Ariel Sharon Investing

Thu, 2014/05/22 - 12:21pm | Your editor

A political party which occupies the right wing can engage in deals with its supposed enemies more easily than one from the center. That is the lesson of Nixon in China and Ariel Sharon in Gaza. (I misspelled his name in yesterday's blog but you know whom I meant.) Now it is Narendra Modi's turn. But before we hit the subcontinent let us glance at China.

Fitch and other raters think the China Natl Petroleum Corp $400 bn deal is good for OGZPY long term but it could hurt the Russian gas exporter's rating short term as it has to borrow money to develop the new fields. Russian companies may have difficulty raising money on international markets after the Ukraine dispute scuttled plans to borrow. Gazprom may also have to cut the dividend which last year exceeded its post-capex cash flow. The impact may also hurt lower-rated Russian sovereign debt after Putin agreed to remove the mineral extraction tax which would otherwise apply to the fields producing for China. Gazprom plans to list in Singapore thanks to its new Asian visibility and may raise capital with this.

China also produced a better (if still negative) purchasing managers index today.  We have ways to play this.

As promised yesterday, today we give you advice on buying into Pakistan, whose PM will probably be the first to attend an Indian inauguration, a major gesture from the BJP victor in Indian elections. Given Pakistani risks I'm reluctant to hop into any single US trader GDR from the Lahore stock exchange, and want a fund. There are, as I wrote for paid subscribers yesterday, 8 seasoned Global Depositary Receipt stocks US retail investors may legally buy. I think you should spread your risks.

My classmate Thalassa Ali, now a novelist, has given up being a broker and remarks that there are signs of prosperity in the country where she lived for decades: “terrible traffic due to everyone having a car or a motorcycle, and movie theaters jammed with customers.” And she is somewhat optimistic about Modi who “doesn't have to form a coalition government,” adding: “I am keeping my fingers crossed.” However she gave no stock advice.

Today there are no US-registered funds investing solely in Pakistan. Former closed-end Pakistan Fund gave investors their money back. There are funds out of Sweden and Switzerland, run by enthusiasts who have little reputation to lose, Tundra Fondes and Swiss Asia Frontier Capital Fund. They are too wild and unregulated for my taste.

And as I noted yesterday, many of our subscribers may have own a frontier emerging markets open-end fund, the successor of a closed-end fund we recommended before it converted. We don't cover open-end mutual funds, particularly not this one, Morgan Stanley Institutional Frontier Emerging Markets Fund, MFMIX, with a minimum initial investment level of $5 mn. In case you are not aware of my limits, I could not buy this fund today. But I do own about 1000 shares (with dividends reinvested) worth about $17,500. Pakistan is the fund's 4th largest placement, after Kuwait, Dubai, and Qatar, but it is now nearly 10% invested in Pakistan, mainly because Lahore is up so sharply.

And that is before Nahendra Modi invited Pakistani Premier Nawaz Sharif to his inauguration, the first time since 1947 that this gesture was attempted.

The former Indian Prime Minister, Manmohan Singh and the deposed Pakistani self-appointed dictator-president, Gen. Pervez Musharraf, were both born across the Indo-Pakistan border of 1947, Musharraf in Delhi and Singh in Gah, in the Punjab near Islamabad. While the details are fuzzy, Musharraf and PM Sharif came to blows over a failed surprise attack on India in northern Kashmir, leading to Sharif's ouster and Musharraf's coup in 2001.

Between the two countries, the Radcliffe Line is fought over now mainly by high-strutting high-kicking border guards competing in a ridiculous nightly can-can dance, except in an icy glacier where neither country has much zest for battle and in Kashmir. But the bitterness remains. Pakistan's ISI (Inter Services Intelligence) is powerful and often behind attacks on both India and western troops in Afghanistan. The ISI probably protected Osama bin Laden in his hideaway in their key HQ city of Abbottabad near Islamabad, the capital. The army, while currently confined to barracks, has a history of coups and interference too. While the army is formally against the Afghan Taliban, the ISI probably helps it and also likely had a role in the terrorist attack on Mumbai 5 ½ years ago which murdered not just Hindus, but also any Jews the bombers could find at Nariman House including several rabbis and the resident Lubovicher rabbi's pregnant wife, plus Western hotel, restaurant, and cafe guests and their Indian staffers, taxi drivers, cops, and innocent by-standers. In the end 257 people were killed and over 700 wounded.

Apart from militarism and corruption, which are endemic, Pakistan also suffers from an oligarchic financial and business system. The Sharif, Bhutto, Gilani, and Imran Khan families rule over near-feudal rural fiefdoms and occasionally run Pakistan. Indian oligarchs are in business rather than agriculture and tend to stay out of politics.

Pakistani growth is well below that of India at under 4% forecast for this year. It suffers from murderous tribalism both in its northwest frontier region near Afghanistan and in feuds between Karachi and Lahore, and among speakers of Urdu (a variant of Hindi written with Islamic characters), Sindhi, and Punjabi. Ironically enough in its linguistic wars, minority speakers of the Pakistani language called Kashmiri are forced to learn Urdu.

Pakistan lacks India's flourishing service sector. While Pakistani wheat is in great demand because of problems in Ukraine, its cotton crop is being devastated by competing synthetics for clothing including one from one of our companies.


If you are willing to invest in such a country, here is a quirky way from respected Deutsche Bank management. More follows about this option for paid subscribers only along with notes about our companies from Hong Kong, Canada, Mexico, Venezuela, Austria, The Netherlands, Israel, and Japan.

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Nixon In China Revisited

Wed, 2014/05/21 - 1:02pm | Your editor

No, I will not comment on Prince Charles's comparing Putin to Hitler. There are arguments pro and con but since I am not a subject of the Royal Family, I don't have to pick a side. A US shares I owned was subjected to Chinese internet espionage, Alcoa.

Gazprom got lucky. First the EU wrote a letter to Putin asking him not to cut gas supplies running through Ukraine after Kiev turned down OGZPY demand to be paid $3.5 bn for gas in advance. That was good for Russian morale.

Then Beijing and Moscow—by leaving out the key matter of price per cu m, which CEO Alexei Miller called “a commercial secret”—finally managed to hammer out a 30-yr $400 bn supply contract over new Siberian gas for China. Experts think Russia is settling for a lower price than it charges western Europe and moreover, to get the deal, it agreed to let China National Petroleum Corp join Gazprom in developing fields nearer to China than the ones supplying Europe.

The new accord almost certainly does not link the gas price charged China to the price of oil. That link which hits European importers of Siberian gas, is subject of a potential European anti-trust case against Gazprom, which predates the Ukraine events.


Today I gloat that yesterday's note about how to play India (for paid subscribers) forecast that Narendra Modi might pull a Nixon-in-China or an Ariel Sharon on the PLO. Today Indian invited Pakistan's leader Nawaz Sharif to Modi's May 26 inauguration, a first such invitation since Partition. It is easier for those known to be firmly against another country to make peaceful gestures.

I wrote, for paid subscribers only: 

"A quirky alternative is to buy Pakistan. As the leader of the Hindu sectarian BJP party, Modi could pull a Nixon in China or an Ariel Sharon out of his sola topee... There is no longer a Pakistan Fund which I used to own in honor of my fellow Radcliffe graduate, the late Benazir (Pinky) Bhutto. Pakistan has been boosted because of its good performance to 8.9% of the MSCI Frontier index, double where it was a year ago. We own this through an open-end fund (converted from closed and therefore dropped from the model portfolio), Morgan Stanley Institutional Frontier Markets Fund, MPMIX, which weights Pakistan at 9.3% (no. 4 after 3 Gulf countries.) Whose who didn't buy it with me now have to put up $5 mn to buy in."

Investing in stocks for the long-term is the best tactic for boosting your wealth, according to academic studies. The 2nd best investment turns out to be—not bonds, not stamps, not paintings, not antiques, not real estate, not gold—but “Premier Cru” Bordeaux red wines. A team of researches from Britain's Cambridge, France's HEC, and Vanderbilt U of Nashville found that fine wine appreciated 4.1% in the period 1900 to 2012, beaten only by UK equities. They studied data about over 36,000 sales transactions for 5 wines: Haut-Brion, Lafite-Rothschild, Latour, Margaux, and Mouton-Rothschild. The transactions were sales by London wine-merchants Berry Bros & Rudd and auction prices at Christie's.

I could not invest this way: if I get a great bottle of wine I am tempted to taste and drink it. So I will not be able to sell it at auction.


More for paid subscribers from Israel, Australia, Mexico, Brazil, Finland, Chile, Ireland, Colombia, Canada, Myanmar, and Ireland. And Cuba. 

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What I Pull From My Sola Topee

Tue, 2014/05/20 - 1:06pm | Your editor


Who would have guessed that the first Jewish female chieftain of The New York Times (unless you count Iphigene Ochs Sulzberger) got herself tattooed in violation of the rabbinical ban against tattoos? I owe an apology to Lucy Kellaway who was right about Jill Abramson's nutty body art. The Financial Times columnist yesterday poked fund at Abramson's heretical tattoos, one of the Times' Gothic T and another, a red H, celebrating Harvard. Abramson is old enough to have attended Harvard's female annex, Radcliffe. I thought Kellaway goofed; it was me (and Abramson) who did. Apologies to Lucy.


My closest “shiksa” (non-Jewish) girlfriend Heather is converting to Judaism the week after next. I am seriously worried about my social circle becoming monolithic.


Moreover the latest whiz interpretation of Britannia, the homeland of my husband's family, translates the ruler of the waves as brit (covenant), ana (favor), and ya (God.) The Lord may be hidden in your name too, eTeacherBiblical writes. That's forcing things but so is tattooing your employer's logo on your back.


My name, Vivian, can be written as Chaya in Hebrew or as Zoë in Greek but it is Latin and means nothing in Hebrew. My friend's name translates to Avrash. But since heather barely grows in the Middle East, the more usual translation is Netta meaning small plant. My favorite aunt bore that name.


The British stockbroker who arranged the Kindertransport for Jewish children to the UK from Nazi-occupied Czechoslovakia in 1939, Sir Nicholas Winton, has just turned 105. The Czech Republic has again nominated him for a Nobel Peace Prize.


Today as promised I look into how investors can play the overwhelming but potentially polarizing Modi victory in India and write up news from Mongolia (not again!), Thailand, Britain, Mexico, Canada, Ireland, Hong Kong, and South Africa. Here is part 1 of what is coming from my India sola toppee.

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India, Mongolia, Ethiopia, and other Africa Investing

Mon, 2014/05/19 - 12:28pm | Your editor

Today is a busy Monday what with more press scandales now affecting Libération in the wake of earlier ones at The New York Times and Le Monde. It is a change from the focus on Murdoch's right-leaning empire over The News of the World's hacking. These days the liberal press is the subject.

But surely a Jewish lady like Jill Abramson could not have had the a Times' logo tattooed on her back? Except when they are in a concentration camp without a choice, Jews do not get tattoos. Lucy Kellaway in today's Financial Times writes that Ms Abramson has a crimson H for Harvard and a black Gothic print T for The Times on her back. (The FT is not a journal of record. Today's issue says on page 1 that there is an article on page 2 about a controversial Mass Pope Francis plans to hold at the alleged site of the Last Supper—but the article isn't there.)


India is now being over-weighted by enthusiastic investors worldwide. We strike a few notes of caution for our paid subscribers below. My main concern is that the new masters in New Delhi keep the excellent central bank governor Raguram Rajan in place and not put one of their minions at the head of the CB, the Reserve Bank of India. He can assure global investors of a steady rupee and fighting inflation.


The multinational merger mania continues apace with a new higher Pfizer bid for Astra Zeneca of Britain, based in part of tax benefits to PFE, and AT&T shifting its global assets to better its chances with its bid for NexTV. From Mexico City, Eduardo Garcia writes in (now available also in English) that the T deal will hurt Mexican billionaire Carlos Slim because it will sell its stock in America Latina to win regulatory approval for buying NexTV which operates in Latin America.


We report on some smaller but significant moves in Brazil, Israel, Ethiopia and Egypt for our paid subscribers, along with goodies from other exotic places in Africa, India, Mongolia, and Russia. Plus a report on a company looking good which could do even better. Plus another hoard of news from our risky but fun holdings on the London Alternative Investment Market (AIM) along with small caps from Canada and news from Holland, Brazil, Singapore, Britain and Finland.

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Portfolio Updates Posted

Sun, 2014/05/18 - 12:21pm | Your editor

 Greeting trekkies. The latest tables have been posted on our website. Everyone can look at the closed positions which show how well we are doing, but only paid subscribers get to see our current holdings and recommendations.

 As the man who invented emerging markets funds back when this newsletter started has decided that growth has moved back to the developed world, mostly to the USA, I will stick to my guns. Antoine Van Agtmael, then with private sector arm of the World Bank, the International Finance Corp., sponsor of the first specialized "less developed countries fund", in ~1982 coined the term "emerging markets".

 The first EM funds came from Morgan Stanley and invested in stocks. Now according to John Arthers in the weekend Financial Times, Mr. Van Agtmael thinks the USA is now more competitive than the Third World. Van Agtmael cites "creative response" like robotics, 3D printing and other manufacturing breakthroughs as moving production back to the West. He calls this the growth of the "Brain Belt' in place of the "Rust Belt". That mostly is about the US industrial heartland.

 Frankly, I am not convinced. We do not recommend positions in the USA, where most of the creativity is allegedly taking place. But I doubt that the time to switch has come. And while the world has been treated to the spectacle of political risk (in Ukraine, Thailand, and now Vietnam) I am sufficiently wary of political risk in the USA to not put all my money in the country run from Washington DC, where Mr. Van Agtmael hangs out.

 I suspect Mr. Van Agtmael is fed up with slicing and dicing of EMFs into BRICS and CIVETS etc. This is not only macro-economic forecasting but rigor.

 Next week's portfolio updates will be done on Monday (Memorial Day), a day late. And because I am travelling over the last week in May to my old college (for a gathering and  to cheer on my Machutanet on her 50th reunion at Radcliffe) the updates will be late the following week. Machutanet is Yiddish and Hebrew for my son- or daughter-in-law's mother, which I cannot say in English. We tried Comadre but that also is wrong. The male version is Machutin. The plural is Machutunim unless the in-law's parents are both mothers (a lesbian couple) in which case it is Machutunot.

 Hebrew/Yiddish is not the only language with better family ID than English. I like the Scandinavians with their Mods Mod and Vads Mod and Mods Vad and Vads Vad, which spells out how the grandparents stack up. Still to come are ways to describe the second husband of grandma and other modern variations.

 More for the paid subscriber gang follows:

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The Gurus Are Coming!

Fri, 2014/05/16 - 1:13pm | Your editor

This is the day after hedge funds tell the regulators about the changes they have made in their holdings, under new regulations. So those retail investors wanting to mirror their tactics are active in today's market, selling what the gurus have sold and buying what they bought.

Copycat investors may not get the same prices as their mentors of course, particularly not in some narrowly traded stocks where being late is costly. The idea is to avoid the old 20+2 charges that the big hedge funds impose in their investors: a 2% fee and a fifth of the profits generated. In practice, rumor has it, many hedge funds offer (shhh) discounts from those levels, but the minimum is still beyond the ability of most retail investors to come up with.

If you want a stock picker without owning a fortune you might think about me. We are in a niche market, global investing, where there aren't many US big players active. I don't trade for my own account until my blog has gone out. So you are even with me, upward, and (sometimes) downward.


I am not a guru, by the way. According to our stringer in India, Abhimanyu Singh Sisodia, I am a “gurette”. As the relative of a bunch of British raj relics I am also congenitally skeptical about the Narendra Modi victory because I like my curries secular. Also I am proud that I had the sense to sell the ADRs of Dr Reddy's Labs, RDY, despite the likely election results and the general hoopla about generic drugmakers. I overruled both our biotech maven and our local reporter. RDY is now barely over $40 per share, 10% below our profitable trade level which produced gains of over 70%. If you want the details, look at our closed positions table, which is published for all to see.


More for paid subscribers including quarterly reports from Brazil, Switzerland and Canada plus news from Britain, Ireland, Mexico, Brazil, Japan, Spain, and Finland.

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Thu, 2014/05/15 - 4:13pm | Your editor

I worried  unnecessarily about the inaccessibility of the website this morning. In fact it performed normally in the end. Remember that if you don't get your normal emailed blog you can always visit the site and read what has been posted there.

Now there is important news for paid subscribers.

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Tech Outage

Thu, 2014/05/15 - 12:40pm | Your editor

We are having a technical outage on our site which has kept the newsletter from being distributed by e-mail. Please visit and sign in with your password to read the Thursday issue before it becomes history. Thanks for your understanding. If you are a paid subscriber you can read the whole thing; if you are a pre-subscriber you get all but the stock advice.

Best wishes


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More from Our Man in Japan

Thu, 2014/05/15 - 12:18pm | Your editor

Yesterday was a bad day for women journalists. First Le Monde fired its senior editor, Natalie Nougayrède and The New York Times fired its executive editor Jill Abramson.

The NYT is a recidivist since a couple of years ago its publisher Arthur Sulzberger jr fired its CEO, Janet Robinson, and replaced her with a somewhat tainted former BBC director-general, Mark Thompson.

This lady editor-publisher cannot be fired as she owns this newsletter.


That's just as well as I got quite a lot of flak from readers in faraway lands and the USA for running a negative article about Japan's economic outlook yesterday, from our correspondent there, Chris Loew. As is our usage, it was published without quotation marks, since he is our paid reporter. I ran it because it seemed to show a change in his view on Abenomics and Japanese growth. He know Japan well as a decades-long resident, with a Japanese wife, a Japanese apartment and mortgage, and a Japanese dog, plus two half-Japanese children who keep him alert to hot trends. I know nothing about Japan myself.

Today it was reported that Japanese Q1 growth figures surged to 5.9% annualized, vs 0.3% in the last quarter of 2013. Q1 GNP also beat consensus forecasts of 4.2%.

The boost came from a Japanese shopping spree ahead of a rise in the sales tax April 1, to 8% from 5%. So the boom in consumption was a one-off.

The 4.9% rise in Q1 corporate capital expenditure also reported today may not herald better growth ahead, as Chris attributes it to companies spending money to replace Windows XP which Microsoft dropped. Here is more comment from Chris, our expert. He notes that Japan's trade balance fell to minus yen 10.86 trillion (~$10.9 bn) to replace shut-in nuclear power stations with imports while losing its electronics export edge to China and South Korea. His comments on specific stocks are below for paid subscribers.

Meanwhile Japanese stocks fell despite the seemingly good quarterly GDP growth supporting skeptical Chris.

More from Japan, Canada, Israel, Denmark, Norway, Belgium, The Netherlands, Britain, and Switzerland, including a company report.

Our Japan Correspondent Writes

Wed, 2014/05/14 - 12:39pm | Your editor

Chris Loew, our local reporter, writes on the contradictions of current Japanese economic policy:

I actually see the effect of Abenomics on inflation and taxes in my bankbook. I agree with a recent report by the OECD which cut its projections for 2014 Japanese economic growth, writing: “While the recent pick-up in inflation is encouraging, it could undermine recovery unless accompanied by a matching rise in wages.” Consumer prices are rising while wages are not. And sales tax applied to services, contract worker wages, and B2B sales are taking a bite out of everyone's pocketbook.

Japanese companies with substantial foreign earnings make more yen, so they look good. But most Japanese companies rely on imported foreign inputs and are hurting because of the weak yen. Sales are up on increased exports, but profits are flat since higher material costs cannot wholly be passed on to consumers.

PM Abe's structural reforms like special economic zones which would create a patchwork of tax-free enclaves, are not a panacea. Such SEZs would hurt the rest of Japan while favoring certain areas. Reducing corporate taxation, meanwhile, is at cross purposes with the official goal of a balanced budget. Moreover Japanese multinational corporations already minimize their taxes using transfer pricing.

I am negative about Abenomics and the current Japanese economy.


More for paid subscribers follows from Japan, of course, and also Canada, India, Russia, Britain, Hong Kong, Denmark, Japan, Israel, Brazil, Jordan, Australia, and South Africa, including three quarterly reports, all good for a change.

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