Today's Blog As Far As It Got
I had lunch with fund managers from Loomis Sayles yesterday at the new NoMad hotel on Broadway in the old Toy District, now part of Silicon Alley. It was tremendously gloomy not only because of the downpour, but also because the hotel has ultra-low-lit sexy corridors like a coal mine. Finding the penthouse elevator button required a flashlight from one of my fellow reporter-attendees.
The information given was valuable. The food was excellent. They served wine with lunch, also a sign of sophistication not as disorienting as the dark. And I was given a vaseful of flowers to take home.
Some general ideas about global hot sectors and fixed income to share follows.
Jean Gilchrist CFA, the Canada-born pharma expert told the participants that a likely US tax reform hitting S based drug firms if Congress gets its act together can be anticipated as early as 2015. She said that is why there are so many complex deals by US drug firms to merge with UK or Irish firms in the industry to beat the tax hike now and to forestall takeovers of attractive targets by rival drugmakers.
Global fixed income leader David Rolley CFA was asked about emerging markets debt, part of his portfolio responsibility. He said there was no tolerance for "guff from the US" in emerging markets where family and state-sector shareholdings dominate the market. He also said that the secondary bond markets in these countries is at excess highs because there is "too much investment money and not enough information" on the emerging markets.
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More for paid subscribers about specific stocks mentioned by the Loomis team below along with quarterly reports which came out today, good and bad news from London, good news from Canada, Arab-Israeli gossip, and fund reports plus a new Euroland stock from a returned contributor (who re-retired.)
The Clotheswasher Cometh
The 21st century white goods vendor has not yet discovered that women work outside their homes. I am stuck in the apartment waiting for the delivery of a new clotheswasher as the old one died after 22 years of valiant service. The delivery will be done by 11:15 am, they say, so the blog will be delayed. The usual pattern is that they don't come when they promise to.
Yesterday a freight train full of crude oil derailed and four tanker cars burst into flames in Lynchburg VA close to the center of the city. Hundreds of people had to be evacuated as flames and oil hit buildings and the James River. That's why we need the Keystone XL pipeline to link oilfields to the US Gulf Coast.
Today is May Day in most of the world and therefore markets are subdued as I wait for P.C. Richard to deliver and install my laundry equipment. But there is as always news from our companies including a major holding reporting on its Q1 results. As has been the pattern generally, results are good but not great.
More will follow later when I get to my office. Apologies for this delay. I asked them to come in the afternoon but who listens to me? i am only the customer.
Bankster Heal Thyself
Bankster, heal thyself! Don't rob your owners because you have no idea what is going on off the over-paid executive's floor.
The usefulness of bank regulations has been thrown into question by the latest blooper, a mere $4 bn of potential capital charges which was discovered 4 years after their creation by Bank of New York Merrill Lynch. This follows the invisible actions by "The London Whale" who ate the profits at JP Morgan Chase without anyone noticing, and the Mexican mismanagement Citibank is still working on to find out how much it lost south of the border. Then too, BNP Paribas is in deep do with NYC bank examiners for sending money out of the USA to embargoed outlaw countries like Sudan and Syria. Meanwhile UBS faces more investigations of its old bad habit of money laundering for US residents.
Here we go again with a "stress test" in the European Union and a batch of regulations here in the USA and new capital adequacy standards by the Bank for International Settlements. But in fact the largest banks are incapable of providing accurate information on what their staffers are up to and what their accounts contain. They are not only too big to fail. They are too big to know what they are doing.
More for paid subscribers follows with two quarterly reports and news from Israel, Britain, Brazil, Canada,Ireland, Sweden, and a few other places like Russia and Ukraine.
The Best Made Plans of Mice and Men
Robert Burns said: "The best made plans of mice and men gang oft agly". My office was put off-limits by a carbon monoxide leak from the garage below it on a day with much news to write about.
I am not as badly off as Microsoft is now that our Dept of Homeland Security has warned people not to use Internet Explorer because it is vulnerable to cyber crooks using fake websites. Nor am I as embarrassed as Bank of America-Merrill Lynch is after an accounting error overstated its tier I capital by $4bn so that it had to suspend its dividend and share-buyback.
More for paid subscribers follows with a gaggle of corporate results from Spain, Finland, and Canada, an explanation for an Italian and a Canadian stock sale, and news from Brazil, Portugal, Israel, Britain, Ireland, Singapore, So. Africa, and Mongolia.
The Red Rooster
The Euroland eleven who want to tax financial transactions are still grappling with definitions. While all of the European Union countries agree on taxing stock and bond sales they are in disarray over derivatives. GFMA SmartBrief reports that the leading proponent countries are split over the extent of the new tax, while striving to reach an accord before the European Parliament elections take place next month. Supporter countries include Germany. Italy, and France who want to woo voters with fierce "Tobin taxes" to be used to fund financial regulation and development. Other supporting countries are Spain, Belgium, Austria, Portugal, Greece, Estonia, Slovakia, and Slovenia. Now the Tobin tax group are fighting over whether or not to tax derivatives (like puts and calls on shares; credit default and interest rate swaps on bonds and credit instruments; currency futures; and other swaps and futures used to offset risk.)
The Parliament is a boring and toothless arm of the European Union and its politics are irrelevant. But getting in a good left-wing law may help the troubled governments and coalitions of the pro-Tobin tax countries.
This law matters because that the Euro 11 want to tax transactions worldwide, not just in the signatory EU countries. If the issuer, the intermediary, or the purchaser of the instrument being traded is located in the European Union--and that is a lot of countries-- then even US trading of the stock, bond, or (perhaps) the derivative, would in theory be taxed too.
Some EU are skeptical that the tax will raise any revenues at all. They think all trading will move out of the EU to foreign markets. Among the skeptics in the same single market are countries with active financial markets like Britain, Ireland, Sweden, Finland, Denmark, Norway, the Netherlands, and Luxembourg, along with Czech Republic, Poland, Cyprus, Malta, Rumania, Bulgaria, Latvia and Lithuania.
Non-EU countries like the US, Canada, Japan, Hong Kong, Singapore, and Switzerland stand to gain a lot of business if this silly rule gets passed. The late Nobel Laureate economist James Tobin, an American, proposed a tax on currency trading to limit exchange rate transactions in 1972. Perhaps a better name for what the EU countries are proposing now is a "Robin Hood tax", but the purpose now is to punish banks and brokerages, not to cut volatility.
More for paid subscribers follows from Britain, Hong Kong, Finland, Israel, Spain, Portugal, China, Brazil, Colombia, Singapore, Denmark, Belgium, Australia, and Canada. We have an average down and a whole and a part sale today.
The www.global-investing.com performance tables have been updated on our website. All visitors can view our closed positions table but only current subscribers can see the current stock, bond, and fund recommendations. To view the spreadsheets more easily, click on the "printer-friendly" button even if you do not want to print the tables.
More for paid subscribers follows.
A Good News Day Except for the Gherkin
The iconic 10-year-old Gherkin building in the City of London has filed for receivership because its construction loans were denominated in Swiss francs. A German equity fund cannot pay its share of the interest and triggered the bankruptcy. The Swissie has risen by 64% against sterling since the loans were made, according to Bloomberg. And rents are payable in pounds sterling even by Swiss tenants. The Gherkin got its name because it looks like a pickle.
Rather than buying another football team, one of Putin's oligarch buddies should buy the 30 St. Mary Axe office building which houses the UK HQ of Swiss Re. The last time a major City of London site filed for bankruptcy it was Canary Wharf which recovered brilliantly.
More from Britain, Finland, Mexico, Colombia, Israel, Canada, Brazil, Australia, Denmark, Cyprus, and Belgium. Mostly good news to close the week.
Gold and Crisis
This morning as Russia threatened to intervene to protect eastern Ukrainian "civilians" from the Kiev government, the US market, which had opened up on the prospect of a 7:1 split in Apple shares and other good news from the techs, reversed to a fall. And the price of gold rose.
Fear of war boosts the price of the yellow metal. The main reason I own gold is to offset stock market risks, and because I lived so long in France where gold was a key part of any traditional portfolio. We don't own gold to make money with it. We own it not to lose money with non-gold-correlated stocks and bonds.
But despite its role in a crisis--like unrest in South Africa, a currency devaluation, or attacks on commercially active minority populations (like Chinese in southeast Asia or Jews in Eastern Europe)--the trend of recent gold prices has been downward.
There are a half dozen reasons for this. One is history. Gold is a terrible long-term investment, according to Prof Jeremy Siegel of the Wharton School. "In the long run", he wrote, "gold offers investors protection against inflation but little else."
As bond interest goes up, the price of foregoing it with precious metals goes up. So with the end of tapering, gold is less appealing.
Another factor hurting gold is that the fear of government "printing"--to inflate the currency and cut the cost of servicing or repaying debt--has dropped. Loose monetary policy was supposed to trigger inflation, but instead it has merely served to offset the impact of the economic crisis and prevent deflation.
For all the on-line chatter about "fiat" currencies and budget deficits debasing the dollar, in fact the US deficit has been falling as the economy recovers, however slowly. The result is that the risk of paper currency is lower now, and therefore the amount of gold you need to hold to protect against the risk of devaluation has fallen.
When stock markets are booming and investors feel confident, at least in the USA they buy less gold. There are hard money stalwarts who want to own the yellow metals even if it means they are not in stocks and bonds. Most of them have a political agenda rather than an investing outlook. And right now the mood is favoring investing rather than hoarding hard assets.
Other factors hurting gold are more technical. The International Monetary Fund sells gold to finance its operations bailing out countries, most recently Ukraine, and earlier the Euroland Club Med countries. Its gold sales are sometimes (but not always) countered by central bank gold buying.
A final prop for gold that has gone missing lately is the dollar in which gold is priced. To the extent that the US currency rises, as it has, the price of gold falls, if all other things remain the same (paribus ceteris). And the greenback has been on an uptrend.
When gold prices fall far enough (when I have no way to determine) some of these trends will reverse. The costs of mining the gold can be reduced by mergers between mining companies, like the one currently under negotiation between Barrick and Newmont. When gold is cheap more jewelry is bought, particularly in markets where other investments are more risky. When gold is cheap, mines produce less and less is recovered from scrap. In the end these factors lead to a higher price of gold down the pike.
So another thing to remember about gold is that trends can reverse over the longer term. Gold is a commodity as well as a store of value and object of display. Its price is volatile.
What this means for our portfolio follows along with other stock advice and news for our paid subscribers. We have news from two Dutch companies and other items from Brazil, Canada, Australia, Britain, Ireland, Russia, Portugal, Sweden, and South Korea.
Pizza and Profits
The NY Times food section today focused on how to bake superior bread, appropriate for the end of Passover which idled this blog earlier this week. We stuck it out although my granddaughter, 11, could not live a whole week without pizza. Having already given up bacon and lobsters, Jews recall the exodus from Egypt by spending a week (8 days in the diaspora) without leavened bread.
Tomorrow I will ponder the outlook for gold. Today we have too much catch-up to do. Here is a perspective on the market shared by two mentors-followers:
Michael Kurtz of Nomura (Hong Kong) writes:
"Not only are the tarnished Biotech, Electric Vehicle, and Internet darlings at the centre of the latest pullback0 much smaller as a percent of the NASDAQ market cap (<25%) than were the original [AD2000] tech bubble's main characters (>75%), but their descent into disfavour also has not been accompanied by material stree or de-risking in other key markets: US high-yield credit spreads; emerging and frontier markets), or periferal European sovereign credits. Moreover, US equity sector correlations have remained reassuring lo9w (sub-70%) rather than spiking toward GFC [global financial crisis] highs (of ~90%). What happens in New Growth largely stays in New Growth."
FIC Capital Inc. of NYC writes:
"Contrary to some market pundits, we do not view the current market pullback as presaging a larger correction to come or a broader slowdown in the economy given that the selloff has been concentrated among just a few sectors." (My CFA son works at FIC.)
More (much more) follows for paid subscribers from Britain, Switzerland, Hong Kong, Israel, Panama, Sweden, Italy, Ireland, Canada, Finland, Denmark, Colombia, and Mongolia.
Updated Tables Posted
Our model portfolio tables have been updated a day early, because I am taking my younger grand-daughter to a matinee on Sunday, of Les Miserables. I saw it the last time it was on Broadway with my mother. This time my husband who hates musicals and my son are joining me.
There is news for the paid subscribers below: