Oil and Stocks
Your editor has known oil industry expert Daniel Yergin since working for the Senate Foreign Relations Committee in the 1970s. Yergin attended our hearings on Opec's quadrupling the oil price and then turned out readable versions of the revelations, forecasts, and strategies the Senators had extracted from their witnesses. My then-boss, Sen. Clifford P. Case, R-NJ, called Yergin a “terrible simplificateur.”
Dan Yergin is still at it. Today he managed to be quoted at the top of the financial second section of the Financial Times saying: “the era of Opec as a decisive force in the world economy is over. It is clearly a very divided organisation.”
Then he went on to say that he expects the price of oil to rebound despite increased Iranian output. “A lot of storage is filled up but we're not at that point where there's no place to put the oil and so I think this period will be the bottom.”
He added: “in the second half of this year or early next year you'll see the market more in balance.” Dan is once again hedging his bets. Last week oil rose over 5%.
Sen. Case was quoting 19th century Swiss cultural historian Jacob Burckhardt's comment on the failure of historians to properly understand how closely the Middle Ages linked to the Renaissance. Like the senator, Burckhardt was the son of a Calvinist dominie.
More for paid subscribers follows from the oil patch and the parade of Latin lovers, plus news from companies from around Europe, the heart of Texas, and Japan.
Tables and a Birthday
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Today we hit our local Taverna for three reasons. First it is my husband's birthday; second we are hosting a former British ambassador to Greece who is here on a visit; and third the threatened blizzard which was supposed to hit overnight was a mere rainstorm.
Global and Local Insights
A sometimes Spain-based subscriber thinks “the oh-so clever chaps of the British secret service” may not have been instrumental in keeping Franco from allying with Hitler. Spain was bankrupt and starving during World War II, he points out. Chances are Franco knew he could not join the Axis while continuing to extort what he could from the British, our reader argues.
Lots of numbers came out today: First Cameron Brandt wrote on fund flow tracking site EPFR:
“After a brief check in late March, flows into mutual fund groups associated with riskier asset classes resumed their climb away from the lows of mid-February as investors became increasingly comfortable with the idea the US Federal Reserve will err - perhaps heavily - on the side of caution when it comes to hiking interest rates this year. The first week of April saw EPFR Global-tracked Emerging Markets Bond Funds post their biggest inflow since mid-2Q14.”[Your editor yesterday wrote a long column about fund moving into emerging market bonds for paid subscribers. Join the to benefit from our insights.]
Bloomberg reported on overseas trading reviving today: “Stocks are staging a small recovery on the last day of trading in a week that has seen selloffs across the world.The MSCI Asia Pacific Index rose 0.1% overnight, with Japan's Topix Index climbing 1.2%. China's Shanghai Composite Index fell 0.8%, for the index's longest losing streak since Jan. In Europe the Stoxx 600 Index was 0.6% higher with banks leading the recovery.”
Then US index futures rose even more, boosted by a 3% surge in oil prices. Oil along with gas is currently pushing back towards its Mar. level of $42.49. This along with continued dovish noises from Fed chief Yellen is boosting Wall St. My US portfolio of dogs is up A to X (AA to XRX), Alcoa to Xerox.
Today's notes for subscribers are about how a change of global perspective sometimes helps us find stocks to invest in, and how it doesn't always work immediately. We have a couple of dozen notes today grouped together because of where the good insights are coming from.
Fascist Bribery and Emerging Markets Bonds
A fascinating lecture by Angel Viñas Martin, the Spanish diplomat now a historian, at the Instituto Cervantes on his new book, not yet published. Viñas worked at the IMF and the European Commission and later was ambassador to the EU and the UN. In the wake the Panama papers, his talk about corruption and how it was used by the UK during WWII was timely. The book Viñas is writing will show that Francisco Franco was on the take from the start and booked $260 mn in the first two years after he invaded Republican Spain in 1936, according to data Viñas found there.
El Caudillo also gave goodies to his relatives and generals in the form of cigarettes and cigars in huge quantities which were not for smoking but for selling.
The British played on this corruption. According to UK archives made public only about 18 months ago, the UK bribed his brother, brother-in-law, interior minister, and several generals to stop Franco entering the war on the Axis side. The megabucks in bribes saved Gibraltar. They also got a complete transcript of the famous meeting of Franco and Hitler after the latter had taken France.
Hitler was not enthusiastic about what Franco wanted in return for doing more than sending a couple of “Blue Legions” to the eastern front after Russia entered the war. Franco sought a free hand in North Africa. He might has settled for less but his family, cabinet, and generals had been bought by the Brits.
Having bought the Franco regime the Brits then kept the Americans from trying to depose Franco in 1945, according to Viñas. Later Washington agreed that Franco could claim to have been a premature anti-Communist and switched to the UK side.
Franco's pretension to having been also a savior of the Jews is linked to his venality. He saved people who paid huge bribes. Everyone else was shipped on to Lisbon.
Today we have news of military airplanes, stock rebellions, and of course drug companies and funds. We start with a note about strategy from the Loomis Sayles luncheon I attended yesterday for paid subscribers. We do not cover open-end funds, but the LS presentation was brilliant leading me to look for a new investment. And the lunch was delicious.
The Diabetes Scourge
Pfizer dropped its planned $160 bn merger with Allergan after the Obama administration took further steps to regulate global mergers aimed at tax inversion. There was one company that clearly gained, not Allergan despite its getting a PFE “break fee” of $150 mn. More for paid subscribers below on this.
The biggest medical disaster facing the world is not AIDS or Zika or even cancer. Here is what the BBC reported this morning:
The world is facing an "unrelenting march" of diabetes which now affects almost one adults in 11, according to the World Health Organization. The WHO warned that diabetes cases had nearly quadrupled to 422 million in 2014 from 108 million in 1980.
High blood sugar levels are a major killer - linked to 3.7 million deaths around the world each year, it says. And officials said the numbers would continue to increase unless "drastic action" was taken. The surge in cases is predominantly down to type 2, the form closely linked to poor lifestyle, eating sweets, and being older. As the world's waistlines have ballooned - with one person in three now overweight - diabetes cases have ballooned too.
Reuters reports: The cost insulin, one of the most important treatments for diabetes, rose nearly 200% between 2002 and 2013, according to a new study. Total spending on insulin in 2013 was greater than the combined spending on all other [diabetes] drugs, researchers report in the Journal of the American Medical Assn.
"The large increase in costs can largely be explained (by) much greater use of newer types of insulin known as analog insulins," said senior author Philip Clarke, of the U of Melbourne (Australia). "While these drugs can be better, they are much more costly than the human insulin they replaced."
For the new study, the researchers used data from 2002 to 2013 on U.S. medical spending from 27,878 people with diabetes. The participants' average age was about 60. Among patients using insulin, the average amount used each year went from 171 milliliters (ml) in 2002-2004 to 206 ml in 2011-2013.
The average price of insulin increased 197%, from $4.34 to $12.92/ml during that time. More for paid subscribers follows on this too.
I am off to a major press luncheon with Loomis Sayles to be written up tomorrow so today's blog is blissfully short.
An Optimistic View
Michael Kurtz writes from Hong Kong with an optimistic view of markets. You don't want to listen to Donald Trump who forecasts a bubble, or to the IMF which worries that China is causing market volatility here. Over to Michael:
The second quarter is off to a ‘growthy’ start, with last week’s firm data out of both the US and China. The US produced a solid headline job number (215K vs 200K consensus) and a respectable pickup in hourly earnings (to +0.3% m/m); while the forward-looking [ISM] New Orders [surged] 6.8-points to 58.3. A Chinese official March purchasing managers' index rebounded above the 50 level at 50.2 (beating consensus). Plus there is growing evidence of a stronger fiscal backstop from Beijing. With this, our economists Friday upgraded their China 2016 GDP growth forecast to 6.2% from 5.8% previously.
In light of the improving data, our global economists believe that one of the weaker points in the outlook – namely, trade – may at last be recovering and “the downside risks to the global economy may not be a great as previously thought”. They and our rates strategists expect these fundamentals to drive [up] yields which are positively correlated historically with absolute Equity performance and with cross-border fund inflows to Asian stock markets.
From current 10-year Treasury yields of roughly 1.75%, further gains toward our strategists’ 2.1% mid-year forecast would imply an at-least mid-single-digit percent re-rating of the MSCI Asia ex-Japan index from the benchmark’s current mid-range 12.3x multiple. Continued re-risking and growth-driven upside for regional stocks in Q2 would also reflect markets’ discounting of a US growth pickup to 1.9% [in Q2], from Q1’s 1.3%, and expected further acceleration to 2.3% in H2.
For the moment, it seems the ‘best of both worlds’ for Asian stocks as firming US data are nonetheless accompanied by continued suggestions of a more gradual Fed (reducing pressure on regional [currencies like] China’s RMB). While Beijing’s planned rationalization of oversupplied heavy industries and curtailment of subsidy lending would inevitably limit near-term growth, for regional equities such measures should also materially reduce China’s longer-term systemic vulnerabilities.
That said, we remain watchful of important challenges that could revisit Asia-Pacific markets in Q2: Stronger US data – while ultimately positive for regional export demand and overall risk tolerance – may ultimately lead Fed-hike expectations back in a more hawkish direction. If too sudden [this could result in] disorderly Treasury-market volatility and excessive US-dollar strength, possibly forcing another oil/commodity price slump with attendant default fears, and resurrecting Chinese renminbi devaluation risks.
Michael Kurtz writes on Asia-Pacific equity strategy for Nomura, a Japanese brokerage.
The latest Israeli meat smuggling scandal proves that Israeli and Palestinian crooks can work together to break the law. Imported South American meat past its use-by date was taken from Haifa port to a West Bank warehouse and repackaged with fake kosher certificates and later slaughter and longer expiry dates, and then smuggled back into Israel for sale, mostly to restaurants. It was unfit for human consumption and neither Halal nor Kosher. (Source: Globes Israel blog.)
More for paid subscribers including another note on central bank rate policy from Germany, Israel, Brazil, Canada, The UK, The Netherlands, Israel, India, Ireland, Mexico, and Sweden.
Iceland's parliament is the world's oldest. The Althing was founded in 930 AD. Now the population of the country are calling for the PM to resign because he hid his money with the Panamanian law firm Mossack Fonseca to hide his and his wife's assets after Icelandic banks went south during the GFC. PM Sigmundur Davio Gunnlaugson now faces an Althing no-confidence vote. Many foreigners, notably Britons, were lured into depositing their money for high interest in Iceland.
The Icelandic saga was a reaction to publication over the weekend by German Sueddeutsche Zeitung of over 11 million confidential files on how government leaders—including the friends of Vladimir Putin who stashed $2 bn, perhaps on his behalf; Hosni Mubarak; Bashir al-Assad; Qaddafi; Nawaz Sharif; and UK PM David Cameron's late father Iah—all used tax havens to hide their wealth from the taxman. At last count over 128 politicians and public officials were among the exposed clients of a Panamanian law firm, Mossack Fonseca, and cover a period of 39 years, from 1977 to last Dec. They all used a slew of foreign banks and and fake companies to hide their wealth, alongside sports stars, celebrities, criminals—and even a female newsletter writer (not me.)
The German newspaper shared the goodies with The Guardian and the BBC in London, and investigative journalists worldwide.
Today is Ching Ming and markets in China, Hong Kong, and Taiwan are closed for the holiday. We exited the China region last week.
If it was that easy for people to influence the chat of Microsoft's Tay into profanity, sexism, and racism, surely that is a reason not to believe in crowd-sourced stock research.
More for paid subscribers from Pakistan, Korea, India, Britain, the Dutch Antilles, Argentina, Australia, Austria, Colombia, Mexico, Japan, Switzerland, Israel, and Brazil. We start with company reports and then move on to funds where we have 3 trades today, before going on to company news.
It is Sunday so I have updated our portfolios shown on www.global-investing.com
Everyone can see the closed-positions which have two new entries. But our current advice is only for paid subscribers. Please use the "printer-friendly" button to view our spreadsheets more easily.
Having sold things we are also buying, about which our paid subscribers may read more. Consider joining them to make money with what we do, not just amusing yourself by reading the free blog.
What You Want the CEO to Say
Two pieces of good news today.
The US created 215,000 new jobs last month and moreover wages are inching up.
And Palestinian president Mahmoud Abbas told Israel's Channel 2 last night he would work to stop Palestinian street violence and knife attacks against Jews in Israel, and would meet with his Israeli counterpart, Benjamin Netanyahu.
Here's what the CEO wrote, omitting the company name:
"In terms of capital management, X’s balance sheet is the right size for the current business environment. During 2015, we again returned essentially all of our earnings to our shareholders through dividends and the repurchase of our shares. While our preference is to put the money to work in growing our business, competitive conditions are such that, you should expect this capital
management to continue during 2016."
Our reporter Harry Geisel translated:
"We love reinvesting our shareholders' profits in the business when we can make them lots of money by doing so. However there were no good opportunities to grow the business last year. So we distributed all the profits to shareholders, via dividends and share buybacks. We'll probably do the same again this year."
That is the kind of stock Harry and I want to find for you.
More for paid subscribers from Switzerland, Finland, The Netherlands, Canada, Sweden, Bermuda, Britain, Brazil, Israel, India, and above all Japan where a new fiscal year started today, and many deals were closed. Read more »
On the Take
The temptation to benefit from graft, rent-seeking, and insider dealing is not confined to emerging markets of the BRICS (Brazil, Russia, India, China, South Africa) and other countries ranging from Argentina to Zimbabwe. In fact, what would you say to un scandale en France?
There the husband of the former CEO of a battered French nuclear power station maker stock we used to own, Areva SA (ARVCF on the pinks) is accused of front running the company Mme headed by buying shares in a Canadian company active in Namibia, UraMin, prior to Areva buying it for €1.8 bn. The Areva purchase was in 2007 and it was written off in 2011, after Furukawa. But French investigators found irregularities when they audited Areva's accounts after a whistle-blower whistled. Now the husband and wife, called Atomic Anne, face prosecution.
Areva now operates under the nuclear arm of EdF, the listed but state-controlled French electricity firm, and the government Council on Atomic Energy as the country tries boost global sales of nuclear power stations after disastrous contract overruns in Finland and doubts about whether its UK plant will ever be built.
The charges against Olivier Fric (a French slang word meaning loot) reminds me of a Skandal over the American wife of the governor of the Swiss Central Bank exiting the franc in time to avoid the negative interest rates her husband later imposed. None of these power couples are in any financial need.
One day after I published the open letter sent to Xi Jinping Standard & Poor's slashed China's credit rating this morning to negative. I still await the hack attacks which normally follow my writing about China, but maybe they have other more pressing concerns. The Hong Kong arm of China's Guozen Securities (brokerage) was reportedly issuing “an event of default” notice on its dim sum debt.
More today from Ireland, Israel, Italy (a political trefecta!) Britain, Brazil, Canada, China, Turkey, Switzerland, The Netherlands, Mexico, Denmark, and Norway.