Macro-Hard Strikes

Tue, 2017/10/17 - 2:37pm | Your editor

Overnight Microsoft updated my windows computers and as a result I could not sign in to either my desktop or my laptop. I then spent more than an hour talking to Marc or Mark of Microsoft in Manila to get back access to my computers. You will recall that our phones are not working so it was mostly a matter of proving I was me, but the system is awkward, circular, and annoying. Macrohard strikes again.

As a result, today's blog will have to be truncated as I cannot write enough before the market has closed against us.


Airbus is taking a stake in Canada's Bombardier which was facing a crash after the US imposed hefty tariffs against it because of subsidies it got from Quebec Province, where it is HQ's, and Britain, where it has plants in depressed Northern Ireland. The duty resulted from an initiative from Boeing which will be the loser from this alliance. It is not only The Donald who shoots himself in the foot.


We have news from Brazil, Canada, Chile, Denmark, Hong Kong, Israel, Russia, South Africa, Sweden and two quarterly reports to cover today.

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Greetings and Revisions

Mon, 2017/10/16 - 4:17pm | Your editor

The Model Portfolios posted in a hurry Sunday have had to be revised because of errors. I corrected them Monday. Please visit to view them. Everyone can see the closed positions table in all its glory but only current subscribers may view our stock and bond holdings. The funds table did not contain any errors that I know about so it is unchanged.

Sorry about that. I was hurrying off to a lecture. To give you more to mull over I included closed positions back to the start of 2012 so you can see that our performance is not a fluke but the result of a repeatable process.

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Another US Record?

Mon, 2017/10/16 - 1:48pm | Your editor

In 1988, on assignment from the then independent Herald-Tribune of Paris, I visited Spain to interview its business heads. Among them were “Veuves Clicquot” Pilar Ferrer and her mother-in-law Dolores Sala who took over managing the Catalan vineyards in San Sadurni de Noya after Pedro Ferrer and his son Joan Ferrer were killed by the Spanish fascists in 1936.

In those days the maker of “Freixenet Cava”, a sparkling wine which the European Union did not let them call champagne, was strongly pro-Catalan. I was given a little history book published by the winery in “Gener 1988” (January 1988) about “xampany” (champagne in Catalan). Dolores and Pilar had by then been replaced by a corporate board of men and Freixenet was opening new vineyards in Mexico, but Catalan linguistic rights were still not guaranteed by Madrid.

So I was struck today by the fact that Freixenet is one of the companies planning to exit Catalonia if it declares independence from Spain. Of course by now Spain has accepted far more autonomy for Catalonia than then. So now family history is obsolete and the business must be able to export within the EU. They no longer support Catalonian independence or “Catalexit”. But they do want to produce Xampany “per molts anys!” That is a Catalan toast you say on a birthday, I learned from my book, meaning many happy returns. I was thinking of blackmailing the current management into buying back my copy.

I also visited the Basque Country where most of the heads of business were priests, because the companies were cooperatives founded by the Church. But that is for another day. Basques were then producing electrical household equipment like refrigerators and washing machines but that business has moved elsewhere.


There is a message here for fringe economic outposts, among which is New York where I hang out. The island of Manhattan is a fore-runner of the US economy overall just as, back then, Catalonia was a bellwether for Spain, and Hong Kong one for China.


More today from ECTRIMS and ACTRIMS, Britain, Ireland, Israel, Switzerland, Hong Kong, and India, and, because of the extension of the talks on renewing Nafta, special reports on Mexican and Canadian stocks. After my moan about price drops for T, VZ, and GE yesterday, they are all up today because US market levitation depends on the classics. Hence today is a key: if the Dow goes up there will be another record day. And if it doesn't we have more reversals to come. Of course this all makes global investing appealing because foreign markets at not at skyscraper levels.

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Sunday Duty

Sun, 2017/10/15 - 11:29am | Your editor


Today we are going to the opening of a celebration of German-Jewish emigration to the USA which is not being held in Washington Heights, the northern Manhattan area where my parents' generation settled, mockingly called “the 4th Reich”. Instead it will be at the Center for Jewish History at the edge of Greenwich Village.


So the tables are being prepared on the fly and may be less than perfect, among other things because overnight some updates from Windows 10 screwed up my computer. Please visit to view the tables.

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Oil and Beer

Fri, 2017/10/13 - 1:15pm | Your editor

Not only is it Friday the 13th, but also my phone service was not restored by the technician who came yesterday. Instead of linking our existing lines to the world he set up a new link to a (gasp) 646 number rather than my 212 one. As a New Yorker I want a 212 number, and moreover one with the old chic Plaza code. 646 numbers are for refugees from Queens like the President.

Japanese brewery Asahi is proposing to sell its stake in Tsingtao Beer, what I have felt was the accompaniment to Chinese food since I first tried eating it. It was founded by Germans in 1903 in the city now called Qingdao. Asahi wants to offer Chinese a chance to quaff its own branded brew.

Another bit of bad news is that Saudi Aramco may not do an ipo after all. This was supposed to be a part of the modernization of the Kingdom after women are allowed to drive. This was reported by one of the leading newspapers in London, the Financial Times. Saudi Aramco was considering a listing there or on the Big Board and investment banks were savoring the prospect.


More for paid subscribers follows on beer and other things from Europe, the Middle East, the Far East, Latin America, and Canada.

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More from Thaler and, alas Navellier

Wed, 2017/10/11 - 1:30pm | Your editor

It turns out that Nobelist economist Richard Thaler was willing to make a prediction about the stock market outlook after all, in a Bloomberg TV interview. “We seem to be living in the riskiest moment of our lives, and yet the stock market seems to be napping,” Thaler said, in a phone conversation. “I admit to not understanding it.”

The S&P 500 index has been reaching repeated records since the election last November amid steady growth in the U.S. economy and labor market, and anticipation of lower taxes, though until now Washington has not done much.

Thaler, who won his Noble for studying irrational and temptation-driven actions in markets, expressed misgivings about low volatility and continued investor optimism. “I don’t know about you, but I’m nervous, and it seems like when investors are nervous, they’re prone to being spooked,” Thaler said, “Nothing seems to spook the market” and if the gains are based on tax-reform expectations, “surely investors should have lost confidence that that was going to happen.”

This is of a piece with Prof. Thaler's statement yesterday that he will spend the ~$1 mn Nobel Prize money “irrationally” rather than turning it over to one of the funds he advises.


A mini-Madoff was sentenced to pay a fine of $35 mn by a Boston court after charges were brought by the SEC against Howard Present of F-Squared Investments of Wellesley Mass. Present has to disgorge $35 mn for fabricating a 7-year track record for the fund sent to clients and potential clients. He claimed that its “AlphaSector” Strategy had been in use from 2001 to 2008 to switch between sector exchange-traded funds. In fact heand another man  made the results up using backtested data rather than real investments.

Louis Navellier, a fellow newsletter editor, alas, was also charged with fraud by the SEC for claiming his Viero AlphaSector ETF used AlphaSector stratgegies from F-Squared when in fact they could not be substantiated. Navellier sold his Vireo fund to F-Squared for $14 mn in mid-2013 despite knowing the results were faked.


More for paid subscribers follows from China to Finland, from Japan to Chile, from South Korea. There will be no blog tomorrow either because of Simchat Torah or because I have to be on call for the umpteenth time for (I hope) relinking my office and apartment telephone lines which have been out of order since Sept. 5!

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The Maltese Falcon and Turkey

Tue, 2017/10/10 - 1:54pm | Your editor

Readers had a lot of fun with my blog of yesterday, sending me notices that “the end is nigh” and commentary belittling the importance of “nudge”, Nobelist Richard Thaler's insight into behaviral economics. I misstated one thing: Prof Thaler is not necessarily going to put his money where his mouth is, into Fuller & Thaler Behavioral Small-Cap Equirty (FTHNX) and the Undiscovered Managers Behavioral Value Fund (UBVAX). Instead, he told journalists he intents to spend his Nobel prize funds “irrationally”.


Today's blog is about Turkey, Malta, the Vatican City, Israel, Bermuda, the Dutch Antilles, and a few other places.

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Economic Nobel Prize Stock Picking

Mon, 2017/10/09 - 1:31pm | Your editor

A reader who calls himself Carter and Brewer—sturdy Anglo-Saxon job names both—wants me to predict whether stock markets are toppy and ripe for a fall, or not. Should we exit shares (call that Carter) or pile in with the rest (Brewer).

Since there is no right answer I am taking refuge in the so-called Nobel Prize for Economics given today to Prof. Richard Thaler, who combines economics with psychology in helping run two small cap funds at Fuller & Thaler.

The question comes down simple either or: if an investment strategy has worked in the past, will it continue to work or will it reverse? This is the stock market version of the gambler's dilemma: do hot hands continue to win? Do cold hands lose again? In basketball or horse racing, winners tend to win more, because of the psychology of players or jockeys.

But in strict games of chance, like in Las Vegas, some punters take an alternative view: if there has been a streak of wins or losses the odds are higher that the next play will reverse the trend. If the one-armed bandit or the roulette wheel are honest and not fiddled with, the odds of a reversal and the odds of the trend continuing are identical. Red or black, odds or evens, are equally likely on the next toss or turn regardless of the past trend.

But most gamblers believe in “hot hands” and “cold hands.” Behavioral biases mean that error-prone gamblers do not realize this. Some bet on reversal and some bet on continuity based on earlier results. These miscalculations of the odds, called the “hot hands fallacy” mean the odds are better for those betting on a reversal of the trend.

Another behavioral insight is that losses are twice as worrying to investors than merely lowered gains.

In investing, the hot hands fallacy would ignore a profit warning on a stock which has done well in preceeding quarters and would overreact by dumping after profit warning from a company which warned earlier. You won't buy the index but will seek out stocks dumped in a seller's panic and short stocks that arrogant managers continue to buy and talk up.

Fuller & Thaler, which aims to gain from investors' and managers' behavioral biases, until today officially had only $61 mn in assets under management (AUM). Now it gets ~$1 mn more if Thaler puts his Nobel winnings into the pot. There is already another Nobelist economist on board, Daniel Kahneman who won the Nobel economics prize in 2002, formally called the Sveriges Riksbank Prize in Memory of Alfred Nobel, essentially for examining the hot hands fallacy.


Not enough exercise; too much chocolate cake: Nudge, nudge

Thaler's insights follow Kahneman's. Thaler's insights are contained in the Nudge (his term) strategy, government use of taxes and other policies to get people to do what is best for them long-term. Nudging means “if you want people to do something make it easy”, as Thaler said in a radio interview with The Economist a year ago. People do not make economic decisions rationally. They choose what's easiest, not what's best.

We eat unhealthily or fail to save for retirement or choose the wrong mortgage. So you “nudge” folks to automatically increase their IRA contributions if they get a raise (which worked in the UK) or collect for wildlife preservation or the collection when they enter a national park or museum. A paternalistic and benevolent government nudges by requiring that competing investment or mortgages programs be easily comparable. A nudge exposes sneaky marketing gimmicks. We don't want to think about organ donation after our death so you make that the automatic option when people renew their drivers' licenses (as in Spain.)

Prof Thaler famously commented after British voters opted to exit the European Union that “People are voting with their guts. There is no spreadsheet. This is much like a divorce without a prenup. You're voting to leave and we'll take care of the financial details later.” He also said in the same interview: “People do not act with proper understanding of risks. People attracted to Trump for example.”

But asked about financial markets Thaler avoided the question from Brewer and Carter: should you invest in the market which has fallen furthest (then Japan) or the one hitting new highs (US tech.) He took refuge in the classic example of the beauty contest, where you win if you correctly guess which woman will be selected by the most voters. The stock market is like a beauty contest, Prof Thaler replied, quoting Maynard Keynes who argued that you have to pick the woman who will appeal to the most ill-informed judges, not the one you think is prettiest.

The two mutual funds F&T runs are open-end, so we don't normally cover them: Fuller & Thaler Behavioral Small-Cap Equirty (FTHNX) and the Undiscovered Managers Behavioral Value Fund (UBVAX) which F&T recently brought back in-house after managing it on behalf of Allianz SE of Germany. AZSEY owns Pimco fund, and UBVAX was a distraction. It has about $6 bn under management solo, not counting the former Allianz fund. Fuller also runs separately managed accounts also not included in its AUM total. Unless you switch your money to one of these funds you cannot benefit from the Nobel Prize in economics.

But what you can do is avoid exchange-traded funds whose future strategy is required to copy that of the past—to invest robotically in stocks which have gone up.

More on the subject for paid subscribers below from Israel, Germany, Spain, Brazil, Britain, most African countries, Colombia, Hong Kong, Finland, Australia, Belgium, Mexico, and Canada.

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Sunday Tables Posted (with fewer controversial remarks)

Sun, 2017/10/08 - 12:12pm | Your editor

I have just posted the performance tables at where you can view the ones you are qualified to open: the closed positions table is open to anyone but only paid subscribers may view our current positions in stocks, bonds, closed-end funds, and exchange-traded funds. Join them by subscribing so you can make money with our research.

The US bond market will be closed tomorrow for [gasp] Columbus Day which my city's mayor is boycotting despite re-naming himself de Blasio. Markets will be closed in Japan, South Korea, and Canada tomorrow.

Tel Aviv will be closed the 11th and 12th for more waving of palms and dining in booths, while Brazil and Spain will be closed the 12th only. The 12th is when the telephone lines are due to be repaired in the building housing my home and office, in theory in time for me to get to the Yizkhor Memorial Service at Central Synagogue, but their sense of timing is pretty weak. And there just may be another delay. 

More for paid subscribers follows:

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Wir sollen nach Europa!

Fri, 2017/10/06 - 12:38pm | Your editor


Deutsche Bank's stock analysts weighed in with an argument for global investing, particularly in Europe, being shared with you, headlined “connect the dots”. It reads:

nvestorsd underallocated to international investment may be missing out on an important growth engine in today's global economy. While the US is home to many of the world's largest and most important companies, the international equity markets account for almost half of the world's market capitalization. By ignoring international stocks, you may be missing out on an important growth engine in today's global economy.

According to the International Monetary Fund, non-US markets made up almost a quarter of the world's gross domestic product (GNP) at the end of 2016, and accoutned for almost half the world's market capitalization.

The global economic recovery is increasingly evident in the developed markets of Europe. Until several months ago, investors worried that the region was politically risky. Now, as the dust of Brexit and the Italian and French elections settles, these concerns appear to be dissipating, allowing focus to shift to improving economic data.

Interest rates are expected to remain low, which is generally supportive of stocks. Meanwhile, consumer and business sentiment are strong, boosted by rising industrial production, credit lending, wages and employment.Europe's high-export economy continues to benefit from revoery in the emerging markets...

This translates to an ennvironment that should support continued strength across the region. Earnings growth appears to have reached an inflection point, reversing a 5-year treand of flat to negative growth. Deutche Asset Management's analysts anticipate double-digit earnings growth in Europe for the first time since 2010. And those numbers are broad-based, not limited to a few business sectors.”

Deutsche then boasts that it is very present in Europe and can closely watch on European companies. Ja.


Tactfully, it does not say that US markets are ahead of themselves after a too-long set of new highs by the broader market, the S&P 500 index, and by a small handful of attractive US tech shares.


Today, Wall Street was jolted by the weak jobs report, hit by hurricanes. UK PM Theresa May's stumbled as a speaker. European stocks are suffering in tandem, hurt also by political uncertainty in Germany (plus a deadly storm, Xavier, in its Baltic area) and worries about Spain's dealing with Catalonia. Austria has a vote on the 15th and its stocks are down. It is a good time to move into European shares.


One US stock to SELL is Verizon which, having connected my office direct line after hours a week ago, today disconnected it instead of repairing our main line corporate number. This is not just incompetence. It is because they own the copper lines which run under the streets in Manhattan, inherited from Nynex and ultimately from AT&T. I suspect they were laid in the sewers by Alexander Graham Bell. By cutting off service they are trying to force me and my neighbors to switch to their phone services from other firms, which is probably illegal. Our super, back from vacation, is taking on the cause. I just sold half my VZ. They now say they will come Oct. 9 when the building is again on lockdown for Columbus Day.

More on telcos below along with news from Europe and also Japan, Israel, Egypt, Australia, Argentina, Chile, Peru, Chile, South Africa, and Hong Kong.

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