First Market Day for Trump Administration

Mon, 2017/01/23 - 2:49pm | Your editor

Beware of Greeks bearing gifts. Gorgeous George is in trouble with the Securities & Exchange Commission. According to CNAFinance.com, the CEO of Dryships, George Economou, lied to the SEC in multiple 6-k filings. It is alleged he did so using a Panama Papers proxy he owned and via corrupt Canadian officials. There also seems to have been a British Virgin Islands entity callled Kalani which refinanced the firm. Then it used the money to buy 4 Very Large Gas Carriers from Economou. There is an ongoing SEC investigation.

We bought the DRYS shares after the successful ipo in 2005 by Cantor Fitzgerald and sold when the price of iron ore started to fall. We bought despite Economou, an MIT graduate, already having filed for chapter 11 in 1999-- after all our future President also claimed bankruptcy at the time.

This is one where your editor intelligently opted to fold rather than hold. Back in Nov. when there was a short squeeze I warned you all publicly not to buy the soaring shares which went to triple digits. The shipping company run by a Greek but incorporated in the Marshall Islands, runs dry bulk carriers, of which the world has a surplus.

 

Trump's restrictions on trade will further hurt this sector.

 

The market is still trying to figure out what our new president, with the short hands and the short attention span, will mean for the dollar, stocks and bonds, and the US economy. Being of the same generation I know how hard it is to teach an old dog new tricks beyond tweeting that is.

 

Today is the first full market day of the Trump presidency and things do not look particularly good. He held a chat with business leaders and promised to remove 75% of regulations—which many of them probably have learned to live with. I think it would help if Mr. Trump were required to write a blog with real rather than alternative news.

More for paid subscribers follows including another Trump Administration stock pick. We have news from Britain, Germany, Italy, Dutch Antilles, Mexico, Brazil, Colombia, Panama, Chile, Argentina, Australia, Hong Kong, South Africa, and Israel.

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Sunday Duty

Sun, 2017/01/22 - 2:09pm | Your editor

I have just posted my tables for subscribers and pre-subscribers showing our latest positions and trades. To view the ones you are allowed to see please visit www.global-investing.com and sign in using your password. If you have forgotten your password in theory you can get a new one by asking for a reset to be sent to your email address of record, but this doesn't always work. Andrew the webmaster is working on this on behalf of Prof CP who has had a series of log in problems.

Viewing tables is easiest if you use the print button, particularly if you are on a smartphone or small laptop, even if you don't want to print. More for paid subscribers follows:

Your editor has been a faithful weekend reader of Barron's since before she started her newsletter, and while the "Roundtable" is always a good read she tends to discount its investment advice. But in the Trump Era I have noticed something new in the contribution from the seven knights (and two dames, Meryl Widmer and Abby Joseph Cohen). Trying to predict what's ahead for the markets the pundits have gone more global than is their wont this year. Read more »

Bribery Alert

Fri, 2017/01/20 - 4:03pm | Your editor

This is our first shot across the bow of the Goodship Trump. A second company in our portfolio has followed Teva getting into trouble with the US Department of Justice and the US Securities and Exchange Commission, following Teva's fine for bribing state and federal insurance bodies in Mexico, Ukraine, and Russia to boost prescriptions for its multiple sclerosis drug Coapaxone. The last company to have been hit with fines from both for payola is Soquimich, the Chilean miner of potash and lithium. Like Teva it comes under the Foreign Corrupt Practices Act passed by the US legislature, supported by both parties when the Senate Foreign Relations Committee was headed by Frank Church (D-Iowa) and my boss, Clifford Case (R-NJ). That law became a model for other countries aiming to fight payola in winning contracts. Read more »

Happy Inauguration Day

Fri, 2017/01/20 - 1:51pm | Your editor

Here are some Bubble or Trouble foreign policy outcomes facing the new Administration. Harvard Government Professor Alaisdair Ian Johnston wrote in its November Epicenter blog:

“Trump’s expected China policies may have a direct bearing on [American] welfare.

First Trade

“Taken at his word, he wants to impose high tariffs on Chinese imports to compel Beijing to appreciate its currency, stop stealing US intellectual property, and open its markets to more US investment and exports. Many economists expect that China will react—at least initially—by raising tariffs on US goods, further restricting US investment, while shifting imports to alternative markets. The result will be a trade war in which US consumers are harmed by inflation, with no concomitant regrowth in traditional manufacturing jobs, and possibly a reduction in critical exports to China, such as aircraft.

 

“The Chinese may even engage in cost-imposition of their own by dialing up conflict on a range of other issues (North Korea sanctions, counterterrorism, international health, cyber commercial espionage, Taiwan, maritime disputes) to remind the US that China can impose costs too.

 

“Trump may change his mind about the wisdom of high tariffs as he listens to corporate advisors, and as he contemplates the costs to Chinese partnerships he seeks for his own personal wealth. Instead he may simply impose some symbolic cost on China and then sell this as a major policy victory.

 

Then Warning on Global Warming

Any decline in cooperation with China on global warming may not be considered a welfare cost for Trump, given his apparent belief that anthropogenic climate change isn’t happening. But it will make China, [not] the US, the 'responsible stakeholder' on climate change. Other countries will look to Chinese leadership.

“The unintended or unpredictable effects of his policy preferences, personality traits, and personal economic interests may be even greater if, as his initial appointments suggest, his China policy team reflects the gamut of GOP factions—moderate Asia specialists, Tea Party-leaning advisors who support tough economic and military policies toward China but are less interested in exporting US values, and neo-cons who want to be more proactive in undermining the legitimacy of the Communist Party.”

His colleague in the Government Dept., Jorge Dominguez, wrote on:

Latin America

“Trump has the opportunity to advance policies to promote interests that the US and Latin America share. The US does not encounter in Latin America many of the challenges elsewhere. No terrorist attack has been launched on the US from anywhere in Latin America. There are no US troops in combat in the region. There are no nuclear-weapons states in Latin America, nor are there interstate wars. The last revolutionary insurgency is likely to be ending in Colombia.

“[Regional] governments are looking for ways to cooperate with the US. Mexico has been, for many years, a far more important destination for US exports than China; and Mexico and Canada are a key part of the explanation why there are still automobiles manufactured in North America. (US auto companies would have gone bankrupt without their NAFTA partners or without the US government’s rescue of these firms.) Here’s a critical fact that was overlooked in the US election: net Mexican migration to the US has been at zero (yes, zero!) for the entire current decade. There is an opportunity to think constructively about immigration policy.”

These are risks beyond the messy divisions in the new Administration also on tax policy and exchange rates. But the impact on stock markets will be great. We are continuing to look for new postions or ones to add to, and there is one today.

More for paid subscribers follows from the Dutch Antilles, Canada, Japan, South Korea, Mexico, Israel, Brazil, and Panama. Read more »

Our Trump Portfolio part I

Thu, 2017/01/19 - 2:38pm | Your editor

Today we begin our Trump portfolio to gain from the geopolitical and economic changes expected under the new president. For the record, I am not trying to forecast how US stock markets will behave over the next year or years, because so many of the policies of the new Administration can have ambiguous impact on stock prices. This is discussed below for paid subscribers.

 

We also have news about various companies, which doesn't stop just because there will be a regime change in Washington, with news from Britain, India, Ecuador, Colombia, Israel, Mexico, Canada, Brazil, the Dutch Antilles, and Switzerland.

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Contagious Conflict of Interest

Wed, 2017/01/18 - 1:51pm | Your editor

The Trump team seems pretty disunited to me with one exception—contagious conflict of interest seems to mark the selected Administration nominees. I wrote yesterday based on Bloomberg articles about Anthony Scaramucci of Skybridge Capital who in Davos engaged in deal talk with a banned Russian sovereign wealth fund. I am relieved to report that Mr Scaramucci has now opted to exit the hedge fund he founded although it will take about 3 months. Better late than never.

But other conflicts of interest among the nominees which were not as flagrant do not appear to have resulted in similar divestitures. This creates a dangerous precedent not only for future Republicans taking government jobs but also for Democrat who do.

More today on Ireland's outlook and the boost to the American Depositary Receipts market your editor anticipates with news from Brazil, Mexico, the Dutch Antilles, Canada, Israel, Sweden, Australia, Thailand, Belgium, India, Sweden, South Africa, Britain, and Ireland.

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The Manchurian Candidate?

Tue, 2017/01/17 - 12:25pm | Your editor

From Bloomberg from Davos, a note about the possible Manchurian candidate who is about to take the oath of office as president of the US:

"Anthony Scaramucci, aide to President-elect Donald Trump and founder of SkyBridge Capital, discussed possible joint investments in a meeting in Davos with the head of a Russian sovereign wealth fund that the U.S. sanctioned in 2015, the fund’s press service said.

"The meeting with Kirill Dmitriev, head of the Russian Direct Investment Fund, a $10 bn state-run investment vehicle, is the first public contact between the incoming administration and Kremlin-backed business. Scaramucci confirmed the meeting in an interview with the Russian state news agency TASS, saying that Trump’s view is that 'there’s probably shared values or shared interests, that we can align ourselves with each other and this could be mutually beneficial'." Oy.

 

Wall Street's Best Investments sent me this note from my blog, www.global-investing.com, asoit is now in the public domain:

“The CEO of this global insurer recently remarked that the company was interested in ‘big takeovers’ in the U.S. This stock is a play on rising rates.

Allianz SE (AZSEY 17)
From Global Investing
“Allianz SE (AZSEY) has taken its time recovering from the walkout of Bill Gross, which was our motive for purchase. But with the global economy shifting gears after the shocks of 2016, for 2017 there is much to be said for the corporate bond market where Gross was rainmaker, then based at the Allianz sub in California.
“AZSEY of Germany still is the largest shareholder in Pimco, which is likely to benefit as US and global bond prices reverse as interest rates rise. Since the Brexit vote and the US election, the bond market has begun this switch to higher yields and lower prices, spooked by fear of inflation. This made interest rates rise more than expected above all in the US. The result is that after experimenting with low and even negative interest rates, the world is returning to normal. Normal means yields are positive and rising again. It also means that using stock dividends as a way to earn money with your money is no longer a slam dunk victory.
“It is uncertain if the reversal will continue long and high because of secular changes. Global debt levels are up and aging population in the industrialized world means they will be retiring and spending less. That will nip growth and inflation in many countries but probably not in the USA (given the Trump plans) nor in Britain (because of the fall in sterling post-Brexit.)
“Bonds will also become scarcer if the US tax report program of the new administration will include an end to the tax deductible corporate bond, widely used lately for share buybacks and paying dividends rather than for capital expenses. With fewer bonds available and the need for yield remaining, getting bond manager fund help will become crucial to investors.
“The bond market, unlike that of shares, does not work well with indexes and exchange-traded funds. You need real experts examining the market for the best returns at the lowest risk. For US investors, that probably means entrusting their pensions and assets to San Diego-based Pimco again. It won't be Bill Gross but we will need another bond king. The new ruler of the bond market will have to be able to invest in multiple markets, not just in the USA where Gross flourished. With greater integration with the insurance arm of Allianz in Frankfurt, Pimco is well-placed to rise to the challenge.” (Vivian Lewis, Global Investing, www.global-investing.com, December 30, 2016.)

 

More follows, if briefly, for paid subscribers today with news from Sweden, Finland, Denmark, Canada, Australia, Britain, Chile, Spain, and Mexico.

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Sunday Tables Posted

Sun, 2017/01/15 - 1:11pm | Your editor

Here are my Sunday tables, updated with the latest news and views for paid subscribers and showing our closed positions for those of you who are still holding off on coming on board. Please visit www.global-investing.com to view the tables, remembering to click printer friendly to view on small screens or cellphones. Now I am off to buy my Chinese carry-out. More for the paid among you follows:

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Friday the Thirteenth

Fri, 2017/01/13 - 12:33pm | Your editor

Not only is today the dreaded Friday the 13th, but also Monday is Martin Luther King Day when US markets will be closed. So Wall Street's tendency will be down, not helped by generalized worries about the future “Apprentice” President getting in over his head. Think Jimmy Carter.

Learning on the job is not usually the mark of a successful US Administration, and cabinet members digging distance between their view of the world and their supposed leader is a bad omen because Trump famously is a know-it-all who won't listen and learn.

 

More for paid subscribers follows from India, Brazil, Canada, Finland, Sweden, Israel, Ireland, Japan, Britain, Chile, Denmark, Swizerland, the Cayman Islands, and Germany.

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Unintended Consequences

Thu, 2017/01/12 - 1:18pm | Your editor

Legendary investor John Templeton stated in 1994 that bull markets are "born on pessimism, grow on scepticism, mature on optimism, and die on euphoria." While Sir John was the original global investor, his comments are likelier to apply to Wall Street than to global markets in 2017. They also die from unintended consequences when the powerful speak off the cuff as Donald Trump did yesterday.

What's sauce for the goose is not sauce for the gander.

It is much harder to manage the corporate ethics of an Amercian Depositary Shares from a financially serious country, like Germany, than from a country considered to be a global lightweight, like Portugal. To say noting about holding companies from a tolerated haven like Luxembourg. This is the lesson from the imposition on Volkswagen of securities fraud fines over its diesel emissions “defeat mechanism” last week.

Meanwhile outright fraudulent acts by the board at Portugal Telecom were not prosecuted under US securities laws and the perps went scott free. Yet Volkswagen shares traded only thinly on the over-the-counter pink sheets. Meanwhile PT stock was an NYSE-listed and regulated ADR easily purchasable by any US investor and many pension and investment funds.

Moreover the board of the German automaker which included representatives from German auto-maker trade unions and the local state government was not directly involved in fiddling its US share price, from all the evidence adduced to date, and barely aware about how it misled diesel car-buyers. Meanwhile members of the PT board representing its 15% shareholder, the Banco Espirito Santo, were directly implicated in its misrepresented acccounts, deliberately bled of cash for its publicly announced Brazilian purchase plans, absconded through a series of obscure Luxembourg family holding companies.

Under normal securities law standards, the PT “scandal” should have had greater American stock market repercussions in Lisbon than VLKAY faced in Wolfsburg. But in fact the reverse occurred. The American watchdogs let Portugal off the hook while Berlin was forced to pay up, even on behalf of the unions and local state government which had Volkswagen board seats but were probably totally unaware of the diesel emissions testing fraud. One reason the German firm was targetted for more severe penalties is that nobody could expect to raise $4.3 bn+ from Portugal.

The ball is now in the US court as Fiat Chrysler faces its own diesel emissions scandal with the US Environment Protection Agency accusing it of falsifying diesel emissions on 100,000 vehicles. FCAU, Dutch-incorporated with operations in Italy and North America, is the latest environmental sinner. It has less cash than VLKAY but is hardly Portuguese poor. We owned it until about a year ago, much more recently than any involvement in Volkwagen, sold in the 1990s.

More for paid subscribers follows from around the world today on regulatory matters and more news about the auto industry, aviation, real estate, heavy industry, and, alas drug-makers, the sector most badly hit yesterday by the rambling Trump so-called press conferences.

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