Refugees and Retirees

Thu, 2015/09/03 - 12:59pm | Your editor

Our oldest reader who is also a retired stockbroker modestly refused to write an article for us about how to invest in a falling market. Being in his 90s he claims his memory is shot.

However, he did admit that he is mostly “sitting pat” after having sold some positions early in July for expenses. He is also exiting a “hot” real estate market.


When I was at The Bronx High School of Science, after the Hungarian uprising in 1956, my school admitted a dozen Hungarian refugees who had been attending the Budapest Polytechnical High School, with which ours had some sort of links. The Hungarian boys did not have to take the entry exam New Yorkers had to ace in order to get admitted. (There were no girls, but heck it was the 1950s!) Since many of my fellow students, like me, were the offspring of refugees ourselves, it did not seem unfair although some African-Amerians (including one who later became famous) objected.

Looking at the chaos at the Budapest railroad station over Syrian and other refugees now, I think Hungary is forgetting its own past when Austria opened its border to let the Hungarians in. Other Hungarians were given shelter even in Tito's then-Communist Yugoslavia. There we visited a colony in the 1960s where an awful populist artist was selling her stuff. I am not sure if it was in what is now Serbia or Croatia, but the people happily spoke Magyar.

I plan to write a note to my high school alumni organization to mobilize the Hungarian refugees of my era to shame their compatriots over the inflow from Serbia being abused today.

Europe, China, Canada, Japan and even the US face a demographic disaster as shrinking populations age. The number of pensioners is growing along with their lifespan. Without younger people, even of a different race or religion, the social system cannot cope.

“The Donald” Trump is the grandson of a German immigrant who settled in my city. While white, blond, and Protestant, Opa Trump was not welcome at first, because of different customs and language. Initially the NY Germans had their own colonies on the East Side and in what later became Yorkville, their own newspapers, their own German books at the NY Public Library, their own taverns which were (shock, horror) open on Sundays in violation of US blue laws. In those days nobody had passports and white immigrants were allowed in to help build our country.


Your editor has problems with the US Treasury over bonds which have become mature. I had to change my check account of destination for all electronic payments in and out last year to stop them going to my hacked account. I duly filed a certified notice to the Treasury with my new banking details, which was not exactly easy. But I kept getting e-mail notices that my money was being held without earning interest because Uncle has no idea where to send it. They did not tell me what the problem might be so I figured the mail went wrong and sent another hard-to-execute form in July. But no money came my way so I called the service.

It turns out that merely filing with a new bank account number is not enough. You have to go to the Treasury Direct website and close out the former account number (also not easy to do.) I had to stop payments and inflows for a dozen matters when I changed my account but only the US Treasury made it difficult.

Even after going on line and changing the bank destination I still did not get my money. So I called and asked what more was required? In order to house the proceeds it could not deliver, the UST had created yet another account in my name which pays no interest. But it failed to inform me of this fact. And even the Minnesota lady I spoke to on the phone was not aware of this.

I go back a bit. When I was young I used to accompany my mother, who worked on Wall Street, to the sub Treasury office behind George Washington's statue there, so she could buy Treasury bonds. The interest and principal payments were, of course, sent to her by US Mail.


There are two heralds of lesser doom than in the Great Contraction and the Asian Contagion. European purchasing managers reported an index of manufacturing and service orders of 54.3% for August, much higher than any month since 2011. Anything over 50% indicates growth. And while a Fed hike could hurt emerging markets again, this time the main players have built up their reserves or already devalued. So there will be pain but it will not spread like Ebola.


More for paid subscribers follows from Britain, The Netherlands, Switzerland, Israel, Canada, India, Portugal, France, Belgium, and Panama.

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Bonds For Now

Wed, 2015/09/02 - 1:42pm | Your editor

My internet went down in the office so today's blog is truncated and late. Time Warner rushed to my rescue but it did not come before the afternoon.

The Thundering Herd is buying high grade corporate bonds in this market. Situation Room from Bank of America-Merrill Lynch wrote today:


“ While debt and equity are supposed to be two components of the same capital structure, the disconnect continues. With this week's additional equity under-performance, equities have overshot meaningfully to the cheap side. In contrast the high grade corporate bond market has been relatively strong since last week, including today.”

We are telling paid subscribers how to follow this advice today.

The top bidder for Portugal's Novo Banco, Anbang, a Chinese insurance group, has pulled out, in part because of losses at the “good bank” from the collapse 13 months ago of Banco Espirito Santo. It failed owing $1 bn to Portugal Telecom which we owned at the time. The bailout was financed by the Lisbon govt and by other banks. The Espirito Santo clan which owned the bank used it as a piggy bank to finance other businesses and then used its boardroom presence at firms like PT to get investments into its offshore finance vehicles. The BES chief, Ricardo Espirito Santo Salgado, managed to file for protection against its creditors in Luxembourg, an offshore haven in Europe where many of the vehicles were incorporated, stopping any pursuit of BES's business empire from bank or PT lenders.

Now there are two further potential good bank buyers, Apollo Global Mgm., a US fund, and Fosun of China, which already has bought the Portuguese Tranquilidade insurer out of the BES bankruptcy. Fosun also bought Israel's Phoenix Insurance and Ahava Dead Sea skin treatments and France's Club Med, among other acquisitions.

It took a while but Mr Salgado has now been arrested and required to post euros 3 mn of bail because charges of money laundering and tax evasion. Fraud has not yet been mentioned, because the oligarchs stick together. There is a prima facie case of mismanagement of funds and conflict of interest by the family rep on the board of PT where the Espirito Santos owned 15% of the shares. In any normal country there would be a class action suit at very least over these developments, but not in Portugal.

More for paid subscribers follows from Canada, Israel, Germany, Britain, Switzerland, Ireland, Brazil, Belgium, and also about telcos follows.

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September Song

Tue, 2015/09/01 - 12:41pm | Your editor

The September Song so far is only marginally sweeter than the music of late August. There are a few reasons for hope, however. Rather than crashing while most of the northern hemisphere is on vacation, the latest stock drops occur after what the French call la rentrée when some poor children already have returned to school and others are about to hit the books.

Another new factor is that despite panic selling, some stocks are going up, even ones from emerging markets, usually for company-specific reasons. Discrimination means that analysts are sifting through the rubble looking for buy ideas. That is better than the cry to sell anything that moves.


Our India reporter is sounding more bullish than me despite the sinking valuations of shares on the Bombay Stock Exchange. He writes:

Things are set to get better from economic drivers triggered by Modi's governance—if he can stick to his guns. India's central bank is holding a review this week and an interest rate cut is widely expected. ”A Fed cut would also be positive.

The loadoff from China has to go somewhere and in the current market correction, the good long-terms prospects of Indian markets appeals. But for foreign investors, there is risk from a falling rupee.”


While portfolio investors have been exiting India this summer, direct investment from companies aiming to produce there have been rising sharply from a low base. That adds to the need for reform in land use laws. More on this below for paid subscribers.


China's selloff continues after a negative official purchasing managers index number came in for August at 49.7%. Any level below 50% means negative growth. While the official number is mistrusted, it has some link to the real economy. So Shanghai fell 1.23% today. Chinese markets will be closed for the VJ celebration Thursday and Friday. And Monday will see the US feting Labor Day this week and the Jewish New Year next Monday and Tuesday. So market may have problems finding an overall movement.


More for paid subscribers from Switzerland, Ireland, Finland, India, Israel, Britain, Colombia, South Africa, Hong Kong, Panama, and Mexico.

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Our Benitec Advisory

Mon, 2015/08/31 - 3:22pm | Your editor

After its ipo on Nasdaq and a new annual report for FY 2014-5 (to end June), I have updated our special report on Benitec Biopharma, BNTC. It is free to paid subscribers and available for sale to non-subscribers. Visit to get special reports.

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Two Canals for Black Monday II

Mon, 2015/08/31 - 12:29pm | Your editor

Another Black Monday is upon us, and again the trigger appears to have come from China. I can make one fearless forecast. It will not happen again next week as US markets will be shut for Labor Day.

The revelations were published in The Financial Times this morning, but already dispersed via Internet yesterday: China will stop intervening to support its homeland stock markets.

What really is worrying is that the Hu Jinping government will crack down on “rumor-mongers” who allegedly push down shares and destabilize markets. About 200 of these miscreants have been arrested among them a reporter from the local business website Caijin. Shanghai closed August down ~12.5%.

Adding to concern about China, Goldman Sachs this morning revised downwards its forecasts for growth there over the next 3 years: 6.4% this year; 6.1% in 2016; and 5.8% in 2017. Read more »

Back To Updating on Sunday

Sun, 2015/08/30 - 1:07pm | Your editor

Greetings from New York where I am back again. I just updated our tables which (with a few exceptions) show the benefits of diversification by sector and by country or currency. It would have been far worse if I was just into the Dow-Jones Industrial Average or the S&P 500.

That doesn't mean I like Vanguard or SPY trackers for my stock holdings. I think that makes you vulnerable to market panics like we saw last week, and in fact I think it was holders of tracking funds like these which caused the crash a week ago tomorrow.

Moreover I do not think the alternative of actively-managed Exchange-Trade Fund is appealing. In The Journal of Index Investing which just came out, A. Seddik Mesiani calls this variant "a cottage industry" launched the last time the markets overall had the vapours, in 2008. Mesiani notes that because of transparency rules, outside the bond universe, the managed ETFs never took off.


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Flying Off the Shelves

Thu, 2015/08/27 - 10:49am | Your editor

The markets recovered strongly Wednesday as my son had predicted Monday morning. The Teddy Bears' picnic results ere boosted by intimations that the Fed would hold off on a rate hike next month. Then this morning the Chinese finally figured out how to intervene to boost their local stock markets, at least until the next round of selling begins, whenever that will be. Then too US gross domestic product forecasts came in with nice numbers. GDP is what the US economy produces for domestic consumption, excluding exports. Exports have been rotten because of the strong dollar, so this number tends to boost confidence in US growth more than gross national product or GNP.

Also the latest US unemployment numbers look good. While levels were expected to hit 274 mn in fact the unemployment applications came in at 271 mn.

The unfortunate fact that all these metrics are part of our US red, white, and blue economy or the Middle Kingdom's market interventions, have not stopped the rest of the other stock markets in the world from a bout of bullishness today. In fact in Europe and Britain stocks are flying off the shelves.


I am amazed that nobody responded to my screed yesterday defending Hillary Clinton's e-mail security clearance lapses. I guess my insight that her secret sharing was with husband Bill Clinton was widely shared, and everyone knows that the attacks on her are politically motivated rather than having to do with spies.


More for paid subscribers today from Mexico, Brazil, Ireland, The Netherlands, Israel, Denmark, plus a couple of reports although nothing like the Thursday pileups earlier in the summer.

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Teddy Bear Picnic Day

Wed, 2015/08/26 - 9:26am | Your editor

While I am not wildly keen on Candidate Clinton II, I think the focus on her personal e-mail account while she was Secretary of State is a red herring. Hillary Clinton took paperwork home from the office, not in itself a crime, and if some documents were unclearly marked “high security” she may have been unaware or careless. But thinking about her household, it is hard to believe that she shared this stuff with anyone other than ex-President William Jefferson Clinton, her husband, whose security clearance probably was as high as her own.

Ultimately, I think the worst that Hillary can be charged with is failure to act without seeking his counsel in the tough world of foreign affairs, despite his weakness over other affairs in the course of their marriage. Naturally she would prefer to pretend that she is superwoman and acts entirely on her own with no help from anyone, but apart from Donald Trump I don't think any of the candidates from either party pretends to omniscience.

So Hillary should admit that she sought Bill's help and end the whole imbroglio.

Today is the day the teddy bears and big players fly back to work to resolve the US stock market plunge, according to my son the CFA's forecast. In pre-trading there seems to be some upward trending by Wall Street but of course the place has been pretty volatile of late. So I am not forecasting anything.


We always sell too soon. Paddy Power plc, the Irish bookie stock, is on a roll after reporting good earnings (bookie results to some extent depend on whether the races favor the favorites, in which case they earn more than if an outrider hits the winners' circle.) PDYPF is also up because it is buying a rival mostly-Internet bookie firm, Betfair, which it will control.


More for paid subscribers from Israel, The Netherlands, Finland, South Korea, India, Colombia, Britain, France, Australia, Russia, Argentina, and Brazil before I go to the beach for a picnic at the oceanside in the National Park. We are in Eastham which offers 3 ways to swim: bay, beach, or very large calm pond.

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Mon, 2015/08/24 - 10:49am | Your editor

About the only thing worse than the stock market is the weather in our vacation haven, Cape Cod, which is why you are getting a blog right after the opening of the Wall St. horror-show today.

A message to the simplistic among you: the widest spreads at the opening after the Chinese market collapse were not in individual shares, but in exchange-traded funds. They are the simplest way to invest, adopted by people who cannot be bothered to do anything else. But it only works if you don't look at the stock tables.

After worrying about their one-decision single ETF portfolios over the weekend, these investors simply gave sell orders this morning, and their brokers are selling as told, without any limits. The bid-ask spreads on ETFs are vicious, in some cases in triple-digit percentage points.

Just say no. Do not trade.

While of course I am affected by the global price drop, I think I should mention that as of now my largest losses today are in AT&T and GE. That is the stuff our US ETFs are exiting.

The gap will feed further into the prices of individual stocks over the course of the day. Right now, with the usual press-generated focus on the prices of Apple and Alibaba and biotechs, the worst selling has been in techs and biotechs. My secret theory is that the Wall Street watchers just start at the top of the alphabet looking for a subject to scare their audience with, and therefore A's and B's get hit harder than Z's.

In a disordered panic market—like today's—never give an order without a price limit. From AAPL and BABA the selloff has spread to high-yield telcos and from there to utes. From cancer and Alzheimer cures the rot has infected large pharma shares. From oil sands and other pricey non-viable energy sources the panic has hit alternative energy stocks hard.

Panics are dangerous. That also goes for buying. Until the vacationing fund managers and gurus notice the sinkhole that stocks have fallen into and helicopter back from their holiday homes (or set up a secure Internet connection to their yachts), the rout can continue. My son the certified financial analyst, who bicycled over just now from the big house with one of the grandkids, figures it might take till Wednesday before the reversal takes place. Whether it will hold is another matter. But there will be an attempt to support the markets. That's what you do in a panic.

China desperately rushed rules through its bureaucracy over the weekend to allow state pension plans to invest half their money in stocks. It failed to stop the sell-off in Shanghai today, which spread like wildfire around the globe. Other market support measures like new limits on shorting shares and other plunge protection operations failed to keep the rot from spreading.

More for paid subscribers from Australia to Canada, from Taiwan to South Korea, from Brazil west and north in Latin America.

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Sunday Update Delayed

Sun, 2015/08/23 - 9:30am | Your editor

Greetings from rainy, damp, and humid Cape Cod. Little wonder that the Pilgrims moved on from First Encounter Beach, off which I may swim today if the weather clears, and hastened on to Plymouth. But one big piece of good news: our son bicycled off this morning to a local bakery and brought back the best croissants I have eaten since I last visited Paris.

I had hoped that the Tel Aviv stock exchange, which is closed on Fridays but open on Sundays, might be a harbinger of better share prices this week. But its shares fell even more than Wall Street had, affected also by lower growth in Israel last month. The slaughter is likely to continue.

I am not going to update our tables, not because I am hiding the bad news, but because I am using a feeble cable network and links are ssllooww here. Of course in the dead of winter when there are all of 12 people around the Internet is whizzy fast, but this is the Season.

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