suggested by the feed.)

This Bangkok gossip bit has never been in the papers.) Having lived under a constitutional monarchy here, my British-born cousin is less royalist and more worried than his Thai-born wife..

He believes that while Thaksin now sounds like Hitler in his videos, ranting and raving, the redshirts do have a point against the army and army-imposed government. And the monarchy cannot go on as before if HRH dies. It's a tough call even if you can get the extra stock.

There are furthermore another set of Demco warrants you can exercise in June, assuming that the brokerage gears up in time.

More for paid subscribers with a new stock pick from England and important news from Finland, Brazil, Canada, and Israel.

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Wedding Bells

Fri, 2010/03/26 - 4:30am | Your editor

Today is the wedding so I am quickly writing to paid subs with hot news. Then I have to dress to kill (and keep warm; it is freezing cold in the supposed London spring.)

*Royal Bank of Scotland is not going to pay back holders of its hybrid paper, (like us USA owners of its non-cumulative prefered stock) any more generously than the market price. The hedge fund pile-in pushed the prices up but amibiuity about whether these instruments even will count as part of bank capital led the RBS chieftains to what one observer in London called "a cheeky offer". The bulk of the money will go to owners of bonds and the shareholders cashing in will get the market price plus a few pennies.

*As Israeli indexes hit an all-time new high, Teva won FDA approval for a generic of Argatroban, an anti-coagulant delivered by injection. This is small potatoes.

*GSK and its Danish partner for Arzerra, Genmab, are being suided by Biogen and Roche for patent infringement over the leukemia drug. Read more »

The Curse of Google

Thu, 2010/03/25 - 11:36am | Your editor

Being a Google partner in a period when GOOG is being dumped by thoe worrying about its future in China may be why Incredimail has suffered at last count an 18% price drop today. The conference call has just begun with the Israel based company but I have put in an order for more MAIL shares at $6.56.

Here's why. Sales in 2009 rose a more 24%. Net profit came in at $8 mn vs 4.4 mn in 2008. EPs was 84 cntes compared to 46 cents. The Israeli firm EBITDA as a proportion of sales rose to 47%, 5x prior year level.

Further good news is that MAIL expects to match Q4 09 sales in the current quarter.

A couple of years ago there was a flubbed linkup with GOOG and MAIL lost much business with its revenue share deal for ad revenues in return for feeding search to GOOG. Read more »

Spouses and Feminist Icons

Thu, 2010/03/25 - 7:08am | Your editor

Angela Merkel has capitulated in her own manner. The International Monetary Fund, with its conditionality, political neutrality, and experience negotiating with debtor countries, will provide the bail-out money to Greece. The European Community will provide repayment guarantees, but will not be involved in the terms imposed on Athens. Stock and foreign exchange markets breathed a sigh of relief and both the Euro and the European bourses rose.

Does anyone know anything about Mr. Merkel, husband of the German leader? 

I was yesterday at the British Museum exhibition of Mexican Revolutionary Poster artists. Easily the best artist was Diego Rivera, these days known mostly for being the husband of Frida Kalho. A bit like economist Leonard Woolf being known as the husband of Virginia, or Ted Hughes as the husband of Sylvia Plath. You don't want to be the spouse of a feminist icon. Hughes is remembered more for his dreadful marriage than for becoming Poet Laureate. Nobody thinks about Woolf's economic theories any more. And Rivera, one of the best artists and draftsmen in the classical mode produced during  the 20th century, is remembered mainly because of his marriage to Kalho.  For all his toying with surrealism and abstraction, Rivera was a supreme painter.

Rivera was very unpopular with his fellow poster artists, not only because he was fat, rich, and sexually promiscuous, but also because he supported the Trotskyist 4th International rather than Stalin's Russia. He helped Trotsky find a temporary haven in Mexico City. Fellow-artist David Siquieros produced a vicious parody of Rivera in one poster made about the time that Siquieros tried to murder Trotsky, for which he was jailed. 

Trotsky was assassinated a few months later. Kalho was Trotsky's mistress for a while, and after the Russian exile was killed, the Mexican police briefly arrested Rivera, thinking he might have killed Trotsky out of jealousy. 

Actually Kahlo's role in the Trotsky saga is more ambiguous. Her Casa Azul home in Mexico City is full of Stalinist iconography, including an embarrassing set of Ex Votos dedicated to the Soviet leader rather than to the Catholic saints, painted after Trotsky's assassination. As she moved toward her painful end, Kahlo used the rituals and iconography of her Catholic childhood to sanctify Stalin.

The London Poster Exhibit had only one link to Kahlo, who was too busy dealing with color and symbolism to produce political posters. She is drawn as a nude by Rivera. He does not show any of her deformities of body or eyebrows.

For the record I sold NICE stock mainly because I was embarrassed that it was tipped by Jim Cramer. Nice Systems now has been downrated to hold by Morgan Keegan, formerly enthusiastic about the Israeli customer service firm. Apparently its largest customer, Avaya, will be developing a system to compete with it.

More news affecting our stocks from Mexico, France, The Netherlands, and Israel follows.

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Paradoxes

Wed, 2010/03/24 - 7:22am | Your editor

It is paradoxical that just as China is allowing its people to invest in American tech stocks, thanks to the creation of a Nasdaq 100 Index Exchange Traded Fund in China, it will be harder for Chinese to use or buy the technologies and media these US companies sell. The Guotai fund management group, with Nasdaq, has created the new listed exchange-traded fund which will be traded in renminbi in China. This will offer an opportunity to invest in such stock as Microsoft, Apple, Starbucks, Yahoo, and Baidu, all known in China.

But it also will give Chinese access to the stocks of E-Bay, Virgin Media, and Google, although these companies' products are not now normally accessible to mainland Chinese in their global form. Google is the most politically sensitive. Having (after 4 years of compliance) changed tack to cease limiting access to certain words offensive to Beijing officialdom, GOOG linked up searches for them to its uncensored Chinese-language services in Taiwan and Hong Kong. The result was that access to the entire Taiwan service was cut off for mainland Chinese. Hong Kong is still up but not for mobile web or video search, and other partnership deals with Chinese firms, which are still censored.

So Chinese can buy Google stock but not freely use the service. And the ETF will suffer under the Beijing-induced anti-Google barrage by Chinese netizens. Currently Chinese can only buy GOOG in the Guotai ETF, which means they cannot short GOOG to buy BIDU, as non-Chinese investors have. But it would be useful to guess which way the Chinese Mr. Market would play this dispute.

Another paradox. While the European Union cannot get its act together to figure out what to do within the Euro block to deal with Greece or Fitch Ratings' newly downrated Portugal, financial criminals in Europe have fine cross-border ties. The latest 6 British arrests were over insider trading by the US-based Moore Capital Mgm. The Financial Services Authority has already taken into custody employees of Moore (a Brit), Deutsche Bank and the Exane brokerage sub of France's BNP Paribas.

Then the British Serious Fraud Office cracked down today on Alstom which is French.

More for paid subscribers follows with news from Mexico, Sweden, Israel, Britain, India, Germany, Brazil, and Australia which affects our stock picks.

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Fuzzy Logic

Tue, 2010/03/23 - 5:59am | Your editor

 

Wen Jiabao of China happily announced today that the country would be running a trade deficit in March. He added that China is not seeking to have a trade surplus but merely to achieve balance between its imports and exports. China is trying to be a good world citizen, he implied, as a key part of the world trading system.

However, analysts expect that in fact China is likely to come close this year to its 2009 trade surplus of $196 bn. Because of the impact of Chinese New Year plant closures, China almost every year runs lower trade surpluses early in the calendar year. And the surpluses start rolling in about two months later and continue till Dec. 31.

Wen's remarks reflect the fuzzy logic of the debate over the parity of the renminbi, China's currency. Beijing insists that the value of its money is something that China has a right to set unilaterally. Other countries, including not just the USA, but also the European Community, argue that competing against artificially cheap cheap Chinese exports is costly for their own economic recovery. Economists calculate that China's cheap money is costing world gross national product as much as 1 1/2% of potential growth.

So paradoxically, to deflect criticisms, Chinese officialdom is gleefully announcing that there's a trade deficit already, so there is no need to revalue the currency. And if the deficit disappears?

I was struck by the similarly fuzzy logic of the alleged “relief rally” in drug stocks yesterday, following the passage of healthcare reform legislation. The theory is: better the devil you know than the devil you don't know.

But in fact, the Obamacare compromise is good news for the pharmaceutical makers. Fris tof all there are all these millions of new customers who can now afford their meds. Then too, the program as passed by the House has no price caps on drugs at all. There is a 12-year patent exclusivity on biological drugs which will have a longer-time payback for patent-holders. And an attempt to write into law a ban on deals for designated or authorized generics, also known as “pay for delay”, has been scrapped. So the drug majors can continue to prevent real competition from copycat drugs even after patents have expired.

Neither the Chinese fixed exchange rate nor the current messy drug compromise are likely to prevail over time. Once the debate has opened it can go into unwanted directions. Wen may be surprised that his own convoluted logic can come back to defeat Chinese plans to continue to undeprice exports by fixing the RMB to the Greenback. And pharma giants should not assume that there will not be further healthcare measures as the defects of the current compromise become clearer.

A MD reader reproached me for the sale of Computer Modelling last week, at a handsome profit, because I had not run the sale past the reporter who originally picked CMDSF for us by screening stocks. The reporter was Chris Loew in Japan. But it was Vivian, not Chris, who interviewed the company and did the analysis. Furthermore, Vivian decided that the oil and gas industry are changing so that this one-horse technology company might find future profits tougher to achiever. I could have wasted a few more days seeking Chris's input, but I think the big picture changes in how oilfields are operated can be seen just as clearly from New York (where I was then) as from Osaka. Or Maryland.

More from our reporters follows from India, Canada, and Britain for paid subscribers. Join them. Your portfolio will be glad you did.

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The Double

Mon, 2010/03/22 - 6:16am | Your editor

 

Last night we saw a play of a Dostoyevsky story called The Double, about mid-19th century identity theft. It was a brilliant and convincing variant on the psychodrama original, showing that Golyadkin was not a madman in need of the ministrations of psychologists, but the victim of a plot against civil service whistle-blowers. It all felt familiar. Under Communism, insane asylums were used to lock up dissidents. And corruption is a feature of Russian administration still.

We went with my brother- and sister-in-law who are big Fringe Theatre-goers. I learned something shattering. Because my future niece's Italian family will be making their way to England with difficulty and as little baggage as possible during the BA strike, I am forbidden to wear my wedding hat lest it lead to invidious comparisons. This at the request of my nephew, a cop who can arrest Aunt Vivian for violating the no-hat rule.

India raised its reserve and repo rates each by 25 basis points putting the global economy into a new funk today. In emerging markets like India, the poor are the victims of inflation, so there were ample pressures on the central bank to tighten credit although it the move came unexpectedly early.

But now the fear of copycat rate rises in China has thrown the Asian markets into a tizzy. And then the Europeans can worry about Greece some more and the British think about labor disputes like the airline's. And Americans can worry about the impact of healthcare reform on growth and inflation.

It will probably be a bad market day.

More for paid subscribers follows from Britain, Germany, Greece, Singapore, Azerbaijan, Switzerland, Portugal, Brazil, and Israel.

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Farthings and Zuzim

Fri, 2010/03/19 - 4:01am | Your editor

AC asked me about the origin of my London address on the Isle of Dogs. The Mudchute, a fertile high hill, grew from the dump of 17th-19th century Thames River dredgers. It now is a municipal farm, with nature walks and horse trails, fields of cows, pigs, goats, barnyard fowl, and llama. It is a nearby stop on the Docklands Light Railway. Manor is ironic.

The big problem with the Isle of Dogs is slow ADSL Internet under the shadows of the largest financial center in Europe, Canary Wharf. We are across the Mudchute from the skyscrapers and connection is very slow.

The trend toward debasing currencies is clear as we move toward the beginning of Passover on Mar. 29. When Cromwell readmitted the Jews to England, they translated the family Passover readings into English. These are narrations built around the special symbolic foods of Seder Table commemorating the Exodus from Egypt, interspersed with songs and riddles and a treasure hunt to keep the children amused. Among the songs is Had Gadyah, about a tiny baby goat (kid) bought by Father for two farthings. A farthing was a silver coin worth quarter of a penny or 1/480th of a pound sterling back in the 17th century.

The tiny kid is eaten by a cat which is chased by a dog which is hit by a stick. The stick is burned by a fire which is doused by water which is eaten by a bull. The bull is slaughtered by a butcher who is killed by the Angel of Death. And the Angel of Death is in turn slain by God who establishes the immortality of the soul (which Jews invented first). And all for a tiny animal worth half a penny. The chorus is Had Gadya, Had Gadya.

A Hebrew coin for two zuzim no post-biblical immortal soul has ever seen. When Israeli independence was declared (1948), they had a coin worth 1/100 of a shekel, the agora. (The name of my company, Agorot Limited, means limited pennies.) But there are no agorot circulating in Israel nowadays, to say nothing of zuzim. They eliminated the penny worth 1/00th of a dollar in Australia. Can the US and Canada be far behind?

In case you are wondering, Oz prices are rounded up or down, I suspect mostly up.

More follows, from Brazil where our special correspondent is lurking, and from England by me. Read on if you are a paid subscriber. If you are not, become one. Read more »

Landing

Thu, 2010/03/18 - 4:23pm | Your editor

 

It is time to come in for a landing.

I flew high over the Atlantic overnight and the stock market did the same. According to Tom McClellan and savvy reader DW (who is amongst my richest readers) it is time for a correction. DW told me he had taken profits, something which always worries me coming from him, but he cited “gut feelings”

Tom does it more intellectually. While I think his Oscillators and charts are of marginal use in predicting the behavior of individual shares, I think they are good predictors of macroeconomic trends.

Here is what he wrote in the McClellan Market Report yesterday:

The stock market seems intent on undergoing a “melt-up”. That is what cheap money will do for you, eventually.

Stock prices have thus far ignored the top signal for March 11 that was given by my Fed Funds spread model.

Cruising higher past a top date in this model is not unheard of. But it has become common in all of those instances for stock prices to eventually realize that the wind has shifted.

Since I last showed this chart, we have seen the effective Fed Funds rate rise to 0.20%, well above the FOMC’s target of 0.125%. Having the effective rate higher than the target results in a negative reading for this indicator, and this is the biggest such spread we have seen since the summer of 2009 (which led to the correction that ended with the July 10 price low.

Now, I should say that it is possible that the market might just completely ignore this new development,

Tom concludes humbly.

But I have some sells to tell paid subscribers about from my reading overnight on the airplane. The news in mainly about Britain but Canada has some input too.

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Kim Sung-Il on Wall Street

Wed, 2010/03/17 - 10:14am | Your editor

Yesterday I got a corrected 1099 from E-Trade but despite its having come a day before St. Patrick's Day, it still shows that my now-sold shares of Cryptologic (CRYP of Dublin, Ireland) as having been subject to withholding taxes by Georgia (a country in the Caucasus). My latest 1099 also still shows my various Australian shares as having been taxed by Austria.

But the new correction (my 3rd 1099 from the brokerage) adds a new error. It shows that my account paid withholding taxes to North Korea on a Big Board-listed company I own shares of. I can just imagine how the International Revenue Service will react to this information. North Korea, the Hermit State, is a Communist outlaw. It has no stock market and no listed stocks in the USA.

Kim Sung-Il, the fellow with the funny hair, the high heels, the sunglasses, and the nuclear weapons, does not stroll down Wall St. Except in the imagination of E-Trade Financial.

Now with so much stupidity in my 1099 from E-trade, I naturally begin to wonder if the other tallies of payouts to me are corect and taxable accordingly. One big ticket worry is the $2000 shown as “***rights sale” via 7 separate operations in the course of April and May of last year. I did in fact sell the shares in question, in HSBC, a bank, and I did get about $1600 in proceeds from the straight sale. But I cannot even find the rights payouts in my monthly statements.

Because I am off to Europe tonight, I have filed for an extension with the IRS. Presumably when I have returned to the USA on April 21, there will be more corrected 1099s from E-trade for me and the accountant to go over. I will of course file my blogs.

Tom McClellan writes that “Tuesdays' close in the April Gold contract was above the Price Oscillator Unchanged line.” The chartist service says “this promises us a higher closing high on the ensuing move.” Tom, a 2nd generation chartist, edits The McClellan Market Report. While I am skeptical about technical analysis for individual stocks, I think a macroeconomic major indicator like gold may be chartable. GLD, IAU

Paul Renaud writes from Thailand:

Note how the Thai SET rocketed up yesterday, just as they spilled blood in the streets.

More for paid subscribers on his stock picks there follows as well as word on stocks from South Korea, Israel, France, Germany, and Brazil.

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