A Good News Day Except for the Gherkin

Fri, 2014/04/25 - 11:50am | Your editor

The iconic 10-year-old Gherkin building in the City of London has filed for receivership because its construction loans were denominated in Swiss francs. A German equity fund cannot pay its share of the interest and triggered the bankruptcy. The Swissie has risen by 64% against sterling since the loans were made, according to Bloomberg. And rents are payable in pounds sterling even by Swiss tenants. The Gherkin got its name because it looks like a pickle.

Rather than buying another football team, one of Putin's oligarch buddies should buy the 30 St. Mary Axe office building which houses the UK HQ of Swiss Re. The last time a major City of London site filed for bankruptcy it was Canary Wharf which recovered brilliantly.

 

More from Britain, Finland, Mexico, Colombia, Israel, Canada, Brazil, Australia, Denmark, Cyprus, and Belgium. Mostly good news to close the week.

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Gold and Crisis

Thu, 2014/04/24 - 12:12pm | Your editor

This morning as Russia threatened to intervene to protect eastern Ukrainian "civilians" from the Kiev government, the US market, which had opened up on the prospect of a 7:1 split in Apple shares and other good news from the techs, reversed to a fall. And the price of gold rose.

Fear of war boosts the price of the yellow metal. The main reason I own gold is to offset stock market risks, and because I lived so long in France where gold was a key part of any traditional portfolio. We don't own gold to make money with it. We own it not to lose money with non-gold-correlated stocks and bonds.

But despite its role in a crisis--like unrest in South Africa, a currency devaluation, or attacks on commercially active minority populations (like Chinese in southeast Asia or Jews in Eastern Europe)--the trend of recent gold prices has been downward.

There are a half dozen reasons for this. One is history. Gold is a terrible long-term investment, according to Prof Jeremy Siegel of  the Wharton School. "In the long run", he wrote, "gold offers investors protection against inflation but little else." 

As bond interest goes up, the price of foregoing it with precious metals goes up. So with the end of tapering, gold is less appealing. 

Another factor hurting gold is that the fear of government "printing"--to inflate the currency and cut the cost of servicing or repaying debt--has dropped. Loose monetary policy was supposed to trigger inflation, but instead it has merely served to offset the impact of the economic crisis and prevent deflation.

For all the on-line chatter about "fiat" currencies and budget deficits debasing the dollar, in fact the US deficit has been falling as the economy recovers, however slowly. The result is that the risk of paper currency is lower now, and therefore the amount of gold you need to hold to protect against the risk of devaluation has fallen.

When stock markets are booming and investors feel confident, at least in the USA they buy less gold. There are hard money stalwarts who want to own the yellow metals even if it means they are not in stocks and bonds. Most of them have a political agenda rather than an investing outlook. And right now the mood is favoring investing rather than hoarding hard assets.

Other factors hurting gold are more technical. The International Monetary Fund sells gold to finance its operations bailing out countries, most recently Ukraine, and earlier the Euroland Club Med countries. Its gold sales are sometimes (but not always) countered by central bank gold buying.

A final prop for gold that has gone missing lately is the dollar in which gold is priced. To the extent that the US currency rises, as it has, the price of gold falls, if all other things remain the same (paribus ceteris). And the greenback has been on an uptrend.

When gold prices fall far enough (when I have no way to determine) some of these trends will reverse. The costs of mining the gold can be reduced by mergers between mining companies, like the one currently under negotiation between Barrick and Newmont. When gold is cheap more jewelry is bought, particularly in markets where other investments are more risky. When gold is cheap, mines produce less and less is recovered from scrap. In the end these factors lead to a higher price of gold down the pike.

So another thing to remember about gold is that trends can reverse over the longer term. Gold is a commodity as well as a store of value and object of display. Its price is volatile.

What this means for our portfolio follows along with other stock advice and news for our paid subscribers. We have news from two Dutch companies and other items from Brazil, Canada, Australia, Britain, Ireland, Russia, Portugal, Sweden, and South Korea.

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Pizza and Profits

Wed, 2014/04/23 - 11:59am | Your editor

The NY Times food section today focused on how to bake superior bread, appropriate for the end of Passover which idled this blog earlier this week. We stuck it out although my granddaughter, 11, could not live a whole week without pizza. Having already given up bacon and lobsters, Jews recall the exodus from Egypt by spending a week (8 days in the diaspora) without leavened bread.


 

Tomorrow I will ponder the outlook for gold. Today we have too much catch-up to do. Here is a perspective on the market shared by two mentors-followers:

Michael Kurtz of Nomura (Hong Kong) writes:

"Not only are the tarnished Biotech, Electric Vehicle, and Internet darlings at the centre of the latest pullback0 much smaller as a percent of the NASDAQ market cap (<25%) than were the original [AD2000] tech bubble's main characters (>75%), but their descent into disfavour also has not been accompanied by material stree or de-risking in other key markets: US high-yield credit spreads; emerging and frontier markets), or periferal European sovereign credits. Moreover, US equity sector correlations have remained reassuring lo9w (sub-70%) rather than spiking toward GFC [global financial crisis] highs (of ~90%). What happens in New Growth largely stays in New Growth."
FIC Capital Inc. of NYC writes:

"Contrary to some market pundits, we do not view the current market pullback as presaging a larger correction to come or a broader slowdown in the economy given that the selloff has been concentrated among just a few sectors." (My CFA son works at FIC.)


 

More (much more) follows for paid subscribers from Britain, Switzerland, Hong Kong, Israel, Panama, Sweden, Italy, Ireland, Canada, Finland, Denmark, Colombia, and Mongolia.


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Updated Tables Posted

Sat, 2014/04/19 - 3:16pm | Your editor

Our model portfolio tables have been updated a day early, because I am taking my younger grand-daughter to a matinee on Sunday, of Les Miserables. I saw it the last time it was on Broadway with my mother. This time my husband who hates musicals and my son are joining me.

There is news for the paid subscribers below:

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A Stock Switch for Monday or Tuesday

Fri, 2014/04/18 - 2:58pm | Your editor

Overnight there was more snow, this time on Long Island across the East River from my office. It didn't stick, a sign of progress toward spring.

National Public Radio says mouse studies often lead medical studies down dead ends.

Chartists refine and add ever more correlation factors to make things match which creates errors, according to The Financial Times (yesterday's. It did not publish on Good Friday when US and UK markets are closed.)

David Gardner of The Motley Fool is tipping Whole Foods Market again. Now that its John Mackey has failed to derail Obamacare maybe its employees can afford to see a doctor and no longer spread germs to Whole Paycheck's customers.

Finally the daily TV focus on the Malaysian airline crash is lower because there is a South Korean ferry disaster to discuss. Read more »

Jaw Jaw or War War?

Thu, 2014/04/17 - 12:27pm | Your editor

At our Boston Seders the conversation among the adults was more about Putin than about Passover. I ma not sure there were 4 questions but here are some takeaways:

First of all, this is not a prequel to a resumption of the Cold War or a nuclear holocaust. Despite the centenary, we do not face another World War, mainly because there is more jaw-jaw going on between the sides than war-war.

Vladimir Putin is taking advantage of a window of opportunity to curtail European sanctions over the dismantling of Ukraine. In a few years, dependency on natural gas from the Gazprom pipeline network will have diminished as alternative energy becomes available. Now, Russian gas still is crucial.

Putin is also creating an alibi for future economic setbacks in Russia as lower demand for its raw materials takes hold. Xenophobia and nationalism are his weapons of choice. By mobilizing memories of Russia's fight against fascism and former greatness, he sets the future propaganda line. Instead of grousing about friend-of-Putin oligarchs, Russians can be called to sacrifice for national glory and power. The alleged foreign threat (from fascists, Nato, and the USA) gives the regime the crisis excuse it needs. It will demand the Russians unite while cracking down on dissent in the press, on the Internet, among intellectuals.

Russia's economy already is close to a recession which is causing hardship and uncertainty, capital flight and hoarding, emigration and demonstrations, according to today's New York Times. Putin needs a scapegoat for economic uncertainty and decline.

 

The second Seder was Tuesday night and after it we were subject to yet another Russia-style snowstorm. In Boston the stuff sticks to the ground. We also could see amorous male wild turkeys showing off their gorgeous feather arrays to female turkeys amidst the snow and dying bluebells. Life goes on.

 

More for paid subscribers from Britain, The Netherlands, Belgium, Jordan, Lebanon, Mongolia, Israel, Cyprus, and Canada, a company report, plus much news of how capex is financed, and on drug companies. There will be a blog tomorrow despite US and British markets being shut for Good Friday. There will be no blogs next Monday and Tuesday because of the latter part of Passover (in the Diaspora, where I live.)

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A Quick Pre-Bus Blog

Mon, 2014/04/14 - 7:45am | Your editor

Today for the first time in my life I received a Passover e-card. In fact I have never received any kind of a Passover card before. It was from a Christian friend who presumably doesn't know any better. I sent her back greetings for a happy Easter.

This is a quick file for Monday before we head Boston-ward for Passover (Pesach). We're taking a bus. Tonight's Seder is in Cambridge at the home of our daughter-in-law's parents, both Harvard Med School profs. If I get more information from Andrew the Webmaster about what ails him, I will have medical consultants at hand. (Andrew is currently hospitalized in St. John's, Newfoundland, a nearby Internet offshoring site halfway to Europe. He assures me that he is not suffering from heartbleed virus.)

The 2nd Seder will be at the home of our son and his family with some of the same guests and some different ones.

Escaping to the Catskills or Florida or the Caribbean for Passover is an old tradition among American Jews, mainly to avoid the intense spring cleaning required to surely remove all prohibited leaven or grain which may be in the house. But now Israelis are also escaping, to spend the holiday in Turkey or in a hotel in Eilat, also to make less work for mother.

So here is a Jewish joke. Chayim Yankel and his wife Rifky, Brooklyn Orthodox Jews, decide to convert to Christianity. For a few years, all goes well, and they live as Christians. He shaves his beard and she gets rid of her sheitel (wig). Their kids at a regular school have time to play.

A couple of weeks ago, Chayim Yankel surprised Rifky by telling her he missed being Jewish, and wanted them to go back to their old religion. To which Rivky responded: "Are you mashuggah? Not before Pesach!"

Reform Jews like this working woman don't get as intense about cleaning their homes to remove every crumb. More for paid subscribers from Norway, Britain, Ireland, India, Canada, Ukraine, Russia, Colombia, and China. Now to the Boston Limoliner we go.

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Tables Updated

Sun, 2014/04/13 - 12:14pm | Your editor

The tables have just been updated and can be viewed on the www.global-investing.com website. To make it easier to see the spreadsheets use the "printer-friendly" button under the masthead to view them, even if you don't want to print the tables. Everyone gets to see the closed positions table, which is public; only current paid subscribers are allowed to see the stock and bond table; and the exchange-traded and closed-end fund table.

I will file a brief blog Monday before heading north to celebrate Passover with relatives in the Boston area. There are still problems with the website and unfortunately there is not much I can do after changing our settings to block the heartbleed virus. The Friday blog did not go out on that day; I finally opted to re-send the issue this morning but whatever I did also got the original issue sent out as well. Apologies for the number of emails you got today, with this one a third.

There is more bad news. Just as I am off for Passover our webmaster has become so ill he has been taken to the hospital and while he is being well looked after, he wrote, he is being kept as a patient. Naturally we all wish Andrew a speedy recovery.  More bad news follows for the paid subscribers among you.

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Friday Letter Re-send

Sun, 2014/04/13 - 8:21am | Your editor

With all the anti-heartbleed security added to our website, Friday's blog did not go out at all. Here it is again. Technology defeats the best of us including even the webhost and the webmaster!

This is an article you will not be able to read in the New York Times. Chinese officials are meeting with government reps to negotiate on funding to build a second Mexican telecom networks costing ~$750 mn. It will compete with the America Movil monopoly and cover rural areas currently not served by the company controlled by multi-billionaire Carlos Slim Helu. China will offer export credits to Mexico from China Development Bank, their Ex-Im, at competitive interest rates. In return, it will require that equipment be bought from Huawei Tech of Shenzhen, according to people familiar with the talks cited by Bloomberg. Other Chinese banks could also join the lending pool.

Such a sale would help China gain influence in Latin America where Huawei already supplies telephony equipment to America Movil and Telefonica (of Spain). After international observers pointed out that the dominance by America Movil means Mexican phone interconnect charges are excessive and hold back the economy, the Enrique Peña Neto government has been moving to increase competition in the sector. Howevr, Mr Slim Helu is a shareholder in the Times and sits on its board.

 

My note about the perils of old age to investors was picked up by a 40-something reader who thinks older Americans are being cosseted at the expense of his generation and that of his kids.

He accused me of assuming we can get "substantive entitlement reform" while others in my generation won't tolerate discussing this. I wrote that we need to raise the age of retirement more quickly; cleaning up the loophole-laden Medicare payments system which is being gamed by a handful of politically-connected eye-doctors and oncologists running factory practices to deliver cancer and macular degeneration drugs in their offices; and removing the Medicare salary cap which excludes high earners from contributing to social security on their entire paycheck. He writes: "If you could get the rest of your generation and baby-boomers to sign on we would be all set!"

For Medicare, we all want opthamologists to be reimbursed only for Lucentis drugs they actually used, even if they injected 4 patients with every vial. We want oncologists to only be reimbursed for the actual chemotherapy products they infuse into patients. Currently rules allow billing for one vial per patient even if they shared it. The loophole must be closed. It may be legal but it is hardly medically ethical.

The same holds for blockage engineered by the Swiss makers of Lucentis, Roche and Novartis, accused in Britain and France of mobilizing macular degeneration patients to stop use of a cheaper alternative drug, Avastin. Now that Kathleen Sebelius has resigned, there is a chance her successor will deal with some of these matters. More on this for paid subscribers below.

 

Market selloffs are contagious, as yesterday proved. More about wide cross-border moves follows for paid subscribers from Ireland, Britain, Canada, Japan, Jordan, Israel, Brazil, The Netherlands, Australia, Mexico, and China including a quarterly report.

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Medicare Degeneration

Fri, 2014/04/11 - 12:33pm | Your editor

This is an article you will not be able to read in the New York Times. Chinese officials are meeting with government reps to negotiate on funding to build a second Mexican telecom networks costing ~$750 mn. It will compete with the America Movil monopoly and cover rural areas currently not served by the company controlled by multi-billionaire Carlos Slim Helu. China will offer export credits to Mexico from China Development Bank, their Ex-Im, at competitive interest rates. In return, it will require that equipment be bought from Huawei Tech of Shenzhen, according to people familiar with the talks cited by Bloomberg. Other Chinese banks could also join the lending pool.

Such a sale would help China gain influence in Latin America where Huawei already supplies telephony equipment to America Movil and Telefonica (of Spain). After international observers pointed out that the dominance by America Movil means Mexican phone interconnect charges are excessive and hold back the economy, the Enrique Peña Neto government has been moving to increase competition in the sector. Howevr, Mr Slim Helu is a shareholder in the Times and sits on its board.

 

My note about the perils of old age to investors was picked up by a 40-something reader who thinks older Americans are being cosseted at the expense of his generation and that of his kids.

He accused me of assuming we can get "substantive entitlement reform" while others in my generation won't tolerate discussing this. I wrote that we need to raise the age of retirement more quickly; cleaning up the loophole-laden Medicare payments system which is being gamed by a handful of politically-connected eye-doctors and oncologists running factory practices to deliver cancer and macular degeneration drugs in their offices; and removing the Medicare salary cap which excludes high earners from contributing to social security on their entire paycheck. He writes: "If you could get the rest of your generation and baby-boomers to sign on we would be all set!"

For Medicare, we all want opthamologists to be reimbursed only for Lucentis drugs they actually used, even if they injected 4 patients with every vial. We want oncologists to only be reimbursed for the actual chemotherapy products they infuse into patients. Currently rules allow billing for one vial per patient even if they shared it. The loophole must be closed. It may be legal but it is hardly medically ethical.

The same holds for blockage engineered by the Swiss makers of Lucentis, Roche and Novartis, accused in Britain and France of mobilizing macular degeneration patients to stop use of a cheaper alternative drug, Avastin. Now that Kathleen Sebelius has resigned, there is a chance her successor will deal with some of these matters. More on this for paid subscribers below.

 

Market selloffs are contagious, as yesterday proved. More about wide cross-border moves follows for paid subscribers from Ireland, Britain, Canada, Japan, Jordan, Israel, Brazil, The Netherlands, Australia, Mexico, and China including a quarterly report

Read more »