The Old Lady of Threadneedle St

Thu, 2017/11/02 - 2:38pm | Your editor

The Old Lady of Threadneedle Street, the Bank of England, the central bank of the UK, has just doubled interest rates—from 0.25% to 0.5%. The move was widely expected but the rate hike nonetheless took down British stocks, if only by 0.2%. BoE governor Mark Carney said inflation is expected to be over 2% for longer than the next 3 years, hinting at more rate rises after the first upward move since 2007.

This scared the London Stock Exchange and for once the rising shares were not US$ earners this time because the tax cut rally in the Greenback reversed today first because the Fed did not hike rates (which was hardly likely) and Pres. Trump opted to name a new chairman who supports current Fed policy-- and because of profit-taking.


Today there are a couple of challenges to the European Union which for once have nothing to do with Brexit. Firstly, the former chief of Catalonia is taking refuge in Brussels from attempts to summon him to be arrested in Spain. And secondly because two leading German department stores, Kaufhof and Karstadt, are proposing to merge—something like Macy buying Gimbels in NY terms. The Treaty of Rome has very strict anti-cartel rules dating back to the early post-War years when this was needed.


Moreover it is unclear whether the US can product a tax plan to get internet cash caches held in European havens to the USA via an amnesty.


More today from Israel, Britain, Canada, Mexico, Brazil, Germany, Colombia, Hong Kong, Japan, Switzerland, Spain, Denmark, Norway, and South Africa.

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Wed, 2017/11/01 - 2:26pm | Your editor

The Hallowe'en murderer killed 8 people along the western bike path along the Hudson River. Five were Argentinians celebrating the 20th anniversary of their graduation as engineers from a Rosario high school. Another victim was a Belgian national. The killer was an Uber driver from Uzbekistan with a thick rough black beard.

The site was near Stuyvesant High School, on of my city's schools which only admits top students. Now the High Line bike path becomes another place where people were randomly killed by a mass murderer, be it the Federal Building in Oklahoma City or a hotel in Las Vegas. Just as with the Boston Marathon murderers, his being a Muslim is not why he killed. It was because he is crazy. That he was not a native born American is irrelevant. So were 75% of those he killed.


*Pimco's marquee manager and Chief Investment Office, Dan Ivascyn, explained to Citywire how he managed the group's Pimco income funds this year. He played on the inability of the US Adminsitration to push through major tax, health, or infrastructure reforms to boost absolute and relative returns and generate income despite low interst rates. Washington gridlock gave the fund group a chance to “play offense” around US interest rates and volatility using derivatives and careful risk management. This matters to us because the largest shareholder in Pimco out in California is Germany's Allianz SE whose shares we bought when Mr Ivascyn's predessor as “bond king”, Bill Gross, walked out.

More fund information for paid subscribers next along with news from around the globe, from Bermuda, Brazil, Britain, Canada, Chile, Colombia, Denmark, Dutch Antilles, Germany, Hong Kong, Japan,, India, Mexico, Panama, Spain, South Korea and South Africa.

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Download Disaster

Tue, 2017/10/31 - 2:34pm | Your editor

A windows 10 update unhinged my printer and my access to my desktop, and calling the maker of the computer which is less than 3 months old, good old HP, resulted in my being told that the 1 year warranty does not cover updates from MSFT. I have no idea what to do to get back into the the thing. Meanwhile here is today's blog.

Fraticide can be costly. Anil Ambani is settling with the bankers who backed his cellular telephone company, Reliance Communication, by handing them stock in lieu of repaying because he could not find anyone willing to partner with him. He was wiped out by the virtually free offering by his brother Mukesh and owes $6.94 bn which even for an Ambani is real money. The deal was worked out by the Indian central bank, The Reserve Bank of India. And that is not all.


You don't want to own a private sector bank in India now that the Modi govt has figured out a way to bail out public sector banks from their huge potential losses from concentrated lending to favorite oligarchs and officials. It is using funds from the state banks' own reserves to buy their shares, thereby increasing their solvency and ability to underprice new loans to the same people. It is tough to compete with banks which don't have to perform, why we are happier out of the banking sector.


Things are not much better in China where a government facility will boost lending capacity for the SOEs (state-owned enterprises) which have excess debt. This will hurt private sector Chinese banks and their Hong Kong partners or comeptitors. Both countries need more investment and for various reaons are tapped out internationally now. China's manufacturing purchasing managers' incex came in low at 51.6 when estimates were at 52 and last month's at 52.4. It is still positive but sinking. Both countries are supposed to lead the world in growth and without financial gimmicks are running out of steam.

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Shock Exchange?

Mon, 2017/10/30 - 12:43pm | Your editor

Over the weekend I used an Amazon gift card to buy a book she wanted for our daughter. This proved to be a very complicated matter requiring lots of data to use a different delivery address than the one of my credit card, necessary because there was a ~$5 shortfall on the gift card. I found the whole experience frustating and moreover the amount of possible state and local taxes and postage was not available when I placed my order. I think the hoopla about how internet commerce will wipe out standard shops is overdone. It doesn't help that there no longer is a bookstore within walking distance of my midtown Manhattan home, surely the fault of Amazonian competition. While of course I am very 20th century grumpy shopper and “don't get it” I also think a lot of the people talking up e-commerce haven't actually done much on-line shopping.

Amazon's inefficiency has been a factor in my view of the company since it began. We held a baby shower here for our daughter-in-law and her friends before her first baby was born, where she selected gifts they could order on-line, like boppy pillows for breast-feeding. In the end despite the list, no fewer than 4 were delivered here for her. The economies of scale seem to have fallen by the wayside in pursuit of volume. Wiping out traditional commerce seems to be more important than satisfying customers, to say nothing of making profits.

Amazon is up 2% today on news that its Amazon Web services cloud serviceds will be expanded in cooperation with AT&T, one of my legacy US holdings. However I am not joing the Agora Inc Daily Reckoing in calling for “the death of Amazon” because it will hit anti-trust speedbumps.


Asia-Pacific markets are up but European ones are lower despite some progress over Catalonia. It is either fear of tapering or fear of what Paul Manafort and Prof. George Papadopouloscan tell the court about the presidential campaign of Donald Trump. Latin American bolsas are also lower. The dollar is also down so the impact on our portfolio, which was hurt last week, is more or less flat.


Along with a middle-class tax cut which will be nothing of the sort, the Administration has also stopped the Labor Department proceeding to impose a “fiduciary rule” requiring retirment and pension saving advisors to place the interest of their clients foremost. The rule will now have to be evaluated by the Labor Dept., the SEC, and state regulators and of course it will never be imposed. It is of a piece with the limits being imposted on 401k pension accounts by the Republican Congress and the allegedly populist President.

More for paid subscribers follows from Australia, Bermuda, Britain, Brazil, Canada, Denmark, Dutch Antilles, France, India, Ireland, Israel, Mexico, Spain, Sweden, and the USA.


As is often the case Monday news is dominated by erratic and ill-considered changes in analyst forecasts for companies we cover. Sometimes I figure the only purpose of this stuff is to get people to trade more, but contributors and readers may have a different take on the spate of rating changes by the investment analysts covering the shock exchange rather than the real one.

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Pre-Hallowe'en Performance

Sun, 2017/10/29 - 12:37pm | Your editor

The Sunday tables have now been posted on the website. Everyone is allowed to view our closed positions, boosted by two takeovers, one for cash, and the other for stock in an NYSE-listed US company, which means it counts as an exit for the model portfolio, although my readers know I am keeping my shares.

The tables also show serious deterioration in our stock portfolio. This can only be viewed by paid subscribers, not pre-subscribers, in part because of marketing considerations. So what is going on?

My taste for averaging down has hurt my performance because of two drug companies which have been penalized for actual or anticipated poor performance under new CEOs. One boosted its dividend to no avail. The other, it is feared will slash its dividend before the new man takes over, to save him from ignominy.

Also hurting our portfolio is the strength of the US dollar, given that most of our stock positions are in foreign currencies. This too will pass.

But that is not all that I am losing from. My US holdings are also doing poorly in the short term also because of my averaging down tendency. I think the reason I do this is because I am not really a trader. I take a long-term view of my holdings which are not really for trading.

Apart from oil stocks which have rewarded persistence, this approach can cause downward moves in the short-term. If I know what is causing the falls I am likely to average down. If I don't know what's up I await more information before acting.

More for paid subscribers follows:

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FAANG Friday

Fri, 2017/10/27 - 1:01pm | Your editor

In Journal of Portfolio Management's latest issue, three experts found that returns are higher in smaller countries with smaller total listed market capitalization than in foreign investing overall. Stocks from small countries tend to have higher average returns than stock from large ones. The country size effect is largely independent from the return on buying small capitalization firms overall. It also does not depend on other quantitative factors like book to market valuation or momentum. The authors conclude that small country higher returns reflect home bias. A smaller country has fewer home investors so stocks are undervalued, giving an edge to the intrepid foreigners who take the trouble to learn about the equities available.

The authors are Gregg S. Fischer, Ronnie Shah, and Sheridan Titman.of Gerstein Fisher, a New York based investment house. It aims at exploiting market inefficiencies, investor biases and valuation errors, and the human tendency to extrapolate current trends way into the future regardless of facts and information to achieve outsize returns.


This is yet another argument against investing in exchange-traded funds tracking a country index. It doesn't work for bonds and there is evidence that it also doesn't work for small caps and small countries which most ETFs ignore because the cost of coverage is high compared to the big markets and their big companies. Maybe I can find a way to short ETFs pretending to be truly global.


*With the European Central Bank moving very cautiously in its 3rd attempt to exit quantitative easing, the euro lost altitude. That means the dollar rose which has nothing to do with anything the White House or Congress get up to. It does mean the odds are higher that the Fed will raise interest rates one more time this year, because US growth was high despite natural disasters in Q3. Fear of Fed is hurting Wall Street more than Trumpian tax cuts can add to stock prices. But thanks to Microsoft and the FAANGs, Wall Street is up again.


More today from Bermuda, Brazil, Britain, Canada, Colombia, Curacao, Denmark, Finland, Ireland, Israel, Japan, Mexico, South Africa, and Sweden.

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Terrible Thursday

Thu, 2017/10/26 - 12:25pm | Your editor

Today is terrible Thursday with a pileup of reporting companies from around the world. So there will be limited commentary. While I lambasted Harvard's poor endowment returns yesterday, today our own holdings are down sharply as the US market drop on Wednesday hit foreign markets overnight. Moreover, a batch of rather ambiguous or even negative results reports didn't boost markets. So here we go covering the news from Belgium to Tanzania. I have used agency reports to translate foreign currencies to US$s to save time.

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Women Chairs, CEOs, and Latinas

Wed, 2017/10/25 - 3:37pm | Your editor

The latest report on Harvard's endowment's stock performance labels the level of returns as “disappointing””. But in contrast to prior years, the latest figures omit details on where the gaps were. In its last fiscal year, the endowment only gained 3.9%, although admittedly from a huge base of $35.7 bn at the close of fiscal year 2015-6.

In contrast to previous years, the new Harvard Management CEO, N.V. Narvekar who was appointed in Sept. 2016 refused to give the Harvard Magazine details about the investment sectors where Harvard's results fell short, although at least Harvard was in the black in the last fiscal year.

All he said was that “natural resources experienced a challenging year” while citing “strong returns” from public and private equity and the endowment's ”direct real estate platform”. However apart from that hint we have no information on where the Harvard Management shortfall came from.

Mr Narvekar also wrote that “the time had come for an aggressive plan to restructure the HMC and create the necessary organizational and investment culture.”

In prior years, the HMC detailed how the endowment was invested, return by asset class, and how it stacked up against benchmarks or HMC's prior 5- or 10-year return from that class. Now analysts, and alumni, are unable to figure out how the current return compares to prior years by category.

In theory the write-down of its forestry holdings by about $1bn cut the investment return by about 3%. However other costs probably include severance payments to former fund managers or costs for recruiting new team members and improving analytics and processes. The endowment is also “designing a new compensation framework,” Mr Narvekar wrote.

I am assuming that the endowment was not tapped to pay fines for a fellow economics faculty member who defrauded the US government, Andrei Shleifer, as occurred in 2005 under the Harvard presidency of Larry Summers, his friend, and which cost Harvard $40 mn or more. In the 1990s, Prof. Shleifer had led a Harvard advisory program to help Russia replace communism with capitalism. Shleifer was under contract from the Harvard Institute for International Development to create a mutual fund for Russia. Instead he and his wife engaged in criminal behavior, using the IID money for personal spending and engaging insider trading, self-dealing, violations of conflict of interest, tax evasion, money laundering, and conspiracy to use false claims to defraud the US government.

The university was deemed to have breached its contract with the US government by a Boston court in 2004 and fined. Summers chose to use endowment money to pay for Shleifer's misdeeds and those of his wife, in direct violation of their contract with Harvard. However, only civil charges were brought, not criminal ones. The couple had invested in a group of Russian companies due to be privatized by Russia based on insider knowledge in direct violation of their contract using a Channel Islands bank account in the name of Mrs Shleifer's father, Howard Zimmerman, and other Americans, and even borrowed money in this country for their stock purchases. Summers kept in touch while he was US Secretary of the Treasury. Harvard's Pres. Neil Rudenstein, who was ill during this period, was out of the loop.

Their doings were investigated by Institutional Investor, a financial magazine which also revealed how Larry Summers protected Shleifer, his former Harvard student. This was why the Harvard faculty ousted Pres. Summers, replacing him with Drew Faust. It also led to the departure of Jack Meyer as head of HMC. Prof Shleifer however remains on the faculty with tenure. I no longer donate to my alma mater'

Health Care

Today we have a key stock reporting on its Q3 and lots of news so I will stop reporting on the scandal which most recently affected on of the shares the Shleifers were linked to in our portfolio, Stada Artzneimittel, which has been taken over. More about drug stocks follows with news also for our tech and telcos, and las latinas, the shares of companies we own from Latin America. And a special note on women heading companies or their boards.

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Mountie Stocks

Tue, 2017/10/24 - 2:24pm | Your editor

Very mixed US economic data today encourages me to talk up global investing some more. The US manufacturing purchasing manager's index rose to the highest level YTD at 54.5 and the services PMI rose even higher (but slower) to 55.9. Services employment and new orders (backlog fell) while both factory employment and backlog rose. However regional data showed problems in the US southeast.

Retail sales were up as we go into the holiday season, but same store sales fell by more than expected, 1.3% vs last October so far and by a scary 3.4% YTD vs the same period in 2016. The cause was probably the hurricanes.


Meanwhile in the euro area, the PMI fell to 55.9 today vs mid-Sept levels of 56.7. The forecast had been a much more buoyan 56.5 and there was no hurricane to explain the shortfall.


Today BofA-Merrill Lynch forecast that the Bank of Canada would delay further increases in interest rates for the rest of this year to check on the economic impact of recent back-to-back rate rises. It expects the Canada CB will only resume raising interest rates in 2018, with hikes to take the overnight interest rate in Canada to 1.75% by midsummer of next year.

The forecast also assumes that Canada and theUS will coordinate its rate policy with that of the Federal Reserve, withdrawing stimulus as rates turn positive. The two central banks will be synchronizing their rate policies.

The Canadian CB would only delay the rate hikes if a breakdown in Nafta negotiations put economic growth and housing sales at risk. (The analysts writing this were Carlos Capstran and John Shin.)

The news that oil prices are rising, with Brent crude at $57.63 and US crude at $52.23 has also boosted the Toronto market.


This gives me a chance to get current with Canada stocks in our portfolio. And other Americas positions.


Wall Street is down across the board today and the dollar is up and, for a change, gold has followed suit. Usually the buck and gold move in different directions. It is a new era, perhaps. ValuEngine says over 61% of US stocks are more than 20% overvalued by their market price. This is a call to action according to the stock advisor.

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Psychoanalyzing Trump

Mon, 2017/10/23 - 1:08pm | Your editor

Judy Lewis Herman M.D., no relation, a Harvard Medical School psychiatrist whom I know from college, has co-authored an article with Bandy X. Lee of Yale whom I don't know, arguing that Donald Trump is mentally unstable and should be impeached by Congress because he cannot be trusted with the life and death powers of the presidency. It apparently referred to his aggressive behavior, constant self-praise, and well-documented lies to diagnose the Commander-in-Chief as a narcissistic personality.

The article was cited today on the front page of the Frankfurter Allgemeine Zeitung website so I cannot give exact quotations. FAZ wrote about “seinen sprunghalftern Verhalten, dem dauernden Selbstlob, den gut dokumentierten Luegen und Trumps Umgang mit Kritiern Anhaltspunkte fuer psychische Problems, zum Beispeil fuer Soziopathie und eine narzisstische Persoenlichkeitsstroerung.” Your editor, who sometimes had to read Freud in the original version, translated.

The article extracts from Lee's book called “The Dangerous Case of Donald Trump: 27 Psychiatrists and Mental Health Experts Assess a President” just published by Macmillan. There are no extracts available on-line in English, the language in which the book was written, and it costs $27.99 new and $17.04 used—amazing since it only came out Oct. 3. I ordered a used copy but it will be a few days before I have read Judy's commentary and that of 26 others. Assuming that Judy remains as compelling a debater as she was in college, you will be able to learn more after I get the book.


Japan is on a roll with the Tokyo index up 1.l% after Shinzo Abe aced his snap election with a landslide. What a contrast to Theresa May!. However the yen is down to the lowest level in 3 mos. Our Japan funds are split, one up and one down.


More for paid subscribers follow from Australia, Brazil, Britain, Chile, China, Congo-Kishasa (a first), the Dutch Antilles, Hong Kong, Ireland, Israel, Kenya, Mexico, Russia, South Africa, and Switzerland. We also have company report from Norway today.

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