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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Roth IRA part II

Tue, 2010/03/16 - 10:03am | Your editor

Apologies for an error in my note about converting to a Roth IRAs yesterday. The tax you pay when you convert an IRA to a Roth is not at the capital gains rate but at your statuatory income tax rate. Note that the city and state do not tax the conversion, at least not if you are a New Yorker. I am not a tax expert.

What I did. I got my bank to open a new IRA. I will then ACAT to transfer the holdings in the E-trade IRA to the bank, where I am a premier customer and will not pay fees. Then when everything is in place, I will convert the bank IRA to make it a bank Roth IRA. My bank, HSBC, uses Pershing as its main marketmaker. Pershing is one of the intermediaries which can trade stocks in Bangkok, as noted yesterday. Thus I can get a proper valuation of my shares in Mutual Fund Public Company Ltd. either using the ticker symbol MTDFF under which I bought them last April, or via Bangkok as MFC..

My bank's investment counsellor said that if neither of these can provide a current quote for the Thai fund manager's stock, I will get a no-value letter allowing me to avoid any taxes at all on this IRA holding in the conversion process. But in fact, as I learned from my correspondence Rajitpron Manawes, the company legal secretary, the stock does have value and I will have to pay taxes on it.

I prefer paying taxes to writing off positions altogether.

Tomorrow night I leave for Europe to attend two family weddings, in London and Malaga, Spain. The London marriage of my eldest nephew, Felix, will take place in Kew at the botanical gardens. I'm wearing my huge silk wedding hat for the occasion. I bought it at a 2nd-hand couture shop by the Paris British Embassy when Felix was a toddler for the wedding of Anglo-Belgian fashion writer Suzy Menkes to the late David Spanier, who wrote on diplomacy and gambling for the Times and later ITV. I hope the snows will hold off.

We will also celebrate Passover in London for the first time since we bought our pied-à-terre, Mudchute Manor, on the banks of the Thames a decade ago We will have a Seder, a special family meal with symbolic foods, a narration, and riddles and songs. We do not plan to cross the River Thames to repeat the miraculous escape of the Hebrew children fleeing from Pharaoh.

More for paid subscribers follows starting with Scottish developments, with news also from Australia, Brazil China, Israel, Canada, and Brazil:

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Saakashvili is a Leprecaun

Mon, 2010/03/15 - 10:45am | Your editor

Your editor has been trying to Roth her IRA with E-trade but faces a major problem. US law requires that the taxpayer doing the conversion pay capital gains tax on the non-Roth IRA account when converting it to a Roth. You have two years to pay. And this year, because of the market mess in 2009, you can convert to a Roth without income limits.

So my accountant was keen that I do the switch.

But that requires that E-trade evaluate the non-Roth IRA positions correctly. And they can't. Maddeningly, the price they are showing for one of my positions is not only more than what I paid; the stale price is from before my purchase. That means I would pay capital gains taxes on capital gains not made from my most recent trade.

The stock is an obscure ADR, as you would expect from me, MTDFF, Mutual Fund Public Co. Ltd or MFC of Thailand. This had been a pink sheet ADR, created by Citigroup when they bought a minority percentage in the Thai fund manager. It appealed to my taste from taking US investing vehicles to emerging markets.

Citi has had a few tumbles since then and the appeal of Thailand suffered because of political uncertainties after the overthrow of Thaksin Shinawatra, concern at the King's health, and the polarization of Thai politics.

I first bought it for my IRA in 2005 at 41 cents/sh before I moved to E-trade. My account was then with Morgan Stanley.

My e-trade purchase doubled by holding at 29 cents on April 17, 2009. My average cost was 35 cents. The stock is shown in my IRA as having had its last trade at 41-41.26 US cents on Dec. 28, 2007. That is 12 cents per share more than what I paid 16 months later.

E-trade claim they cannot find a marketmaker now, although they did the trade under a year ago. So I cannot sell the stock to establish its current value. My trade last April does not show up on their books now and they say they cannot any record of how the trade was done or what outside specialist or market-maker was used. They refuse to tell me who does their market-making at all.

In fact, one theory being floated by the E-trade New York Center managing my account is that the broker did the trade in the foreign market as a courtesy to me and then only charged me a discount US commission of the deal.

Frankly, I don't believe this mainly because I could not track or trade the stock after this supposed “courtesy.”

MFC continues to be listed and to trade in Bangkok's main exchange. I can check its price on the SET website. The most active marketmaker in Thai stocks is Pershing, a sub of BNY-Mellon, but where Internet discount brokerages are paid by marketmakers for order flow, the customer can't ask E-trade brokerage to place the trade there.

Having first cousins in Bangkok, I sent a query to the MFC website, offering them a chance to reply in Thai. Rajitporn of MFC Fund replied (in English, so I didn't need my cousins):

 

Dear Ms.Lewis,

First of all, I have to appologise you for late reply. Refer to your request specified in your e-mail , an issue which you need to know is the MFC share price, now I can provide you the price of MFC share including histroy of the price for the past few months (as attached). The remaining information that you need I will supply you later as I have to find out from the registra and if you have further questions, please contact me via my e-mail legal@mfcfund.com . Additionly, another channel that you can find company information is our website mfcfund.com. I hope the information in the attached file meet your requirement.

 

Best regards,

Rajitporn Manawes

Company Secretary & Legal Service Department

(662) 649-2130-31

 

So now I am expect to show the IRS that the price in my old IRA is wrong. All I have to do is check the Bangkok price in Thai bahts and convert at the daily rate into US dollars. And persuade the taxman.

Will the IRS let me do this if my broker gives contrary information? The customer man at E-trade says that my knowledge of the ADR market will persuade the Feds, but past experience with the IRS makes me dubious, and my accountant also.

Meanwhile, E-trade has sent me a corrected 1099 for my main account. It is stuffed with errors, not just showing payments for rights supposely sold which I never received, but also embarrassingly mixing up countries. My foreign tax payments to Ireland are said to have gone to Georgia, the country in the Caucusus. My foreign taxes paid to Australia are said to have gone to Austria.

Is Saakashvili a leprecaun?

More for paid subscribrers about our companies follows with two notes linking Canada and Brazil; news from Korea and India, and Britain. Ever since I started studying geography in the 3rd grade I have kept my eye on the difference between Australia and Austria.

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From Egypt, From Israel

Fri, 2010/03/12 - 1:06pm | Your editor

Reader NT asked me what the financial analyst discovered in the TelMex books two decades ago which led me to sell the shares of the company of the world's richest man. It was not a Lehman-style sophiticated scam. Mexicans applying for a telephone account paid a large deposit to Carlos Slim Helu's company and this sum was booked as a sale even before the phone line was installed. Read more »

Forbes Billionaire

Thu, 2010/03/11 - 12:40pm | Your editor

 

Just what linkage is there between Carlos Slim Helu being selected as the richest man on earth by Forbes, and the outlook for his native Mexico? In my view, nada.

To be sure Matthew Miller, the senior editor of the magazine who does the billionaire tables thinks otherwise. But he would, wouldn't he?

Back in the Dark Ages when I started Global Investing we recommended TelMex, Slim's flagship company, until one day via a financial analyst publication I received a devastating report from a CFA about how TMX accounted for clients and churn.

The author had been blocked from putting out his views by the investment bank he worked for. They had a relationship with Slim's company (who didn't?) Mr. Slim was a friend of the then-president of Mexico and had benefitted mightily from special deals on telephone and TV licenses.

My source passed his analysis on condition of anonymity. And we dropped TMX from the Model Portfolio. And the whole world of Mexico analysts tried to find out who had done the deed. My lips were sealed.

For whatever it worth, as Mr. Slim won the gold ring by beating Bill Gates by the mere bagatelle of $500 mn in wealth, Mexico is seeking $48 bn in rollover credits from the International Monetary Fund. Same order of size.

A reader of the pre-subscription newsletter named Kim K. wrote to me yesterday, I think from Canada:

I think that the reader who was talking about playing roulette was right. You have about 60-70 stocks in your portfolios. An average investor cannot hold that many stocks, he has to pick maximum of 20-25. So there is a lot of luck involved to pick the “good” ones.

It is a well know [sic] fact that with 20-25 stocks, the total risk of the portfolio is reduced by 70 percent. Further increase in the number of stocks does not produce any significant further risk reduction.

The most successful newsletter in the last 5 years, [Cabot] China & Emerging Markets (average annualized return of 21.4% in the last 5 years, including the 23% loss in 2008) holds up to 10 stocks.

Even with only 10 stocks you can do very well including only 23% loss in 2008. Holding 60-70 stocks is impractical for most individual investors. Once you need to pick and choose, it’s no more than roulette. We both know that 80% of your performance is contributed by 20% of the stocks (20/80 principle works here, like in other areas in life). If I have a portfolio of 20-25 stocks and I want to allocate 40-50% to global stocks, I can pick and choose only 10-12 of your stocks. What are the chances that I would pick those 20% big winners? No more than pure gambling.

Vivian replied:

I think you are misrepresenting the pile. There are in fact 4 portfolios one for beginners made up of closed end and exchange traded funds for instant diversification; then a yield portfolio for the over 40s who need stability and which people add more of as they get older and older; then buy and hold which is the basic portfolio; and then speculations which are just that.

They have different risk so they also produce different gains. In fact last year the buy and hold outperformed the speculative which is odd but we were in a major market recovery.

As for my ability to tell you which 10 or 20 stocks will produce the bang-up winners, sorry, but my crystal ball is clouded. We never add a new share without selling something to make room. I never say "EVERYONE BUY THIS STOCK NOW!"

If you want a momentum-driven newsletter, buy it. I am not buying China and Emerging Markets without the rest of the globe. You compare our Hulbert performance with the CEM one. Okay, go to China and emerging markets and invest all your money there and good luck to you.

Diversification does not mean buying 10 stocks in China and emerging markets while ignoring the rest of the world outside the USA. The Chinese growth story has been wonderful and we benefitted from it handsomely, but I would not put all my money, or half my money, or even 10% of my money into Chinese shares. Nor should you. Nor even would Fei Chen who writes about China for us.

Nor having watched the Chinese Great Internet Wall in action would I ever buy Baidu, one of the top Cabot performers just on ethical grounds. Running a newsletter makes me part of the press, and when in China I do not want my access to the world cut by the authorities as it was during my 3 weeks in China two years ago.

China and emerging markets alone make up a concentrated high-risk approach to global investing. And past performance is not predictive of future results, as the SEC keeps making funds tell people.

So if you were to ask my advice, which you didn't, I would say that you should balance those ten emerging markets plays with probably another 30 positions in developed country and yield stocks.

I have been editing global investing for 20 years and if I had been doing a single best idea each issue I would no longer be in business. And I and my readers would be much poorer.

Another reader commented on my rule that we sell to buy something else that it was just like his tie collection. He gets rid of an old tie before he will wear a new one. More for paid subscribers from Canada and Britain and China below starting with China. Read more »

My Stamp Collection and A Gold Fund

Wed, 2010/03/10 - 11:50am | Your editor

Two readers asked the same question from Atlanta and Albuquerque.

One wrote: Picking so many stocks means you're just trying to get lucky and hit a few big winners. It reminds me of playing roulette, hardly a science.

 

And the other wrote: I'd like to hear your thoughts on how many different stocks an individual investor should have. It's an issue I wrestle with. There's the discipline argument. Limiting the number of companies forces you to be more selective. I have many things I want to buy, but I worry about having too many. I believe there is an important discipline in limiting the number of companies you own. By setting a maximum, you force yourself to identify investments that are less good that the alternative and shed them.

Everything you own is something else you don't own. There's an opportunity cost in every investment decision, even after we have made it. Every day we hold a stock is a day we miss out on putting our money somewhere else. Since we have a tendency to become emotionally attached to stocks, I think this is a good antidote.

The other argument against excessive diversification is that you end up essentially owning home-made index fund.

Vivian replied:

Good questions. How many stock to own? as many as you or your staff can track and follow. I am a big believer in diversification. Mayri Voûte, a money manager friend in Paris, says I have not a portfolio but a stamp collection. A Russian, she likes to gamble at roulette tables; I am a petite bourgeoise American and don't.

I also do not believe in rebalancing, hooey put out by brokers to get business. I also do not believe in target prices for trades although I use them mentally when watching. You may have noticed there are no targets in global investing except from Frida Ghitis.

When you invest in a couple of dozen different markets in stocks with different personalities (yield, speculative, or boring) in different industries you are not creating an index because you are focused on performance one by one not on tracking a market index. I hate indexes, a lazy way to invest.

My main reason for not rebalancing is that I own gobs of my best ideas.. I did not take money off the table because it was there. I only sell if I can think of a reason to. Many share traders suffer from sellers' remorse, even good ones. Last week I had to comfort Maurice, an Italo-Briton, for his having sold Berkshire Hathaway about a year ago and now having to buy it back for more cash. He sold because he made so much money with it. And so he paid part of that back, sob sob.

Another thing I do is trim my bets, buying and selling in little chunks until I am surer of things. My late great-uncle Jack Oppenheim, my first broker, used to say: "Vivian, fish or cut bait". But that was  when commissions (to him) were high and taxes also. This no longer is true. See below.

I violate the theology of investing preached by brokers, ETF promoters, and fund managers. I break their rules in real life and in Global Investing. They want you to trade a lot, rebalance, buy indexes, and leave it to their brilliant managers to manage your money. Fuggedaboutit.

*Deutsche Bank just launched a new Exchange Traded Commodities fund family which will appeal to the most mistrustful, nay paranoid, gold bugs. The “db ETC” investment platform will offer new index products initially on the Xetra (Frankfurt) Exchange and initially for gold.

Later it will offer ETCs for silver, platinum, and palladium there and on other European markets. It will also price future ETCs in euros (although precious metals markets are priced in dollars and always incur exchange risks for euro investors.)

Recent Deutsche research reports that total assets in ETCs across Europe grew by 145% in 2009, vs only 43% more in equities and 17% more in fixed income. ETCs are a popular way for investors to gain exposure to commodities without trading futures contracts or taking physical delivery of the commodities tracked. Deutsche fully collateralizes the Gold ETC using physical gold, with fully liquid trading by Deutsche acting as market maker.

db ETC also can provide access to Deutsche's own “Optimum Yield” indexes to commodity investors seeking to minimize losses from the "rolling" of commodity futures contracts (contango, where the future price is higher than the spot).

Head of db x-trackers Thorsten Michalik said: "We expect to launch more than 30 products before June across Europe. We are also planning to launch db ETC on the underlying physical asset class for silver, the first product of its type brought to market."

Deutsche's ETC products are transparent and fully collateralized (with the actual commodities) and trade on regulated exchanges. The commodity indexes will have annual product management fees of 0.45%. while platform product fees are said to be low. Other costs may arise from products, underlyings, or collateral and will be made known to investors who monitor www.etc.db.com.

More for paid subscribers from India, Britain, Australia, Israel, China, and Brazil follows.

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Anniversary News

Tue, 2010/03/09 - 11:00am | Your editor

 

Today is the first anniversary of the bottom of the global stock markets on March 9, 2009. Here is what I wrote that day:

The main optimistic view is that because the U.S. was first into the mess, it will be first out. FIFO in fact.

Since we never have been in a comparable economic downturn in my lifetime, I hesitate to make predictions. But I am sure of one thing: the stock market will not sink to zero. And the U.S. will come back.

I then segued into a recommendation to buy GE which many readers teased me about forever after.

Today's newsletter is short because I am going to a lunchtime concert. But we have news from Germany, Israel, Britain, Canada, and Brazil.

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