Plymouth Brethren and Moslem Brothers
I first met Stuart some 20-odd years ago when he installed a new stove-top in my NYC apartment, sent by the appliance store. Stuart then told me he was a member of the Plymouth Brethren, a Bible-thumping nearly 200-year-old evangelical religious fellowship. It is not a church and has no clergy. Brethren sing a cappella. (Stuart's a tenor and sings while he works.)
I next met him was about 10 years ago when I had an appliance problem. He then told me that he was being shunned by the Brethren (including his wife) for some offense, and was being denied contact with their three daughters.
Last week I bought a new over-the-stove microwave oven from Home Depot whose (paid) installers said they couldn't replace the existing GE device with a new one of the same marque. Having been reimbursed by what my daughter calls "Home Despot" I called upon Stuart.
Yesterday he installed my new microwave and I helped him set things up in the kitchen whose refrigerator doors are garnered with photos of our 5 grandchildren and other relatives' and contributors' kids.
Stuart choked up and told me he had joined the Times Square Church (built into a large theater building in the west 50s of Manhattan) and sang in its choir 4x a week. His three daughters and now 5 grandchildren are all living in Australia to which his wife moved. She did this to protect them from what she called his "apostasy" in joining a competing evangelical religious movement from the Brethren. TSCNYC.com has paid preachers, a hierarchy, and displays Christian symbols like the cross, while the Plymouth Brethren do not.
When God tells him to, Stuart says, he will go to Australia to try to resume contact with his estranged wife and 3 daughters, two of whom have married Down Under. Before I met Stuart we knew a Plymouth Brethren member who worked for the UK Treasury to cover the International Monetary Fund in Washington, D.C., when we lived there. He told us that he beat his children every Saturday night for any naughtiness he did not know about. I am sharing this saga because we tend to focus on Moslem fanaticism and not on what is being done in the name of Christianity.
The Economist Management Thinking Digest's Melanie Senior writes that drug firms’ future innovation will go beyond pills or injections to include treatment, service, and support. The way to profit will depend on Apple-like advances in usability and compliance, rather than science: "Apple didn’t invent anything fundamentally new in its iPhone but it did create an irresistible user-interface and unrivalled touch-screen technology," she writes.
In pharma, novel delivery and formulations of established treatments or finding versions of existing drugs that are longer lasting are already being developed. "But the outcomes revolution goes beyond drug formulation and calls for drug firms to embrace a new way of thinking: Different expertise, broader relationships with payers, and a wider notion of value." Drug firms, she writes, are going beyond drugs or devices to offer IT, iPhone monitoring and data-recording, and other non-drug businesses. I get EMTD from my bank.
Oops. The French financial transaction tax is 0.2% while the proposed EU FTT is only 0.1%. In both cases the tax is paid when buying or selling, so you have to double it to work out the impact.
Britain runs a stamp duty which acts as a FTT and costs 2% but it only applies if all parties are British. Brits avoid the tax by using options or contracts for difference, however. According to Prof. Steven M. Davidoff of Ohio State writing in yesterday's New York Times, NY State has collected a FTT since 1905 and after a second FTT was imposed by New York City, brokereages moved to Jersey City. New York State still collects the 1905 tax but gives it back immediately. There also was a federal FTT imposed in teh US to pay for World War I and eliminated only in 1966, Prof. Davidoff writes. And state FTTs were also applied in Massachusetts and Pennsylvania and only eliminated in the 1950s, but not before MA fund management moved to tax-free New Hampshire. In fact 23 countries have had financial taxation taxes and the most recent example, Sweden, which passed the tax in 1984, saw as much as half the country's trading volume move... to Britain.
The key difference with the French 0.2% tax is that it applies if any of the parties are French: seller, buyer, or corporation from France with a capitalization of over euros 1 bn. The impact has been to boost trading volume of smaller French companies by 19% while FTT-subject share volumes fell 16%. The impact on prices is not yet clear according to a study by Credit Suisse.
Germany is getting prepared and now requires registration of any firms doing high-frequency trading.
More for paid subscribers follows with some fun from Britain on what Warren Buffett will do next and good news from Israel, both reported by other publications plus other news from Canada, Ireland, Brazil, Florida, and Louisiana.
The next advance in science was called for during the State of the Union address by Pres. Obama: to work on the human mind. Here is a followup as reported by Dow-Jones from London about an article published in The Lancet about a new study of mental illness. DJ reports: “Scientists have identified genetic risk factors behind five major psychiatric disorders for the first time, a discovery that could pave the way for a new approach to pharmaceutical treatments for these conditions.”
The 5 mental illnesses with a genetic cause are autism, attention-deficit-hyperactivity disorder, bipolar disorder, major depression, and schizophrenia. Because very little is known about its biological basis or what triggers mental illnesses, the study breaks important new ground. The reported study involved scanning the genomes of over 33,000 people to find variations in their genes. Two genes involved in the balancing of calcium levels in brain cells appear to be linked to these mental illnesses or disorders.
“Genetics...can contribute to prediction and prevention of psychiatric diseases, along with the identification of molecular targets for new generations of psychotropic drugs," Alessandro Serretti and Chiara Fabbri, psychiatric specialists at University of Bologna, wrote in a companion article published alongside the genetic findings in The Lancet.
Two of our shares focus to central nervous system and brain disorders, a very difficult area for research. One is working on overcoming the brain-body barrier which stops drugs from acting in the brain. The other has increased its work on brain diseases like Parkinson's and Alzheimer's diseases and multiple sclerosis, seeking common features in how they affect the brain. Mental illnesses are a major cost for healthcare systems which lack drugs for long-term affective treatment. About a third of patients in European healthcare systems suffer from brain disorders. In the US, 11% of the population takes antidepressants. Yet drug research at many major pharmaceutical houses is abandoning the mental health area because it is so hard to do statistically valid trials of new psychiatric drugs.
Thank you to all the pre-subscribers who filled in their addresses and telephone numbers to prove they are people so they can continue to receive our blog (without investment advice). Today's blog is going out early because I have work being done on my kitchen.
More for paid subscribers including the name of the companies working in the brain area follows. There are also good results from a European company, irrelevant results from another, and lousy ones from a Latin American company. Plus fund news.
Another Swiss went postal with his gun at a factory during lunchhour, proving (if this is needed) that countries where gun ownership is widespread also suffer from gun violence. At last count there are 3 dead and 7 wounded in the Swiss episode by a fired woodworker.
Mexico arrested the head of the teachers' union for stealing NMP 2.6 bn from union funds for personal use. Elsa Esther Gordillo used the money among other things for a shopping spree at Nieman Marcus.
The European Union's point man on the transaction tax for trading stocks and options, tax commissioner Algindas Semeta, admitted to the press that he really wants the tax to be imposed worldwide. The US Treasury opposes the so-called Tobin tax, supported by only 11 EU member countries. This week Portugal, not one of the 11, said it would oppose an such tax unless it was approved by the entire EU.
Almaaty annulled part of the license under which Australia's Rio Tinto owns 66%of the Oyo Tolgai gold mine in Mongolia. It has also suspended exit visas for foreign staffers working on developing the mine, spooking investors in this frontier economy.
PG, who is thinking about becoming a paid subscriber worried that he might not be able to trade the stocks we tip without going to Interactive Brokerage, which I find user unfriendly. In fact most on-line brokers like E-trade, Schwab, and Fidelity can handle our ideas for US retail investors just fine. There are minor difficulties over arbitration with the latter two firms, some of which are headlined, and some restrictionsn with Chuck. Your editor is constantly advising other brokerages to offer more global trading. In time the argument will stick.
More for paid subscribers about gold, Mongolia, Mexico, Israel, Finland, India, Ireland, Belgium, Spain, Canada, Australia, Brazil, and Britain today, including a good result from one of our companies.
Club Med Diet
According to the New York Times today, southern Europe offers more than awful economies, corruption, and perverse voting patterns. (Beppo Grillo the clown took the lead in the Italian parliamentary elections!)
The Club Med countries are best at a long-terms survivial diet that protects against the vascular problems of old age. We should all over-dose on olive oil, eat lots of legumes and nuts, substitute fish and chicken for red meat, eat lots of fruit and fresh veggies, and cut down on dairy products. The Mediterranean diet is easier for people to follow than a low fat regimen and works better at preventing stroke and heart attack.
The other news is that we have another unexpected high-country to look to invest in, South Africa. Despite mining strikes, corruption, high unemployment, and amateurish government, the country is growing faster than Bloomberg surveys of economists indicated, 2.5% in 2012 in actual numbers, and 2.1% based on Q4 figures annualized.
More for paid subscribers from Club Med countries and Africa, and important news from Israel, Russia, Singapore, India, Finland, Britain, and Canada (and probably a few more places) from our network of correspondents today. Many deals and reorganizations, real and proposed, are in focus.
They Shoot Horses
I prefer riding horses to eating them. I prefer patting dogs to eating them. Now it turns out that I have eaten horse twice. The first time was when I was at university. I was taken to the Harvard Faculty Club by an astronomy section man, Rick, who ordered the most exotic food on its menu then, horse steak. (They subsequently removed it.) While this Radcliffe undergraduate refused to order horse herself she did taste Rick's steak. It was tender enough and slightly sweet.
That was the posh steed. Then there was the common one. Last year in London we visited the Ikea shop near Wembley Stadium to shop and had a tradional Ikea Swedish meatball lunch. It turns out that the meatballs included beef, pork, and probably horse.
As for dogs, the first time I visited Guangzhou over 20 years ago, my guide took me to the municipal market. There I saw cute wrinkled-skin puppies waiting to be slaughtered. For the rest of my China journey, I ate only at Buddhist vegetarian restaurants.
Gold rebounded today because it was oversold, because Italy may have a hung parliament, and because of the specter of the sequester. UBS prediced that the Fed will continue its loose policies for the rest of this year and that gold will rally sharply as a result. Swiss banks are experts on gold.
More for paid subscribers from Britain, Finland, Israel, Spain, Australia, Belgium, Canada, and Colombia.
I have just updated the portfolios using my laptop, no joy. Readers should visit www.global-investing.com to view the tables they have paid to access. The closed positions table is unchanged and is the only one those who have not paid may view.
We are suffering attacks from hackers signing up for multiple accounts for the free newsletter for pre-subscribers, apparently as part of a denial of service attack. There are about a dozen of these per day. If it continues we will just have to stop sending out the free version of our commentary to make sure that paid subscribers can get their emails. Given the suspected hack attacks on other publications, I can guess where this stuff is coming from, but the numbers are miniscule compared to what others have suffered. But I weed them out, and our webmaster is going to write a software addition to stop these malicious sign-ups.
More for paid subscribers follows.
The anti-Keynesian Wall Street fire-eater from my early investing days was Harry D. Schultz. Schultz famously styled Roosevelt's New Deal “American-style socialism.” Here's what he wrote about the Panic of 1936, which was he said, “almost totally government induced.”
“In 1936 and 1937, by stages, the Federal Reserve doubled reserve requirements for member banks.. [arguing] it would have no ill effects, because they were merely absorbing excess reserves. But this... caused reactions which resulted in increased cost of capital and weakening of the securities market. To paraphrase, their action cost money to tighten...
“Adding to this, the Secretary of the Treasury adopted the policy of 'sterilizing' incoming gold in... 1936-37... by not issuing gold certificates against this new gold, but instead borrowing money from commercial banks with which to buy the gold...
“New government contribution to income was also reduced. Government reduced the deficit which also tightened money. In the third quarter of 1937, there was actually an excess of cash income over cash outflow, an event which preceded and (some say) precipitated the crash.
“As a believer in hard money and balanced budgets, I do not argue with validated methods to get an economy back into line. But the methods used here were at best a mixture of capitalism and socialism.
“The panic of 1937 was foreseeable when the signs of tight money appeared: increased costs to borrow money, reduced profitability of investments, and increased costs” among which he includes the cost of labor . (This is from Chevalier Schultz's Panics & Crashes, Arlington House, 1980 ed.)
As we move to the sequester, we already can see the impact of the payroll tax boost on lowering sales this year at businesses like Walmart, Kraft, and Burger King as reported in today's Wall St. Journal.
Milton Friedman and Anna Schwartz (whom Schultz was popularizing) blamed the 1937 setback to the recovery on the Fed and Roosevelt Administration deficit cutters. Sometimes deficit spending is the right remedy for the economy. Ben Bernanke is a Republican. Schultz was named a Chevalier of the (Greek Catholic) Order of the Holy Cross of Jerusalem and liked to use the title.
More for paid subscribers from Canada, Peru, Ireland, The Netherlands, Spain, Britain, Israel, and Finland today. I am still working on getting my new speculative raw materials fund shares at a price which doesn't pay off more for the market-maker than for me (reported yesterday.) A reader says her posh broker could not trade it either. We may have to wait till after the reverse split.
Disaster chronicles. Your editor is struggling to write on a laptop because her desktop computer is out of commish. I unfairly blamed Kevin and David, my local Iranian computer repairmen, for the crash. In fact it was caused by a 4-month old under-warranty Samsung monitor which lost the ability to show what the big box was doing.
And dealing with Samsung is very stressful because their customer service is unfriendly. I sent them my Staples bill by fax and the store gave me a monitor box to ship it back in. But it will take Samsung firm 3 days to verify the fax and send me a label. Then when they get back the monitor they will take 7 to 14 business days to repair or replace it. I was thinking of simply taking off to the ski slopes for the interim but I feel I owe it to my paid subscribers to struggle on with the blog.
They can read on to find a new stock recommendation, a highly speculative fund. Subscribers also can read news (mostly bad in this reporting season) from Canada, Israel, Britain, Australia, Spain, and Thailand.
Learning from Italy
A savvy reader wondered why I am simultaneously negative on a financial transaction tax (in 11 European Community countries) and overpaying a retiring Swiss executive to not compete. This is consistent. Both are against the interests of shareholders in the companies concerned. One feature of the joint EU FTT Tobin tax which rankles is that day-traders are exempted.
I favor transaction taxes which inhibit day trading, algorithmic trading, and high frequency trading. Unliked the French measures passed last August, the model for the Euroland 11, the Italian financial transaction tax passed late last Dec. is aimed right at high-frequency algorithmic trading.
The tax, at 0.02%, hits orders modified or cancelled in a trading day after a threshold has been breached. This lands squarely on the phishing process whereby thousands of 'flash orders' are placed and often cancelled in every second during the market day. They are generated automatically by high-frequency traders using computer programs and sent to flood the markets every milliseconds.
While these trades are made or cancelled entirely between institutions, the increased liquidity which results also causes increased risk, as has been shown by the market meltdowns algorithmic trading can cause, notably the March 2010 ”Flash Crash.” And the retail investor (like me) is facing uncertainties in pricing.
So while I abominate a Tobin tax, one using the Italian model may garner my support. The profit on each high-frequency trade last year was about 0.05% so the Italian tax would quickly cut off the ultra-fast dealing.
The risk is that the high-frequency market will move to other vehicles: bonds, currencies, and of course options and derivatives. Having invested in instant communication and fast-thinking computers, the operators of high-frequency systems will want to use them in other markets if they are taxed with equities. But to have half of all stock trades on Wall Street generated by high-frequency trading is clearly dangerous.
In the wake of the Daniel Vasella brouhaha, the Novartis eye business came into focus again; it was the user-unfriendly Swiss takeover of Alcon which led to my negativism over Dr. V. Now Italy's competition authority is examining whether the Swiss are running an eye-medication cartel between NVS and Roche, over Avastin and Lucentis.
Today's blog was delayed by a kitchen crisis, an electric failure in my microwave oven, and an office crisis, my newly repaired desktop computer again failing. Making up for the crisis, I was quoted today by Steve Halpern in TheStockAdvisors.com
More today almost all about drug firms from India, Belgium, Britain, Israel, Spain, The Netherlands, Mongolia, and Canada.
Some years ago we had a quarrel with Novartis and its CEO Daniel Vasella who bought from Nestle, another Swiss firm, control of Alcon, a US maker of eye drugs, and then failed to pay other shareholders as much as Nestle got. The stock was recommended by Frida Ghitis who uses Alcon products.
Dr Vasella has now resigned, and Novartis agreed to pay him 72 million Swiss francs ($78 mn) with a "non-compete clause".
Yesterday the NVS board and the gaffe-prone greedy doctor agreed he would forgo that sum. Writes UW, my Swiss informant: "The cliche about the Swiss says we are slower than anybody else. True, but better slow than never." The Swiss are about to vote on a referendum requiring that shareholders (and not the board) vote on executive remuneration. UW thinks after Vasella it might pass.
Your editor broke the story about eleven EU countries plotting to impose globally a 0.1% "financial transaction tax" on stock trades where incorporation, sale, or purchase originated in one of the countries. Now my concern is shared by the US Treasury among others, as the proposal (also called a Tobin tax) will apply extra-territorially, to trading of American Depositary Receipts.
By the way, as we are writing about Switzerland, one solution for Euroland companies would be to reincorporate in the Alpine country. The shares would not have to trade there: London is willing and able to take any Euroland stock trading over.
Much more for paid subscribers follows from Mongolia, Britain, Israel, South Korea, Russia, Finland, Greece, India, Switzerland, Colombia, and Norway.