Jamie Pierrepont Dimon, Samurai, Sheikh, Bellwether
Jamie Pierrepont Morgan is a samurai and maybe a sheikh. He is also a bellwether.
Jamie Dimon Thursday after the close bought $26 mn worth of shares in JPMorgan-Chase of which he is the CEO and Chairman, and proved that he was a true follower of the original John Pierrepont Morgan who intervened to rescue the New York Stock Market in 1907, or thereabouts.
Other factors also boosted stock markets on Friday. Oil rose $1 per barrel. But Wall Street, facing in 3-day weekend because Monday is President's Day, was particularly prone to a down market, so I give Mr Dimon a new middle name, Pierrepont!
His move also helped overcome the impact from Japan reopening after its modest New Year holiday which saw the yen rise as a safe haven and the Nikkei index dive, both to catch up with world markets earlier this week. Dimon is a samurai!
I don't think he had much input in the rumor that Opec has a deal brewing over cutting oil production but his Greek ancestors came from the Near East.
Dimon was not alone in buying his company's shares. According to Bloomberg, in the last 30 days, 699 officers and directors of US firms bought their companies' stock, and 828 insiders sold. Insiders sell because they need money, but they buy for only one reason:they think their companies' shares are too cheap and will rise. The 80% ratio of buys to sells was the highest in 4 years. Bloomberg's generated this data with The Washington Service, which tracks SEC filings.
Today we have news of the usual drug companies, auto-makers, aviation services, and infrastructure plays. We also have a new Japanese stock pick today from our intrepid reporter on the spot, Chris Loew, a fun share.
Kanpai to Chris who comments on the big selloff in Japan, where Topix index lost 5.4% today after the market reopened. Japanese shares had their biggest weekly loss since 2008, according to Bloomberg. I lead with a view of banks.
Bank shares did not jump across the pond, which means there still are heavy risks which I write up below for paid subscribers. However, energy is booming which doesn't mean there aren't risks there too. Stoxx European markets is up 2.25% today while its oil and gas component rose 4.6%. The FTSE in England gained 2.2% and again oil and gas led the rise, along with mining. Ireland, a big winner last year, is off today. The US stock markets are closed Monday and there will be no blog.
We changed our SSL supplier early this month largely because I could not get the former contract renewed because of technical issues in their setup. So there is warning when you log into our website, www.global-investing.com that it is unsafe. Coming from the former Secure Socket Layer seller, Godaddy.com , it is not true. The site is as safe as ever. But it will take a while to set things right.
Shrove Tuesday, Three Reports, and Gold
England is ripe for the European Union. The St Albans town pancake race for Shrove Tuesday was won by Veronika Tothova, Justyna Fizipiuk, Maria Torres, and Bryse Roux. Not one Anglo-Saxon name in that pileup. How can Britain possibly exit the European Union?
Your editor, despite being Jewish, is keen on Mardi gras or Fasching (in German) as her parents, who separately escaped from Nazi Germany in 1937 met at a Faschingsball in NYC. I love carnival as a result, because it was a family occasion all their married life.
Thank you to all the readers who wrote to support my thesis that the US political system is moving dangerously close to the Weimar Republic. I got support from both US and foreign readers but one man, of German-Jewish heritage like me, is donating to Sanders.
The role of China, still closed for the New Year, was taken by Hong Kong which reopened, down 4%. Then the rout spread to Europe and London stocks fell to a 4-yr low, according to Bloomberg. UK govt 10-yr bonds, called gilts, fell to their lowest yield ever, 1.306%, as bond prices rose. (They move in opposite directions.) German bunds in euros fell to a yield of minus 0.545% for the 2-yr version, and minus 0.341% for the 5-yr. However, the Portuguese 10-yr govt bond rate rose to 4.08% because of fear the socialist government will boost spending. So much for European unity.
Today is the day of gold as further CB drops in interest rates a full 0.5% below zero hit the Swedish krona. And the uselessness of negative rates was spelled out by the continued rise of the yen, a kind of Asian haven currency despite attempts to cheapen the yen with negative interest rates. While potshots were taken against Fed chair Janet Yellen over her testimony yesterday, the real news today is the realization that even male central bankers have no idea what to do next or even if they need to.
Yesterday some of our most beaten-down and over-sold stocks (all down double-digit percentages year to date) produced gains of 2.6% to 6.2% for the day. Today all that has come to an ignominious end.
News today from Finland, Israel, Switzerland, Canada, Britain, Ireland, and Colombia.
The USA is turning into the Weimar Republic. On the one hand we have a fervent nationalist and on the other a righteous socialist. Both of them have weird hair and, unlike their German predecessors, are not magnetic orators.
But it is still scary to someone bi-cultural. I was raised by parents who had lived through Weimar and the rise of Hitler and always voted for mainstream candidates, even when a neighbor of ours was head of the US Communist Party, and even when changing demographics brought Latinos to what had been a German-Jewish enclave in northern Manhattan. They avoided leftism and jingoism from experience.
Viscerally, I am frightened by what is happening in the primaries. Hitler came to power via an election, not a coup d'état, after a period of economic upheaval.
For good news, the price of oil is inching up again. And the market has decided that Deutsche Bank is not likely to default on its coco contingent convertible bonds.
So we do not have to try to find the equivalent to Hjalmar Horace Greeley Schacht, the head of the Weimar CB who supported Hitler in opposing reparations payment (and even campaigned on this during a visit to the USA.) But quit the Nazi government over German rearmament after the invasion of Czechoslovakia. He also argued against “unlawful activities” after the Kristallnacht attacks against Germany's Jews, and tried to work out a way to allow Jews to leave Germany with assets the Nazis wanted to seise.
This might have expected from someone bilingual in English and named after an American newspaperman by a father who had lived for decades in the USA. He was, moreover, born in Schleswig-Holstein, then German, but now Danish, and was Catholic in a land of Lutheranism.
Schacht linked up to the anti-Nazi resistance as early as 1941 although he was kept on at the Reichbank after the US entered World War II, mainly because Hitler feared the impact of his leaving. He was only ousted early in 1943.
Schacht was arrested and put into a series of concentration camps after von Stauffenberg in July 1944 failed in his attempt to assassinate Hitler. Liberated by the US 5th Army he was tried at Nuremberg for “crimes against peace”, but not for “crimes against humanity”. But he was acquitted from charges were that he had planned or waged wars of aggression. He later founded a private bank specializing in loans to developing countries as he had worked with many of their banks during the Weimar years to try to keep the Reichbank afloat by accepting payment in Reichmarks rather than dollars.
Mr Schacht worked for Dresdner Bank rather than Deutsche Bank as a young man. DB stock rose 14% this morning on news it is buying back some coco debt.
More for paid subscribers today from Ireland, Israel, Canada, Finland, Britain, Spain, Poland, Sweden, Denmark, Jordan, Mexico, Brazil, Belgium, Venezuela, Colombia, Ireland, Switzerland, and Japan.
Call in the Marines
From Donald's Montezuma to Clinton's Bengazi
We will fight our country's battles on the Web and on TV.
Interactive Brokers sent a note on ADR fees in part to explain why they buy directly on foreign markets wherever they can:
Account holders maintaining positions in American Depository Receipts (ADRs) should note that such securities are subject to periodic fees intended to compensate the agent bank providing custodial services on behalf of the ADR. These services typically, include inventorying the foreign stocks underlying the ADR and managing all registration, compliance, and record-keeping services.
Historically, the agent banks were only able to collect the custody fees by subtracting them from the ADR dividend, However, as many ADRs do not regularly pay dividends, these banks have been unable to collect their fees. In 2009, the Depository Trust Company received SEC approval to begin collecting these custody fees on behalf of the banks for ADRs which do not pay periodic dividends. DTC collects these fees from its participant brokers who hold the ADRs for their clients. These fees are referred to as pass-through fees as they are designed to be then collected by the broker from its clients.
If you hold a position in a dividend paying ADR, these fees will be deducted from the dividend as they have in the past. If you hold a position in an ADR which does not pay a dividend, this pass-through fee will be reflected on the monthly statement of the record date in which it is assessed. Similar to the treatment of cash dividends, IB will attempt to reflect upcoming ADRfee allocations within the Accruals section of the account statements as well. Once charged, the fee will be reflected in the Deposits & Withdrawals section of the statement with the description 'Adjustments - Other' along with the symbol of the particular ADR it is associated with.
While this fee will generally range from $0.01 - $0.03 per share, the amounts may differ by ADR and it is recommended that you refer to your ADR prospectus for specific information. An on-line search for the prospectus may be conducted through the SEC's EDGAR Company Search tool.
Our directly-held smaller Japanese shares lost 5.6% to 8.2% today in the sell-off this morning, a lot more than the index. With most Asian markets closed for the lunar New Year, Japanese stock markets were the major ones reacting to Monday's bearish trends. However, US-traded funds invested in closed Asian markets lost traction.
However our ADRs in general are looking rather more perky. London indexes rose 12% today. The exceptions were those from countries with their own issues, mostly FX-related, like South Africa, South Korea, Canada, or Brazil.
We have quarterlies to cover today (2 issued after markets closed yesterday), along with news from Britain, Denmark, India, Canada, Israel, Australia, Argentina, Mexico and a few other places.
Happy New Year?
The global stock selloff is intensifying today without input from China, off for the week for New Year's.
Concern over the failure of Opec to reach a deal to boost oil prices is the ostensible trigger for another round of selling which has hit not only oil-related shares, but also ones from sectors offering alternative energy: nuclear, solar, and battery s systems. The rot is spreading to other commodity shares.
Meanwhile, concern over bank exposure to emerging markets, its pricey credit default swaps, and the dropping German “bund” yield have pushed down Deutsche Bank shares by 4.35%. Europe-traded stocks fell to levels last seen in 2014, after a sixth day of decline. We update our sovereign wealth note.
Worry has also boosted the price of gold which now has risen 11% YTD.
Yet China is not free from all blame. Sunday it updated information of outflows from its reserves in Jan. which shrank less than forecast to $3.23 trillion, still a 3-yr low.
US yield stocks like Williams Cos and Targa Resources are plummeting. Despite relatively upbeat US economic indicators, Wall Street is being hit by hurricane winds from Europe about a recession in US markets, taking down the “FANG” tech favorites of last year and other stocks which gained in 2015.
More for what this means for paid subscribers follows with news and trades from the Nether-, Switzer-, Fin-, and Po-lands, Chile, India, Norway, the USA, Australia, Argentina, Israel, Great Britain, and Italy. Including a sale and a buy.
Portfolio Tables Updated
Visit www.global-investing.com to view our tables. The closed position one shows how a stock priced for Cuban tourism, yield, and low-aviation fuel was zapped by Zika. I didn't know that was coming when we recommended buying Panama's Copa Holdings, CPA. Use the printer-friendly button to more easily view spreadsheets on a laptop or cellphone.
The CPA proceeds were redeployed into a position I feel better about after reading tomorrow's Barron's, also in Latin America. Two positions which had become garbled over the past months were restated to reflect reality, one up and one down.
The magazine also interviewed a fund manager who, like your editor, is buying Australian bonds, which we do through Aberdeen Asia Pacific Income, FAX, a closed-end fund. And Chris Dietrich at Barron's writes up the charms of bank preferred stocks, unfortunately via ETFs rather than buying directly.
Barron's also echoed my report based on Canadian sources on why there is a link between oil prices and stock markets. Our report focused on oil exporters while Barron's discussed the more complicated role of Chinese evasion of exchange controls, not as obvious from the statistics. With Chinese growth slowing and crackdowns on corruption money is fleeing the Middle Kingdom. But it is not fleeing because of lower oil prices.
Linking the sovereign wealth fund exits from global stocks to China outlfows is not really as insightful as what we published last week from the Toronto Globe & Mail. But at least Randall Forsythe (and he says Mr. Dietrich) tried to explain the connection.
More for paid subscribers on the top tip and corrections.
Cloudy Crystal Ball
The crystal ball is cloudy.
Nobel economist Paul Samuelson famously wrote: “the [US] stock market has predicted 9 of the last 5 recessions.” Today Wall Street is in a tizzy over the confusing data which came out before the opening and what the ambiguous January figures mean for future corporate profits, inflation, and interest rates.
Stocks rose before the jobs report came out and then wobbled. The number of new hires was way below forecasts, at 151,000. However, the unemployment rate fell below a magic number (to 4.9%). And the annualized monthly wage growth grew 5%, well above forecasts. Ambiguity hurts.
Brent crude oil futures fell 7 cents, 0.2%, to $34.39/barrel, a second day of lower monthly contract prices, triggered by Saudi Arabia cutting what it charges for crude in Europe. Gold fell 0.9%, or $1 to $1156.50 per oz, after rising Thursday by 1.42%. Both are up substantially in February. The drop was triggered by the imminent weekend and the US numbers, plus good German order data.
After the dollar was crushed all week, our Greenback rose, not against the Redback (because China has shut down for New Year's Week) but against the euro and the pound sterling.
If you suffer from data overload today, you are not alone. We are not day traders among other things because it is really hard to forecast what will come next, even if you are a Nobel prize-winning economist.
Your editor's reply about his Jan. 31 article about “deja vu all over again”, which was “capitulation?” was quoted by Joe Shaefer in the latest Investor's Edge, as he picked new defensive shares to buy. At end-January he was all about exiting positions.
He said he wasn't sure if what I wrote him was a rebuke, question, or comment.”
My much-heralded post earlier this week on Sovereign Wealth Funds and Oil was reprinted today at www.talkmarkets.com. If you want to forward it, do not copy and paste from your email account but respect The Globe and Mail (Toronto) copyright and send your contacts to http://www.global-investing.com, our website, or to the reprinter:
More for paid subscribers today including another stock pick, mainly because I had a bunch of bonds come due this month. We have news from Canada, Switzerland, Denmark, Mexico, Ireland, Pakistan, the French Caribbean and France, the Netherlands Caribbean and home, Spain, Kenya, Honduras, Britain, Israel, and South Korea today.
Are you a potential victim of whaling? This is the latest scamming technique which does not depend on mass emailing to lure people into sharing financial data. Instead, using lists which can be bought for legitimate marketing purposes, fake e-mails and even postal letters are being sent to both money managers pretending to be from their customers, and to customers pretending to be from their money managers. They key is to copy the logos and headings they use, which can often be found on Internet social media.
With these simple tricks, the gonifs sometimes succeed in getting people to head for their friendly local Western Union office to wire some loot to them.
A day of less writing today, after my efforts to help bring to attention the reasons why oil prices move stock markets yesterday. I was thanked by readers on both sides of the pond for bringing Canadian analyst David Rosenberg's work published by the Toronto Globe and Mail to their attention. The real hero is Martin Ferera, our man north of 64'40, who found the article and got us reprint rights.
By yesterday's close, the greenback had lost 1.9% against the loony, quite a jump. The C$ accounts for 9.1% of the dollar forex index DXY). This matters to us investors in our neighbor to the north, discussed for paid subscribers below. We exited dollar bull positions at the end of 2015 and last month because of concerns that the Fed-linked US$ rise was overdone. Today the DXY is down another 0.6% so far , and gold gapped up again $1105/oz.
Today we have two corporate reports, a modest number for this time of year and a new stock recommendation, plus much news from Africa, Brazil, Mexico, Britain, Spain, Hong Kong, and Argentina.
Sovereign Wealth Funds & Oil
Our Canada reporter today recommends an article from the Toronto Globe and Mail “ by the ever- thoughtful David Rosenberg - a Canadian national treasure!” It addresses the mystery of why oil prices and stocks are falling in tandem. Here are extracts from Rosenberg's article:
“Many a pundit [says] the slide in oil prices is negative for the global economy. The action in the stock market, after all, rallied all the way from the early-2009 lows in oil up to the mid-2014 highs. There seems to be a tight positive correlation now between oil and the stock market whereas in the past the relationship was inverse. [I]n past cycles, lower oil prices were a bullish factor for equities. [N]ow the action in the stock market has led many to believe that a recession is around the corner.
“The link between oil and the stock market is actually less about fundamentals and more about fund flows – specifically the activity of global sovereign wealth funds. At last count, there were seven oil-dependent countries that control nearly $4-trillion (US) of assets, 54% of the global tally. These wealth funds channelled their petrodollars across the world’s equity markets during the bull run in oil, why there was a tight positive link between crude and stock prices.
“This movie is now running backward. Those who claim that 'break-even' price levels on Middle East oil are in single digits only look at covering direct production costs and ignore fiscal break-even levels. As per the International Monetary Fund, the fiscal break-even oil price for Saudi Arabia is nearly $96 a barrel (hence a 20% deficit-to-GDP ratio); $68 a barrel for the United Arab Emirates (deficit of 4% of GDP); and $58 a barrel for Qatar (budget gap of 1.5% of GDP).
“Estimates [say that], as of the end of 2015, 56% of the assets [of] sovereign wealth funds came from the oil and gas related projects. [A]nd up to 10% of the total money invested was in global markets. [Now] many governments, in the Gulf, Africa, and Asia, have to draw down reserves to cover their gaping fiscal deficits.
“The Saudi Arabian Monetary Agency (the kingdom’s investment arm) has withdrawn in the order of $70-bn from external managers in just the past six months to meet social spending requirements. Qatar, Kazakhstan and Norway are in similar predicaments. Norway (the largest sovereign wealth fund in the world) reportedly has shed $1.1-bn of its equity holdings ($58.5-bn in total). Abu Dhabi cut $300-mn from its $3.6-bn exposure to U.S. equities.
“So the stock market is telling us nothing about the economic outlook; rather, the sudden sell-off in the past two months represented one giant margin call as the petrodollars deployed into equities during good times are reversed. Oil-reliant governments around the world draw down sovereign wealth fund assets to finance their budgetary shortfalls and support their fledgling economies. [T]he equity market decline is really telling us more about the run-off at sovereign wealth funds than anything nefarious about the economy, especially the US economy.”
David Rosenberg is chief economist at Gluskin Sheff & Associates and writes a daily economic newsletter Breakfast with Dave. (Source: TheGlobeandMail.com)
Another take on oil price trends from Bloomberg which cites Goldman Sachs forecasts of a sharp 7% drop in US shale output during 2016, 620,000 barrels/day.
The US recently has produced about 9.4 mn bbls/d, according to the International Energy Authority which separately predicts that non-Opec oil supply will drop by 600,000 bbls/d this year.
The head of Opec, Abdalla El-Badri expects that output from non-members will fall by 660,000 bbls/d. Forecasters seem to agree that shortages will lead to oil prices rising sharply in H2.
Industry experts concur. In a Bloomberg TV interview yesterday BP plc CEO Bob Dudley said: “We will see higher prices” with “supply and demand tightening in the second half” after a “tough and choppy” first half with a surplus of oil.
Bloomberg worked out that oversupply caused a 30% drop in West Texas Intermediate and a 35% decline in Brent crude, the two world petroleum benchmark prices. It quotes an interview with Dominic Schnider, head of commodities at Hong Kong's UBS unit: “we need to see supply giving up and I thank that falls to the US.” A rise of 30-35% will take oil prices to $40+/bbl.
Moreover, it is not just US shale that will be shut-in or delayed. Other oil producers also will cut production. Russian oil output may fall by 150,000 bbls/d or 1.3%, according to Sanford Bernstein analysts. Iraq, without forecasting output, predicts that oil will hit $50/bbl this year and the United Arab Emirates also expects less oil glut. (Source: Bloomberg.)
The argument for going global is not just about lower US shale output. The head of the NY Fed, Bill Dudley, is talking down the greenback. It has reversed course upward today against sterling, the euro, and even the negative-interest-bearing yen. Our dollar is down 1.44% today against the Canadian loony.
The big news at 2:24 pm Wednesday is that after a whole week my phones are up and running again in mid-Manhattan in the 21st century. I just got called by the monopoly owner of the line, Verizon. Now they will not stop telephoning me to tell me how they got the line back, so far 3x. Blog goes out before I pick up the phone again.
More for paid subscribers today about oil and its impact on finance, plus two annual reports and other goodies.
Forecasts and Recoupling
Writing for his firm www.llewellyn-consulting.com, a former senior economist of the Organisation for Economic Cooperation and Development considers forecasts. He sounds somewhat like the late Yogi Berra about forecasts about the future:
“Many important decisions – macroeconomic, policy, corporate, military – have to be taken in respect of a future that is intrinsically unknowable. But there is no ducking the issue: decisions have to be taken. Even the decision not to take a decision is a decision. So: how best to go about taking decisions that will come into effect in, or even affect, the future? Basically there are three possibilities.
“One possibility is to forecast what that future will be. But it is a mistake to place much weight on [any forecast number] when the absolute error for OECD economies is o[n] the order of 1 percent.
“At turning points, when accurate forecasts would be the most useful, errors tend to be even bigger: the year-ahead OECD-GDP forecast made in Dec.2008 was 3 percentage points, and following the first great oil shock of 1973-74 it was 4.
“This is not to say that forecasting is pointless. A forecast assessment provides a consistent quantitative framework for thought, in which outcomes are conditional on identified judgements. Moreover, forecasts [give] the forecaster early warning when something is going on that is not understood. But there is no avoiding the fact that economic forecasts generally offer a poor guide to the future.
“Moral: base your decision on a forecast whenever you must, but look at past errors. To the extent that forecasts often do not provide an adequate basis for decision-making, an alternative is to assess the probability of different possible outcomes or decisions; and multiply that risk by an estimate of the potential consequences.
“Assessing the cost of potential consequences can be difficult, but fruitful. For example, commonly heard on trading floors before the 2008 crash was 'The chances of this happening are only one in a million.' Even true, however, the appropriate riposte would be 'But what if it did happen?' If the answer was 'catastrophe' then it would be wise to avoid the action.
“Moral: no decision should be taken without a risk assessment of the potential consequences. “Unfortunately, these two issues become [greatly] more difficult when the system is complex. Models of even moderate complexity, when shocked, often exhibit extreme, even chaotic, behaviour in ways that could not have been forecast and were not expected ‒ including by the person who built the model. “Examples are legion. Recent ones include the developments after the invasion of Iraq; and the cascade of financial and economic events following the collapse of Lehman Brothers.
“Moral: avoid allowing key variables in complex systems to go outside historical experience.”
Yesterday's market closed barely dented by the renewed drop in the oil price, leading some experts to say this new linkage was now ended. The decoupling was ended in spades, with markets tumbling.
Moreover today Chinese stocks and the reniminbi rose but it made no difference. It snowed as people headed off to their home villages from Guangzhou (formely Canton.)
Before turning to our stock portfolio I wanted to let you know that the website I helped launch, www.talkmarkets.com, now has over 500 contributors. Contributors are paid in shares, but I also invested money to become an angel investor for the site.
It has now closed a major partnership deal with Thompson Reuters which will host all its headlines (for clicking to) at no cost to talkmarkets. It also won the “Best Stock Site of 2015” award.
The startup is now publishing 100 articles/day and has 17,000 registered users, including some of you. Now it has to boost its editorial team and needs more angels. If any readers want to find out more, please send me an e-mails (my phones are down) and I will put you in touch with www.talkmarkets.com so you can become an angel investor too.
More for paid subscribers from Britain, Israel, Italy, India, Canada, France, Brazil, The Netherlands, Th Dutch Antilles, Belgium, and Finland.