There Is No Free Lunch

Mon, 2017/05/08 - 12:43pm | Your editor

Emmanuel Macron won the French election and as a result the Tokyo stock market gained 2.3%. South Korea, which votes for a new president tomorrow also saw stocks rise. However, the defeat of the right-wing populist Marine Le Pen is viewed as bad news for the US Administration and Wall Street futures are down. Paddy Power Betfair, the Irish bookie firm, is up because it finally managed to set the odds correctly on an election, after losing money with Brexit and Trump. We sold it last year as punters cashed in on votes for Hillary Clinton PDYPF allowed before the actual poll date.

So too are French stocks, off 0.8% because now the untested political newbie will have to figure out how to govern. Particularly afflicted are bank shares. The likelihood that Pres Obama two days after Donald Trump won the election warned his successor against hiring Michael Flynn (as two former national security experts told Tthe New York Times) shows how arrogant The Donald is. I hope the more experienced politician Macron will do better. Read more »

Tables Posted at

Sun, 2017/05/07 - 11:21am | Your editor

The weekly performance tables have been posted at the website where they can be viewed. Pre-subscribers get to see the closed positions; paid subscribers get access to the current positions, which are doing very well. To more easily view the spreadsheets please click the "printer-friendly" button even if you are not printing the tables.

I wanted to take a moment to tell everyone about the usefulness of closed-end funds in income portfolios. Unlike exchange-traded funds which passively invest in an index, a managed bond fund will do better because its investments are not determined by market weighting. There are about 18,000 bonds currently outstanding issued by entities from 70 difference countries in 24 different currencies, according to global bond specialist Robert O. Abad of Western Assets, the manager of one of our bond bonds.

The bond market is huge compared to stock markets and is full of anomolies like mis-valued bonds, unrated bonds, and oddball instruments like convertible bonds (which have some similarities to equity), mortgage backed securities, real estate investment trusts, private debt and syndicated bank loans, and inflation-indexed government bonds. Bonds available offer features like calls, buybacks, changing credit ratings, exchange rate moves, and other market moving differences. Most of these are off-benchmark.

In this melange, there is no way a fund manager can passively track an index without running up huge transaction costs or using proxies for the actual bonds. Passive strategies may work in big liquid stock markets (like the USA) or in parts of our market (like US treasury bonds). But they don't work in the wider bond markets in this country, and even less so abroad. They work worst of all in local currency bond selection or in small or emerging markets.

There the way to buy bonds successfully is research, analysis, and global diversification.

It is not by buying an index weighted by how much debt an entity (government or corporate ) owes. In fact the more market cap weighted a bond fund is, the higher the risk. Entities which borrow more tend to be less safe than ones only rarely tapping the martet. Currencies which have gone up against the dollar are the ones whose bonds may be overpriced now. Changes in credit quality ratings change to negative on the very bonds that an index-tracker would buy the most of. Currency moves are also quite unpredictable. Yet hedging currencies is costly and east up return, the reason to buy fixed income in the first place.

In my opinion there is no sensible way to use index-tracking exchange-traded funds for fixed income investing. And little understood closed-end funds are widely ignored in the financial press because they have no reason to advertise. Exchange-traded funds issue more shares if more people buy into their offering. Closed-end funds have a normal initial public offering and are more likekly to buy back their shares than issue new ones.

Closed-end funds once issued are priced by the market, usually below their net asset value. This is another reason for snatching at CEFs, not because the discount will disappear, but because it means your investment of $1 will put $1.10 or even $1.20 to work for you.

Our fixed income investing advice is to buy a group of closed-end funds using different strategies for investing in foreign markets. Blind benchmarking will get into instruments that are going to blow up or which are merely overpriced. Active management will protect you from more risks that exchange-traded funds in fixed income.

More for paid subscribers follows:

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Jersey, Old & New

Fri, 2017/05/05 - 12:33pm | Your editor

My clothes-washer broke down and I have been trying to organize a repair from the service company in New Jersey, which took hours. Then getting a new card to run the machines in the basement of my building turned out to be impossible so I had to buy an existing card. And then the elevator broke. The other two elevators are full of someone moving in.

So today's blog will be short and late. The slow response of the washing machine repairer is the result of there being no qualified people left to hire, as US unemployment is back to pre-crisis levels of 4.4%.

We have news from Colombia, Britain, Mexico, Canada, Brazil, Spain, and Israel, plus other places. For a change we start with funds.

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Midtown Manhattan

Thu, 2017/05/04 - 12:28pm | Your editor


We moved from Paris to NYC back in 1988 and today is the first time since then that there are metal barriers along both sides of Sutton Place to block sidewalk access to the street, heightened security for the arrival of Pres. Trump who will head for the Hudson side of Manhattan to meet the Australian PM.

Presidents have visited here often, for fundraisers, to visit the Secretary-General of the United Nations who lives on my block, to engage with pundits or pols. But the security never went this far.

New York City voted 80% for Hillary Clinton, and we mostly dislike the NYer currently occupying the White House.

But few want to lob a bomb at the Trump motorcade. To make the Donald into a martyr, I could drop a Molotov cocktail from my bedroom window which the sidewalk barriers could not prevent. However as Trump continues to throw his supporters under a bus I want him to survive and defang the neo-populist right in future elections. Read more »

Semper Fi

Wed, 2017/05/03 - 12:57pm | Your editor

Today my account moved over to Fidelity and I am still learning the ropes there. Hence a truncated blog follows.


I regret that the US 50-year treasury bond is now unlikely to be issued because people are said to be unwilling to buy the thing. And solid growth in private sector employment makes bond investors antsy, as they fear inflation. So you may have to settle for 30-yr bonds for the long haul. Companies report that they could not hire as many qualified workers as they needed in April, although payrolls rose b 177,000 hires. These numbers indicate that job-seekers are becoming scarce. That means another 2 fed rate hikes this year.


It is not enough that Lafarge-Holcim bribed ISIS to keep its cement works open in Syria. The Franco-Swiss cement combo until last year also illegally employed 150 underage workers in Uganda, according to the NZZ website. Where is Dr Schweitzer when we need him?


We have news today from India, Denmark, Britain, Argentina, Brazil, Hong Kong, China, Colombia, Ireland, Canada, Israel, Sweden, Italy, and Australia.

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A Moroccan Bimbo

Tue, 2017/05/02 - 1:06pm | Your editor

“Maduro, Maduro, he tak' my money and ruin Venezuela” is the text of a Belafonte parody I heard yesterday. I wonder how many Venezuelans understand English?

The poor man, like another head of state, is in over his depth, suffering also from sheer bad luck. Had Hugo Chavez not died he would have had problems dealing with a lower oil price too, because even charisma, which Maduro lacks, cannot resolve an economic crisis. But having won power without having to go to the country, he is visibly turning into a totalitarian dictator. Chavez would have been more subtle.

The current quarterly results day is proving less horrendous than yesterday, in part because of delays in reporting and a mistake by me discussed below for paid subscribers along with today's crop.

Today I got into a debate with a fellow contributor to about whether there is any point in reporting on results via video rather than text. In my opinion, it is harder to skim a video to get to the point more quickly than the author wants you to, so they take more time to deal with than text messages.

Moreover they remind me of how newsletters are marketed, holding the reader's attention by constantly delaying the revelation of awaited details. Videos waste time. You should not be viewing videos if you are driving a car but if I was stuck in traffic I might like to listen to text being read rather than having to read. However, as a certified New York City straphanger I do not get stuck in traffic and can read from my smartphone in some parts of the subway system and almost all of buses.


Today we have news from Britain, Ireland, Mexico, Canada, Germany, Hong Kong, India, China, Brazil, Finland, Israel, Bermuda, and Chile. To understand our headline you will have to read on.

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Merger Monday re-send

Mon, 2017/05/01 - 7:01pm | Your editor

France's AXA, an insurance firm, has rolled out a guillotine at AllianceBernstein, the asset manager it owns. The CEO and board chairman were replaced Friday according to a filing with the US SEC. The new chairman is Robert Zoellick, the former president of the World Bank and Seth Bernstein (no relation) is the new Ceo, lured away after 32 years with JP Morgan Asset Mgm. Another 8 board members were also ousted.

AXA wants to switch to payments for performance at mutual funds it runs. They will only charge fees if they have outperformed their benchmarks. So far it has announced two global funds, one for bonds and one for “core” investment, plus an emerging market growth fund, and also US funds for growth, opportunities, and themes. The basic fee will be 5 basis points (0.05%) on the stock funds and 10 basis points for the bond fund. But if the funds do well the fees can hit 105 bps for the US and global stock funds; 145 bps for the emerging markets stock fund; and 70 bps for the international bond fund.

The idea is to compete more effectively against index-tracking passive funds. To gain market share, AXA is taking a new tack: cutting its fees unless managers deserve them.


Instead of the usual seasonal run of quarterly reports we have news today of a takeover bid for one of our companies, plus a pricing scandal revealed about another one over the weekend in the country's press. Yet another company's key tech edge was written up this morning.

So I am cutting short the general comments for subscribers and pre-subscribers today. One reason is that a trial subscriber wrote that the general blog is useless to him and therefore he will not renew—despite what normally follows for the paid contingent.

The Japanese market is continuing its bullish trend, with the index up 0.6% today at the closing. The Bank of Japan remains dovish because its inflation targets are far from being met. Japanese markets will be closed later this week for holidays so this is a good indicator for future markets.

It also means that Japanese bond buyers will go global, and, according to BofA-Merrill currency experts, no longer hedge the currency risk 100%.

Despite slowing US growth, the Fed is still expected to raise rates at its June meeting. This is reflected in the price of inflation-indexed T-bonds, my risk-cutting strategy for overly boisterous US equity markets. This morning the SPDR Bloomberg Barclays 1-10 yr TIPS ETF rose over $20 before falling back.


Nickel is back in the up column among commodities, which also affects our shares. More on all that below with news from Britain, Canada, Denmark, Finland, Hong Kong, Ireland, Israel, Japan, Panama, Russia, Singapore, and Sweden. There is only one quarterly to report today for a change. Read more »

Merger Monday

Mon, 2017/05/01 - 1:29pm | Your editor

France's AXA, an insurance firm, has rolled out a guillotine at AllianceBernstein, the asset manager it owns. The CEO and board chairman were replaced Friday according to a filing with the US SEC. The new chairman is Robert Zoellick, the former president of the World Bank and Seth Bernstein (no relation) is the new Ceo, lured away after 32 years with JP Morgan Asset Mgm. Another 8 board members were also ousted. Read more »

Sell In May?

Sun, 2017/04/30 - 11:37am | Your editor

Tomorrow is the beginning of May, a holiday in such Workers' Paradises as Germany, France, Brazil, Hong Kong, Cuba, and Venezuela. It is also the start of the month when portfolios are supposed to be trimmed to cut down on summertime leisure risks, probably a hangover from before the Internet and cellphones kept everyone on message all the time even on the beach

I have just prepared our tables for the final week in April which are looking good, and also show some anticipatory selling I engaged in, not because I believe in selling in May. It is because my account is moving to a new brokerage, Fidelity, after a bunch of stupid tax reporting disasters at e-trade. Your editor is IRS audit-bait because she runs what sounds like a serious anti-American website, and therefore I am very careful with my tax forms.

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More Results

Fri, 2017/04/28 - 2:30pm | Your editor

A serious shareholder revolt at Swiss Global Assets Mgm tried to lower payments to managers and executives of the fund which was founded by my late friend Gilbert de Botton. He invented a new category of fund for high-net individuals, run with public disclosure of its performance (published in the Financial Times.) He also created variations of each popular fund in different jurisdictions so tax and regulatory compliance was improved, while the actual investment decisions were standardized. Since Gilbert died young, these innovations have led to rebellions by shareholders upset that poor GAM performance was not penalizing the guys running the fund.


France's Tobam plans to market to US investors an anti-benchmark emerging markets fund engaging in stock picking and balance. It will seek maximum diversification by asset classes via stocks which have a low correlation to others it buys, rather than tracking indexes and also expects there will be lower costs and less trading. The manager, Ayaaz Allymun, used to run a fund based on the same concept but it was liquidated in 2014 and it has ranked poorly. Tobam has $8 bn under management and its fund will be launched together with BNY Mellon and FundVantage Trust. For paid subscribers, more on stock picking funds below.


After terrible Thursday it is ferocious Friday, another day with too many quarterly results to deal with. The US economy grew at an annualized 0.7% in Q1, the lowest rate in three years. The supposed “Trump Bump” has proven to be a fantasy pregnancy. We have news from Norway, Sweden, Finland, Denmark (a full house!), Mexico, Canada, Israel, Britain, Switzerland, Germany, Belgium, Bermuda, Argentina, Chile, Brazil, India, Hong Kong, Australia, and a few other places like San Diego.

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