Luxemburger Polka

Thu, 2014/07/24 - 7:36am | Your editor

Thanks to our Mudchute Manor address we count as East Enders and were able to visit the Acelor Mittal Orbit, the London version of the Eiffel Tower, at a discount yesterday. The iconic maroon and steel thing sits in the midst of the relics of the London Olympic Games two years ago. Despite the hot weather, the Olympic Pool building was firmly shut. The Olympic Stadium was undergoing major construction work and could not be entered. Balfour Beatty, a British construction firm, was lopping off the top two ranks of seating to reduce the size of the building so it can be the home of the West Ham Football (soccer) Club and be used for rugby matches. Besides cutting about 40% of the seats they were also adding a roof to protect against rain and snow, not needed during the Olympics.

The Queen Elizabeth Park is still a work in progress and will soon have an International Quarter to house financial regulators and their prey. Another project to start up in the autumn is called Manhattan Loft Corp. The vast Olympic site around Stratford will become a new center for something, perhaps feeding customers into the huge Westfield Shopping Mall, although I am not sure the areas will live up to the Manhattan or International names.

The Orbit, about 350 ft high, which we visited with a group of blasé French tourists, is no Tour Eiffel, as they kept remarking. Being located so far from central London, it offers the visitor few glimpses of historic sights. You can see the Gherkin and the Shard and other new skyscrapers. But not St. Paul's or Westminster Abbey or even the Thames. I just made out the old BT TV transmission tower and Battersea Power Station, now a museum.

In fact the older London Eye ferris wheel, which I have ridden, appears to be the better site for viewing the sights. Unfortunately we would have to pay full price and devote an hour to the circuit. My husband has already done it once with his sister so I may have to visit (terrified of course) by myself.

On our way back to Mudchute we happily read a 40-odd-page section in The Evening Standard about the boom in Docklands real estate which seemed to confirm our paper profits on the London pied-à-terre we bought at the turn of the century.


From London I am developing a finer sense of how hard it is to be a central banker. Bank of England Governor, Canadian-born Mark Carney told the world that interest rates would have to rise but then worried that British mortgages (most of which float) would become unaffordable. He sounds more and more like Janet Yellen, another two-handed economist. Pres. Harry Truman once quipped that what he needed was “a one-handed economist” Meanwhile the pound gets driven higher because investors think in fact he wouldn't dare raise yields.

I also got an insight into why the British are so negative about the new European Union President, Jean-Claude Juncker. Before he took over in Brussels, as finance minister and then prime minister of Luxembourg he was the defender of its banking secrecy and tax avoidance, protecting the Grand Duchy from pressures to create sorely-needed Europe-wide regulatory and tax systems or normal minority shareholder protection rules. Britain was forced to impose Common Market rules on its own havens in the Channel Islands, but Luxembourg escaped them at least until now. Juncker may cave because of current scandals and the continued British sniping at him, in my view. More about the Luxemburger Polka for paid subscribers below.


The US is a piker on penalties for banking wrongs.. UBS had to post bail at euros 1.1 bn ($1.5 bn) before the Swiss bank's trial for aiding money laundering and tax fraud in France.


More on Luxembourg, Britain, Portugal, Panama, South Korea, Mexico, Ukraine, Canada, Israel, Switzer-, Fin-, and Ireland follows for paid subscribers.

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Battling Boko Haram

Wed, 2014/07/23 - 7:23am | Your editor

I have been advised by a marketing consultant to talk more about insights from my foreign travels. In London this summer there is a steady drumbeat of propaganda against female genetic cutting and the marriage of underage girls among the immigrant community, which of course I support.

Some days ago I went with my sister-in-law to a rather posh party where the most striking woman present was dressed in an African gown with a gorgeous gold gossamer headdress, so as an instinctive snoop (or journalist) I went to speak with her.

While Vanessa (not her real name) was only Obama-colored, she had a memorable Ibo accent which I associate with our au pair in Paris, Joyce from Onitsha, who stayed for years and helped me raise my children. I and my grown children love that accent.

Like Joyce too, Vanessa was also strongly Roman Catholic. And she put the touch on me to contribute to funding female education in Nigeria, which I approve of in any case. The education I donated for will probably be by nuns. But based on what Joyce was like, nuns encourage an independent spirit in their alumnae.

So shocking my sister-in-law, I pulled a 5-pound note out of my evening bag to donate it to Vanessa's cause. The exotic beauty then gave me an elastic bracelet in the papal colors of yellow and white with a small Maltese cross, a card about the teachers, and a charm reading “love”. Because she is jealous of these goodies, I will give them to my sister-in-law when we next meet.

I also learned from Vanessa something unstated in the vast press coverage of Boko Haram kidnapping boarding schoolgirls in northeastern Nigeria. Boko Haram officially states the educating girls is ''haram'', not kosher for Muslims. But more is going on.

She told me that the school and the villages the girls are from belong to a Christian enclave amidst the Muslim Nigerian north. I cannot imagine why this fact is not mentioned elsewhere. Sectarianism should not be encouraged, but sometimes it helps to know the facts.


Thanks to Vanessa's blessing perhaps our Model Portfolios now are reported to have produced a 1-yr return of 18.82% . This was calculated by Mark Hulbert of Hulbert's Financial Digest, part of Dow-Jones Marketwatch. It was the best level in a decade, despite the headwind of a strong dollar. The benchmark Mark uses, the Wilshire 5000, purely US stocks, had a 24.92% return over the same period. While our portfolio is marginally more risky than the W5000, based on volatility (Sharpe ratios), in fact investing internationally cuts down on your risk thanks to diversification across countries, currencies, and industries from the US benchmark.

Today we have news from Belgium to Ireland, from Britain to Luxembourg, from Portugal to Canada, from Ethiopia to Israel, from Germany to The Netherlands, from Brazil to Finland including a poor quarter for one of our shares.

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Arab Pharma Investments

Tue, 2014/07/22 - 7:55am | Your editor

The surprise runaway theatre success in London this summer is playing at the Lyttleton, a part of the National Theatre, called Great Britain, a title with British understated irony. It opened June 30 and has been a sellout virtually ever since. We paid heavily for two very good seats. It tells of the exploits of a politically connected newspaper mogul who will stop at nothing to sell many copies of his rag, which ultimately goes too far in an investigation of a murdered girl, cooperating with an idiotic police chief who has a full-time PR and a randy cop to hand to make love to the newspaper's news editor named (geddit?) Paige Britain.

This plus some attacks on the Queen results in the arrest of the editorial team. The proprietor, Paschal O'Leary, with an Irish accent, gets off Scot free thanks to his political and ecclesiastical network, but the news editor and her NY counterpart head for trial and maybe prison.

The Irishness of the boss is a red herring; the story is about News of the World and Rupert Murdoch, who has an Australian accent. It is uproariously funny and I would love to see it again to try to get the jokes I missed the first time round. But it is unlikely to run in the USA as it is a very British tale. But I suspect Time-Warner would like it to open on Broadway.


In Finchley, in north London, a Reform Jewish synagogue opened its doors to Muslims celebrating the daily post-sundown feast which is part of Ramadan after their mosque was burned down. In Sarcelles, a Paris suburb, Muslims protesting the Israel incursion back into Gaza (to stop missiles aimed at Israeli civilians) attacked a synagogue and a kosher grocery. France has about 20 times as many policemen per Muslim as Britain does.


One of my US shares, Illumina, a maker of genetic sequencing arrays and devices, is becoming a big player in Doha, where the Qatari government is building the Sidra Medical and Research Center which will use high-throughput genomics to find genetic links to diseases. ILMN via its partner Alliance Global will supply sequencing machines for exploring genomics. Our newsletter's biotech maven and its editor, both Jewish, are now deeply involved in Arab world drug discovery and pharmaceuticals. Th

More for paid subscribers from Portugal, Russia, Israel, Dubai, Jordan, Britain, The Netherlands, Canada, Spain, Indonesia, and the USA.

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India and the Guns of July

Mon, 2014/07/21 - 6:49am | Your editor

India is in the news in London for lots of reasons. Firstly India is likely today to wrap up a brilliant victory in the (cricket) test match.

Secondly, Bloomberg focused today on the role of caste in business success. Marwatis dominate the entrepreneurial class, Chandrahas Choudhury writes. "As anyone who has ever studied business in India knows, the country does not offer a level playing field for new entrepreneurs. For at least two millennia, the 'jati,' or caste system -- the form of social stratification, and indeed suffocation, unique to Hinduism and India -- has regulated society into different orders of mainly hereditary occupations." Forget who has an MBA and think about their caste! If they are millionaires they are probably Marwaris, descendents of desert traders, as are 3 of India's 9 richest Indians on the Bloomberg Billionaire list, Lakshmi Mittal, Kumar Birla, and Savitri Jindal.

Of considerable importance is India's grain stockpile set up by the former Congress government to store for a possibly famine,. If the grain-buying is maintained by the new BJP rulers, it may bring the Bali Round of global trade talks to a halt.

But nobody knows which side the current government will come down on. Examining exactly what EconoModics requires is the current conundrum. Here is an attempt from Michael Kurtz of Nomura in Hong Kong who writes that Japan has what India needs:



After three years of prolonged economic weakness, the Indian economy is starting to turn around, cyclically and structurally. Inflation is abating, the current account deficit narrowing, FX reserves are accumulating and growth is just starting to rise. The landslide May election victory by Prime Minister Narendra Modi, combined with Governor Raghuram Rajan at the helm of the Reserve Bank of India (RBI), is a potential game changer for India - Modinomicsl.
The RBI's inflation fight will go hand in hand with the business-orientated Modi government's strong mandate to cut red tape and jump-start supply-side reforms. We expect reforms to revitalise real investment growth to 10%/yr lifting potential output growth to around 7% in the next 5 years; if reforms are fast-tracked, real investment could hit 15%/yr raising potential growth to above 8%. (We) expect India to stand out as the biggest EM turnaround story in the next 5 years.
Consider the low hanging fruit waiting to be plucked because of India's still-early stage of economic development: GDP per capita at market exchange rates is only about US$1,500; nearly half its population is under 25 years old, with 70% yet to urbanise; and the economy has been running far too long on creaking infrastructure. India's Planning Commission estimates infrastructure-funding needs total US$1trillion over 2012-17.
Enter Japan. The overseas production ratio for Japanese manufacturers was 20.6% in FY12, much higher than FY11's 17.2%, but the FY18 forecast for the ratio is 25.5% - the highest on record. Surveys of Japanese MNCs show that China is losing its attractiveness as an investment destination due to its rising labour costs, whereas India has moved up to now be Japan's most attractive destination over the next decade. Japan and India signed a Comprehensive Economic Partnership Agreement which went into force in 2011, and to illuminate the potential, India's accounts for only 1.2% of Japan's total FDI and 1.0% of Japan's total trade.
Serendipitously, much of what India needs, Japan can offer. Engineering and construction companies can help with massive infrastructure projects such as the Delhi-Mumbai Industrial Corridor - the poster project. High-speed railway networks, roads, power generation and renewable energy are areas where Japan can offer its cutting-edge technological expertise. Japan can bring India into Asia's vertical manufacturing supply chain, as it has done for so many other Asian countries. As it happens, infrastructure-system exports are a key plank of Abenomics, looking to target JPY30 trillion of infrastructure-system orders in 2020 (triple today's).
A recent Nomura survey of Japanese institutional investors revealed that they too have a positive outlook on India's financial markets, ranking India No. 1 among key EMs for investment potential. India offers opportunities for Japan to diversify its enormous financial assets (both public and private); Japanese households are have ~JPY1,630 trillion of funds, over half in investable cash and deposits.

In polite society it is not common to talk about another Indian infrastructure gap, the traditional Hindu means of elimination in the fields and on the side of the road, although this week's Economist raises the matter. While India's Muslims are much poorer than its Hindus, they are healthier because they are less reluctant to use toilets and wash their hands afterwards. What India desperately needs is not just fixtures but also sewage lines and septic tanks, perhaps also from Japan which is a world leader is lavatory luxury but which can also make basic toilets which are neither heated nor musical.

It is not yet August but two world leaders have stumbled into the guns of war without fully considering the consequences of a populist war move: Putin the Tsar and Netanyahu the Kaiser. Neither Gaza nor Ukraine vaut une messe to say nothing of a world war. What they need is not war but more. But the uncertainty is good for gold and dollar and not just for funerals.

More for paid subscribers follows from Israel, Portugal, Canada, Luxembourg, Hong Kong, and Britain:

Given the mounting restraints on press freedom in Hong Kong as China uses its clout, I think it is shocking that the Forbes family are selling their magazine empire to a group of investors from the former British colony which really no longer has a China-free political system.
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Portfolio Updated

Sun, 2014/07/20 - 5:55am | Your editor

Surprise, surprise, despite the evil BT, I managed more or less to update our model portfolios today. Note that there are some gaps in the net asset value per share in the funds, but that is because of the usual poor reporting quality at some fund groups, and the impossibility of getting into the JP Morgan USA closed-end fund site from the UK. They want to keep this information secret, I guess. 

More for paid subscribers follows:

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Unexamined Risk

Fri, 2014/07/18 - 7:30am | Your editor

The statistical odds against two fatal plane crashes at one smallish airline killing hundreds of innocent passengers in a matter of 3 months must be infinitesimal. Yet that has happened to Malaysian Airlines. Both crashes appear to have resulted from reckless human behavior and were not accidents.

The 100th anniversary of the outbreak of World War I has a similar resonance for us. A series of stupid high-risk actions by a bunch of autocratic governments in Austria-Hungary, Germany, and Russia and follow-ups from the rest of the powers of 1914 led to a world war which slaughtered millions, not least the Russian autocrats themselves and their supporters. The world was changed after a series of small missteps whose consequences were totally unexpected not considered. Read more »

The Fixing Fix

Thu, 2014/07/17 - 10:00am | Your editor

The London gold fixing by a twice-daily process of “price discovery” was almost 100 years old when two New York University Stern Biz School professors (one also a manager at Moody's, a rating agency) revealed to the world that the benchmark setting the price of the yellow metal was manipulated. This confirmed the long-term suspicions of gold bugs that the price was artificially lowered.

The fixing started in 1919 after World War I when the Rothschilds created a daily meeting to determine the daily price of gold in London. The first fixing was on Sept 12, 1919. This was at the height of South African gold shipments via London. Initially Rothschilds was the chairman of the fixing but it exited the gold business in 2004. Now there is a rotating chairman, currently from Scotiabank.

But the culprits blamed for collusion and fiddling with the fix by Profs. Rosa Abrantes-Metz and Albert Metz were not the central banks and various investment banks aiming to hide inflation. Their study of intra-day gold prices from 2001 to 2013 concluded that the afternoon gold price fixing was manipulated or fixed via collusion among the 5 banks in the London gold pool themselves. Their paper was published early this year and concluded that there was collusion in the setting of the London silver price as well.

The two Profs. Metz argued that “co-operation between participants may be occurring” between rounds. They also argued that “the emiprical data are consistent with price artificiality”. They concluded that large price manipulation was taking place in the afternoon fixing after 2004. A summary of their conclusions by Bloomberg reported a directional bias: “on days when the authors identified large price moves during the fix, they were downward at least two-thirds of the time in six different years between 2004 and 2013. In 2010, large moves during the fix were negative 92% of the time.”

However no one has yet proven that the gold price in fact was manipulated illegally. For that to happen the banks participating in the pool would have had to collude before they post their prices, which would expose them to price risk since they would not be able to set the quantity offered or bid for in advance. Yet the old system has become outdated and is being replaced with electronic trading without anyone being blamed or punished.

Under the old rules the participants would report how much they would buy or sell for clients or their own account based on variations from the prior fixing (of the morning or the day before). The idea is that if there is excess demand the price will be higher; and if there is insufficient demand it will be lower. The pool members are supposed to contact their clients or their trading desks as the price moves up or down to get updated bids and offers. While they are contacting clients the pool participants put up a flag which keeps the trading from concluding until they come back. When the successive buy and sell price volumes are under 50 gold bars apart, about 620 kilograms, the gold price is struck in US dollars for each troy ounce of gold delivered in London in the form of 400 oz bars. The prices are also issued in sterling and more recently in euros based on the US$ price.

The time it takes varies between ten minutes and (in a crisis) several hours. The London Gold Market was closed in 1939 and reopened only in the spring of 1954.

Now the century-old system whereby 5 gold dealing banks (all members of the separate London Bullion Market Association which later publishes the fixing price) all members of the London Gold Market Fixing Ltd group report about what they or their clients are willing to pay for gold is being ended. An electronic platform will be set up by the surviving gold fixing entities, Britain's Barclays and HSBC, French SocGen, and Canadian ScotiaBank in the lead. The 5th bank, Sharps Pixley, owned by Deutsche Bank, has removed itself from the operation and its reform. The move to a more transparent and verifiable system is needed to meet new regulations among other things from the European Union which sought advise from Prof. Albert Metz.

The quartet are also looking for a new independent third-party administrator of the electronic system. Meanwhile ThomsonReuters and the Chicago Metal Exchange have taken over the matter of setting electronically the daily silver price.

More for paid subscribers follows from Sweden, Britain, Holland, Singapore, China, Canada, Mexico, Portugal, Brazil, Ireland, and Israel.

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Back to the Schreibmaschine!

Wed, 2014/07/16 - 5:45am | Your editor

German civil servants are now using typewriters to write sensitive documents, for fear of US spying on their computers. That is how allies view Uncle Sam's reach.

In response to my note boosting a gold service,, I was asked if I recommended this company for non-US-based readers. It certainly makes sense for North Americans. If you are German you can walk into your local branch of Commerzbank and if you already have an account walk out with a bit of bullion to take home with you. So the service is not the best option for Germans. The gold market is disparate and the tax treatment of holdings ditto. You should consider your own situation and investment targets before buying any asset I or anyone else recommends.

On Monday, when the gold price fell by more than it has done all year, the inflow of funds into SPDR Gold Shares, an exchange-traded fund trading as GLD, was at the highest level since late 2012.

The British government has had a wide-reaching reshuffle on the Conservative for no reason I can discern, and whose significance eludes me as I do not understand the different trends in British Toryism.

Two new listings are a mark of the times, ever-greater love of internet equities and more diversification by country. Chatlines, the Japanese phone messaging system, is being listed there as LINES and will almost certainly have a corresponding American Depositary Receipt (ADR). And an online payments firm from Malaysia, part-owned by local magnate Vincent Tan, called MOL for money on-line, will issue ADRs. It offers e-payment to shop all over southeast Asia.

More for paid subscribers follows from Ireland, Britain, Colombia, Portugal, The Netherlands, Jordan, Panama, Mexico, Spain, Jordan, and Israel. Tomorrow the blog will be hitting later as I have a morning interview about the London Gold Pool scandal.

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Gaza Peace and Israeli Boardroom Wars

Tue, 2014/07/15 - 6:46am | Your editor

Now that all the hedge-fund short-sellers covered their exposure last week, gold has fallen back nearly 2.4%, the biggest fall so far this year, providing an entry point for buyers. Your editor yesterday tracked to Hammersmith flyover to visit with Adrian Ash, head of research at, our advertiser. While I do not know what the future gold-price will be, I think those wanting to buy physical gold should seriously examine BullionVault's offering. It is sponsored by the World Gold Council, as is the ETF, SPDR Gold, GLD. The WGC is a mining group which wants to sell more of its output to people.

Gold ETFs like GLD or IAU now are the most intelligent trading vehicle for really large holders trading the stuff, because their commissions are minimal for big trading. And as noted they have now proven that they do hold the gold they say they do.

Gold coins are a racket because the spreads are huge, and many buyers are ill-informed about valuations which are based on condition and rarity, and not just weight. Hard money physical gold funds have lost much of their raison d'être now because the exchange-traded funds did in fact turn out to own the precious metal they claimed, why their shareholders were able to sell what they wanted to last year. Buying bullion is very expensive and lucrative in markets like Switzerland, Hong Kong, and India—for the dealer, not the buyer. In Switzerland having your bank hold gold for you results in big insurance and security charges, so you are better off hauling off the ingot to hide under the bed.

For some holders, there is a better way to invest in gold than an ETF. If you want to hold and trade gold in retail quantities, for an amount of ~$20,000, our recommendation is The management fee is 48 basis points per year , under 20% higher than the 40 bp annual cost of an ETF. The commission to buy or sell is 0.80% on the first $30,000 bought or sold; 0.40% on the next $30,000, and 0.10% on the nest $540,000, cheaper than trading an ETF with a discount brokerage at $8 per transaction once you top $60,000 in your gold pool. If you want to trade in amounts above $600,000 the bite is only 0.02%.

Moreover, the friction cost of trading is lower because the bid-ask spread is reduced by other gold owners in Bullion Vault ranks offering the opposite trade, 24 hours per day> Quantities trading are set by the owners, based on prices in any accessible market: Switzerland, Britain, Canada, or the USA. Unlike the Swiss banks, there is no fee for your dollars to buy gold denominated in dollars.

And insurance and storage fees come to a mere 0.12%/year, with a minimum of merely $4 per month.The holding fees in Switzerland and many multiples of that level.

You own your own gold and should you want to take delivery this can be done, for a fee. It doesn't make sense. The BullionVault holdings are asayed once a year by independent specialists who report directly to the auditors, by-passing the management. While it takes 2 weeks or so for a USA account to be opened, because of verification procedures, the proceeds of bullion sales are credited immediately once the transaction has been done.

US investors are not in a very good position for taxes. Both ETFs and BullionVault capital gains are taxed at the higher collectables rate, not the securities one. However, there are ways to avoid the impact of taxes, using a trust or a tax-sheltered account like an IRA, a Roth, or a trust. Your accountant can advise you on this.

Visit and link up with through our site. I think you will be surprised at how straightforwardly honest and easy the process of buying gold has become. You can also buy silver which is an industrial commodity, which makes less sense.

As to why you should own gold please consider the risks of the world's dependence on central bank monetary easing. At some point the worm will turn, and inflation will again rear its ugly head.

Note: If you sign up for the service through my company's receives a modest finder's fee. This also applies to those signing up with revendors of this newsletter.

More for paid subscribers follows from Portugal, Brazil, Israel, Spain, Colombia, The Netherlands, Canada, Ireland, and Britain.

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News from Portugal and the Rest of the World

Mon, 2014/07/14 - 6:27am | Your editor

The H1 figures on depositary receipts were published by Citi which calculated that the capital raising issues were up by 178% from the prior year 1st half to$1.5 trillion, an astonishing increase showing that speculative spirits are on the rise. The total includes new issues of Global Depositary Receipts here in London, as well as issues in the USA.

While trading was up by volume by about 4% y-o-y, it rose 18% by value to $1.8 trillion, barely more than the new issues volume. Almost all the increase was in London where the most traded DR in the world has its home. That is Gazprom, the Russian pipeline company which has been in the news. It also trades on the pink sheets in the USA as OGZPY, but this is a minor market. Trading in London was also boosted by exchange factors, the rise of sterling. In all mostly Russian DR's in London accounted for most of the volume increase. Among the other top 10 Ruskaya shares was Sberbank and VTB Bank, number 4 and 5 by volume.

Brazil was another major trading source, with Petrobras and Vale number 2 and 3, and Oi, of which more below for paid subscribers, no. 10. Finland was the home of the only developed country stock among the top 10, Nokia, which is cheap but did produce huge volumes and ranked 6th.

The quality of issues has not kept up with the volume. There are now again over 1600 unsponsored depositary receipts, as before the global financial crisis hit. But the market has shifted geographically. Now 46% of the volume is in Emerging Middle East and Africa shares; 29% in Latin America; and 25% in Asia.

The new issue market was more discerning with China raising the most money at 45% of the total followed by Russia with 14%. The oddest new issue was Georgian (the country, not the state) where JSC TBC Bank raised $263 mn. At least Georgia is a friendly country, unlike Russia and China.

Today's inversions news is a takeover for privately-held Russell Stover, a US candy-maker, from Lindt & Spruengli. Tax-evading chocolate by Christmas! The execs at RS presumably have negotiated for posts after the Swiss take over. The advising investment banks make money with the deals. But are these tie-ups good for the economy overall?

More for paid subscribers from Portugal, Israel, China, Russia, Britain, Japan, Ireland, Switzerland, Finland, and The Netherlands including a share sell.

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