Mon, 2014/02/03 - 9:27am | Your editor

Corrections are only for paid subscribers and here is one:

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Rugby and Reactionaries

Mon, 2014/02/03 - 7:19am | Your editor

The advantage of having two separate series of Chinese purchasing managers' indexes, one official featuring big state-owned enterprises and the other, from HSBC, for smaller and more private companies, is that you can have two China-generated selloffs in a single month. The Jan. data from the official series showed a modest 50.5 level of order increases. Anything over 50 means that growth is expanding, if modestly. The Dec. official level was 51 so the level of increase is falling.

But what really hit the markets in Europe this morning was that Japan sank into a formal correction. Copying the Friday US selloff, China, and fear of the yen rising too hard, Japanese stocks fell enough today to push the Nikkei index down 10% from the period right before Xmas, which counts as a correction.

Three big events took place on Sunday, two of them in Paris, and the 3rd the NFL finals. The first major event on Sunday was the first round of the International Rugby tournament, where England was soundly beaten by France. The second was a demonstration by what Le Monde headlined as “reactionaries” against abortion and gay rights in France. There is no pretense to objective news in France; Le Monde is identified as leftish and Catholic.

In reply to a San Francisco-based gay reader, I wrote why I did not join the anti-reactionaries demonstrating here. First I am a foreigner; second it was cold; and third I had touristy things to do. But for whatever it is worth, in central Paris, even around Notre Dame Cathedral, I saw more rugby fans than demonstrators on either side of the sex debate.

We did manage last night to dine well and inexpensively in Paris, at a traditional restaurant near where we used to live called L'Ambassade d'Auvergne. Cost was euros 92 for a pair of excellent 3-course menus plus wine, better than anything we could get for that sum in NYC. They feature a dish called aligot, southeastern French peasant food, a sticky mixture of mashed potatoes, garlic, oil, and Cantal cheese, served as a main with excellent farm-raised duck breast. They used to feature a sausage called AAAAA andouillette but the headwaiter said the man who used to make it is no longer doing so, and they have not found a substitute. To maintain standards they switched to magret de canard.

There will be no blog demain as we are tunneling back to London. News today from Canada, Israel, Britain, France, India, and Thailand. And a new more or less French stock pick.

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Updated Tables Posted

Sun, 2014/02/02 - 6:55am | Your editor

Greetings from Paris where we have mostly had disappointing meals and where I have been turned down by two potential stringers, called 'pigistes' here. Unlike my US writers they want either to be paid by the written word in French, a much more verbose language than English, or want more per published word. Since I have writers in many developed countries who contribute to the newsletter against my standard fees I am shocked, shocked, at Frenchy greed and I will probably continue to cover France myself, despite my contacts getting long in the tooth.

I also picked up a virus from the Numericable French Internet site, removed but not before it cut me off from my own website. My husband has caught a bad chesty cough and keeps me from sleeping. And the meals we have had in Paris with old friends have all been disappointing, either inedible meat (which I am assured no longer is horse disguised as beef but merely bad beef!) or the scattiest service at a local bistrot where the wine waiter never came by to take our order nor did a waiter give us bread, before they served us our first course. It was not as if they weren't French, and everyone came by to practice their English. But nothing was actually delivered to our table.

So my view is that the country is like many others going to the dogs, even without considering the shenanigans of the President and his former mistress. Everyone here believes she shattered a valuable Sevres vase on his head in a euros 3 mn rampage before she was exiled from the Elysees Palace.

After killing the virus with difficulty I posted my tables. There are general results for the public at large and reports on our stocks, bonds, and closed-end and exchange-traded funds (and a few holding companies) exhibited only to paid subscribers. More follows for them below.

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Club Med and Canada

Fri, 2014/01/31 - 8:05am | Your editor

This will be the year of Euroland's Club Med countries and Canada, which will replace the BRICS.

The American Depositary Receipt market is doing well for banks and underwriters according to Citigroup. Not however as well for investors.

In 2013 companies (mostly from Russia, Taiwan, and China), raised $10.5 bn with ADR and global depositary offerings, primary and secondary. About 54% of the issues were initial public offerings. The total of capital raised fell 16% from levels of 2012 for lower-rated companies having less appeal.

The number of unsponsored ADRs trading hit 1,575, a 4 year high. Depositary banks like unsponsored ADRs because they can collect higher fees than with sponsored ones.

There are measures being considered by some of the emerging markets countries to ease regulations limiting DR issues, which may go some way toward offsetting the market uncertainties caused by Euroland plots to impose a financial transaction tax on trading in shares issued by Euroland companies, bought or sold by Euroland shareholders, or using brokerages or banks from the EU as intermediaries in the trading.

While the main vehicle for global diversification remains mutual and exchange-traded funds, the ADR market has also achieved a place in the panoply. In 2013, despite all the negatives, traded volume of 14.7 bn shares remained virtually from from 2012, although there was a bit of a cheat involved, as the price levels of the most heavily traded ADRs was lower last year.

If the move into European markets last year continues, it should help the ADR market. US purchases of euro-land stocks in 2013 were at the highest yearly level since the common currency was created in 1999, according to the Financial Times. Euroland potentially can replace emerging markets as a destination for US investors looking for better growth and yields—with less interest rate, political, and other risks. Gun-shy investors should be lured into Portugal, Italy, Spain or France (where I am right now) as they shun such hotspots as Ukraine, Thailand, Turkey, Argentina, or Venezuela, and worry about the BRICS (Brazil, Russia, India, China, and South Africa). They will venture into the Club Med lands.

Through the end of Sept., inflows into funds investing worldwide were heavy, topping $113 bn as investors sought diversification.

US-Canadian relations may improve and result in more flows northwards after the likely decision to be released perhaps today by the Dept of State. Foggy Bottom is expected to decide that pollution will not be increased if the Keystone XL cross-border pipeline is built. It would transport Alberta oil sands heavy crude oil to US refiners and users, and to Gulf ports. The argument is that the oil sands will be developed in any case without a TransCanada oleoduct. Pres Obama said he would not approve the pipeline if it would increase carbon pollution.


More for paid subscribers follows from Ireland, Spain, Israel, Mexico, Brazil, China, Panama, Finland, Colombia, Costa Rica, and Canada.

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No Emerging Markets Rout II

Wed, 2014/01/29 - 6:39am | Your editor

Last night the long-awaited Turkish central bank (CB) rate hike took markets by surprise although higher rates to fight inflation were expected for weeks. Turkish interest rates went from 4.5% to 10% in one fell swoop to try to shock lire short-sellers. This led to some reversal of the anti-emerging markets trend reported yesterday sending stocks up not only in Turkey but all over.

The exception is Argentina, where the CB sold over $100 mn worth of peso bills (at the official rate) for 90 days yielding a whopping 25.89%. And if you have dollars the CB will also sell you dollar bills yielding 4%.

I got an article by William Pesak of Bloomberg from an Asia-hand reader. Pesak unsurprisingly wrote that Bangkok stocks and the baht remain under pressure as Thai factions fighting for political power prove murderously ruthless, likely to bring the economy down. Frankly, under haplessYingluck Shinawatra's leadership, favoring stupid rice subsidies to keep northern anti-Chinese anti-Bangkok redshirts happy, the economy is hardly going up. The street battles and the coming royal hiatus increase the ferocity of red and yellow contenders for power. (NB: Both King Bhumibol and the Shinawatras are of part-Chinese ancestry.)


Regulars like me know that rather than making your way through the underground rabbitwarren at Canary Wharf to connect between the Docklands Light Railway and the Underground's Jubilee line, you get off at Heron Quai, the stop before, and cross Bank Street to the escalator that takes you right to the subway. Across Bank Street, no. 25 is an undistinguished but cursed modern building.

It was built for Enron traders, but bankruptcy kept them out of it. So Lehman Brothers took the lease. In late 2008, pictures of tearful or stiff-upper-lips employees carrying their personal belongings out of No. 25 after Lehman went bust made all the newspapers.

The next tenant was JP Morgan-Chase, and No. 25 became home to “the London whale”. Despite his best efforts, he didn't cause more than a $7 bn loss to JPM which survived.

Yesterday a JPM employee plunged to his death from No. 25, landing on the roof of a lower Canary Wharf commercial building. Beware the curse of No. 25.


Siemens is de-listing its SI ADR which it says has nothing to do with charges by Snowden that its internal communications were hacked by the NSA.


Tomorrow there will be no blog as I am off to Paris. Since the French are having one of their quaint air traffic controller strikes, I must ride the Eurostar train midday through the Channel rather than flying. More for paid subscribers follows from Britain, Spain, Israel, Canada, Norway, Ireland, and Singapore.

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No Emerging Markets Rout

Tue, 2014/01/28 - 9:14am | Your editor

Emerging markets are not suffering from contagion, which is symptomatic of mindless investing. Argentina is unique. Venezuela is sui generis. Egypt has special problems. Thailand has duelling yellow- and red-shirts. Ukraine is split between slavophiles and westernizers. Don't generalize.

Michael Kurtz writes on the supposed cause of the emerging markets selloff on behalf of Nomura. He wonders “to what degree the risks are confined to country-specific issues in the epicenter markets? Or are those countries “merely the first 'innocent bystanders' to be undermined by deeper, broader trends that could become a domino chain for all risk assets?”

Kurtz blames the media for suggesting that markets are turning against risk these days

“It's hard to make a case for what the media too hastily has flogged as an 'EM [emerging markets] meltdown' based on what we've seen so far.

“After all, Treasury yields at the recent c3% peak, and roughly 2.7% now are still plying the ground to which markets have been acclimatized [to] since August, not new or radically higher levels. US data has been surprisingly positive year-to-date (Dec.'s weak non-farm payrolls except[ed]). Europe's PMI (purchasing managers index) surprised positively last week at 53.2. The IMF saw fit to upgrade its 2014 global growth forecast last week to a robust 3.7%.

Even China's PMI miss last week--supposedly a major component of the EM stumble according to the media narrative—was barely below the 50.0 threshold level at 49.6. Its headline impact derived solely from the number below 50, whereas the actual incremental decline [was] less unnerving. Note that China's local (A-share) stocks were up last week.

“While investors are right to keep a weather-eye on China's managed growth deceleration, we see little to suggest that outlook took a precarious turn for the worse. Even as Chine's growth moderates as intended, Japan's recovery provides a substantial offset for Asia-Pacific aggregate regional demand.

“The late week decline in US Treasury yields appears more [a case of] short-covering (i.e. trading) than any sudden discounting of substantial risks to the recovery. Our US rates strategist recommend[ed] buying the long bond dips for 10-yr yields to get to the 'upper 2.60's before the short-term rally exhausts itself.' We are nearly at those levels now.

Dollar strength could become a bigger problem for EM's if gold drops another 20% [and takes] commodities off a cliff with it. But for now, Treasury yields are not breaking new high territory yet, implying less propulsion for the dollar. The dollar index at roughly 80.4, is still below its 2012-3 averages, hardly the stuff of 'strong dollar' panics. For commodities, downside risks [lie] ahead, but the index closed last week at its highest year-to-date level and is c3% above its November floor. [It] has declined 24% since peaking in April 2011, vs a more stomach-churning 43% decline over 1997-99.

Argentina's situation [is] so uniquely, idiosyncratically bad, and its policies so mismanaged (massive inflation, highly restrictive capital controls, nationalization of YPF in 2012, non-payment of debt to foreign creditors, large budget deficits) that it is one-off. This is not an 'innocent bystander' economy hurt by the strong dollar everyone else is confronting. [Argentina] is a specific case of an extremely badly managed economy losing the faith not merely of foreign investors but of domestic [ones] now trying to take flight from the abysmally mis-managed local currency. Most of the EM world, certainly in Asia, doesn't have Argentina's recent recover of external defaults and foreign asset expropriation, or have domestics giving up on local currencies.

Rather than the dollar/commodities being the culprit, the recent EM uncertainty appears to be Argetina reaping what its lamentable policy has sowed. Turkey has its own self-inflicted local problems, a self-serving government cynically coercing the central bank not to hike despite that [this is] needed to stability the beleaguered lira. Buenos Aires and Ankara can't blame their incompetency on the Fed.

“Post-global-financial-crisis, not all economies are equally well-positioned. Markets deliver a kind of dispassionate justice by punishing bad management. The commodity decline is sure to effect an income transfer from producers (Australia, Brazil, Russia, Indonesia, Malaysia, Chile, Peru) to consumers (Japan, India, Czech Republic, and Poland.) In was only in the Quantitative Easing world of nearly cost-free external funding that macro problems and inadequacies could be papered over.

But not every national problem that crops us [should] be extrapolated to a global existential contagion. “With global equity risk premia lower now that a reasonable respectable global recovery is underway, markets [can] bear risks. The past days' pullback of EM equities and other risks presents a buying opportunity for the nimble, steady-nerved, opportunistic, and discriminating.”


More for paid subscribers follows from Mexico, Britain, India, Israel, Canada, Mongolia, China, Russia, Ukraine, Turkey, Spain, Denmark, and Ireland.

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Romansch and Zvitzerditsch

Mon, 2014/01/27 - 7:59am | Your editor

According to Neue Zuercher Zeitung today, of the 300-odd banks in Switzerland, 106 have now opted to cooperate with US authorities cracking down on tax evasion via Swiss banks. All the big banks have capitulated to pressure from the Americans to comply with data-sharing rules.

However, that still leaves nearly 200 Swiss banks which will still hide your money from the US taxman. If you make your way to a tiny village bank in some obscure Swiss canton, you may still be able to deposit your loot secretly, out of the reach of Uncle Sam. The problem is that to do so you will have to speak to the banker in Zvitzerditch or Raetian Romansch. The latter is the second language of Davos, where the present World Economic Forum is being held, a relic of Latin spoken by a few thousand mountain Swiss. As with Swiss German, the people from one village cannot understand those from the next. The time has come to get out those language tapes!


On the subject of linguistics, here is the first stanza of Robin Hood and the Monk from a 15th century manuscript collected by W.W. Skeat, and emended by Francis James Child (Cambridge University Collection):

In somer, when the shaws be sheyne, And leves be large and long,

Hit is full mery in feyre foreste To here the foulys song:

To se the dere draw to the dale, And leve the hille hee,

And shadow hem in the vest grene, Under the grene-wode tree.

Translations follow: hee is high; foulys are birds; shaw is woods; and... sheyne is beautiful. The last reminds me of the Yiddish ballad, bei mir bist du sheyne. In Yiddish sheyne still means beautiful as it once did in Sherwood Forest. Robin Hood and Little John spoke early English which shares words with modern Yiddish.

There will be no blog on Thursday as I am off to Paris for (among other things) looking for a new stringer. I was thinking of asking Valerie Trierweiler but gather she is too high-maintenance for our budget.

More from Britain, Finland, Israel, Ireland, Mexico, Brazil, Canada, the Nethrelands, and Norway today.

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Portfolio Update

Sun, 2014/01/26 - 8:14am | Your editor

After the horrible week for stocks which just ended, I would have liked to avoid posting our performance table. But discipline took hold and the stocks and bonds performance has been posted on our website at www.global-investing.com

As there were no trades (cf below) my closed positions table, visible to all, is the same as that of prior weeks.

I had some sales ideas last week but being prone not to panic, I set limit orders on them. And with the market so queasy, these orders did not get exercised. One reason is of course the time difference. With interviews after I blogged, I could not keep track of my brokerage accounts. It is extremely hard to access these from outside the USA despite my having warned e-trade and my bank (where my bonds and some shares are held) that I was heading abroad. This is yet another impediment to globalization which nobody has noticed yet. The world is NOT getting flatter; it is becoming more segmented.

The stock selloff, as always, was attributed to a minor statistic the market focused on last week, the below 50% (ie shrinking) level of the Chinese purchasing manager index. There are a couple of reasons why this is ridiculous as an explanation. FIrst there are two competing China PMI indexes, one official and one by HSBC out of Hong Kong. The former hits mainly big state-owned enterprises, who tell Beijing whatever it wants to hear; the other is more focused on smaller private companies. Neither is reliable and neither is ever revised (a mark of a serious index in my view.)

Secondly the Chinese New Year falls early this year, next week, so even Dec. orderbooks were kept light to avoid inventory buildup over the holiday.

A third reason may be that the combination of a money market fund failing and a crackdown on the shadow banks has made cheap cash for purchasing less easy for purchasing managers to find.

This is not a serious reason for stock market vapors around the world. The vapors are much more likely to be linked to a revival of uncertainly regarding central bank quantitative easing and cheap moeny. Here in Britain, the target unemployment rate for higher interest rates has all but been reached. In the USA the Fed has also to consider better numbers as it decides on what to do next, and under a new and unknown lady governor to boot. (Of course I am delighted that Ms Janet Yellen in this top job, but that doesn't mean the market is!)

Another even more basic reason is reversion to the mean. In 2012 and 13 markets produced hefty gains, mainly because there was lots of cheap money about looking for a home. The ultimate parameters for this continuing depend on company performance living up to the various ratios and percentages which define stock market value. They are not coming from the leading blue chips in whatever market you look at: Deutsche Bank or IBM  for example.

Moreover, the classic value-destruction strategy--mergers and acquisitions--is back in the news, with mega-deals around the globe. This is also scary for those who have booked nifty gains over the past two years, and worry they will be dissipated.

More less gloomy news for paid subscribers follows from London about Norway via Nairobi:

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Taking Tea?

Fri, 2014/01/24 - 10:09am | Your editor


Your editor took tea yesterday with British economicanalyst Andrew Sentance, author of a new book called Rediscovering Growth: After the Crisis. However, in fact we drank decaf cappucino at the HQ of PricewaterhouseCooper, where he is senior economic advisor. PWC is located in a 3-yr old new building within shouting distance of The Shard, at More London Place, which is not even mentioned in my London A to Z guide.

This site summed up the new British growth areas Mr. Sentance writes about, a driver for recovery.

His book casts doubt about much current economic chatter, like the idea that only making things matters. Too much statistical weight is being given to goods exports (which are quicker to be tallied), and not enough to service exports.

Britain's edge, he argues, is no longer not in bashing metal or weaving cloth. Read more »

Great Wall Crash

Thu, 2014/01/23 - 8:23am | Your editor

While there will not be an ADR, Saudi Binladen, a $ 2.7 bn-sales family-owned construction and building materials company, plans to do an initial public offering of about 20% of its shares before the summer heat sets in. The firm is controlled by the Bin Laden family, a local business dynasty, one of whose members created Al-Qaeda. I'll give it a miss.


Following up on my speculation yesterday on why Mohamed El-Erian quit Pimco, it appears that no fewer than three executives are required to replace the former CEO and co-Chief Investment Officer (shares) at the California bond house. One of them is the new deputy chief investment officer, senior man in share, Andrew Balls, a British analyst, former correspondent for The Financial Times. But his post is not only because of his journalistic experience. He is the brother of the shadow (Labour Party, opposition) Chancellor of the Exchequer, Ed Balls, certainly richer and reportedly smarter. Ed Balls, his brother, has the unenviable task of attacking the rather successful economic policy of the British coalition government in Parliament.

The real issue is succession planning for the head of Pimco, Bill Gross, who is 67. He is the public voice of the investment house, a bond bull, not exactly fashionable today. Pimco needs to lure in investors to its funds. Will Mr. Balls become his heir-apparent?

The Great Wall crashed. On Tuesday afternoon Jan. 21, Chinese netizens could not access the Internet, the largest outage by number of users (over 600 million accounts out.) The outage was blamed on a malicious cyber attack by China's Computer Network Emergency Response Center. However, censorship-tracker services now say the Chinese language web went down because of China's Great Wall (to stop politically incorrect web sites) had gotten out of hand. Techies say the Chinese Internet gateway domain servers had been contaminated, perhaps only failing at one point. But because all Chinese-language connections are funneled through the servers to stop porn, gambling, and dissident comment, much of the country went down.

More for what this means for our companies and news from Finland, Canada, Jordan, China, Britain, Spain, Singapore, Ireland,  and other places follows for paid subscribers only. If your blog ends here, your sub has run out. You should also have received three notifications but they may have been blocked by excessively zealous spam-blockers hunting marketing e-mails.

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