News of the Screws
Greetings from London where I am sitting in a Starbucks cafe on Fleet Street desperately typing into my notebook. The Internet is down at Mudchute Manor and BT will not be able to repair it until we have left for the beach. So I am downing coffee in the land of tea and writing on my wee notebook.
As expected, Argentina has attempted to pay its US creditors who accepted the refinancing deal $830 mn without paying the hedge fund holdouts the $1.5 bn it owes them. As a result, it is formally in default because there is a US court order preventing any American bank for handling the payment. It is in worse shape than the dental capital across the River Plate, Uruguay.
More for paid subscribers today from Egypt, Israel, China, Britain, Singapore, Japan, Brazil, Guinea, South Korea, and Ireland.
Hail and Farewell
To “invest in” global warming-induced hurricanes and other catastrophes in the Caribbean, the World Bank is offering $30 mn of high yield “catastrophe bonds” These over the next 3 years will pay much better interest than normal AAA issues from a World Bank body. But there is a catch.
The issuer is the Caribbean Catastrophe Risk Insurance Facility of the Bank, which insures the Bahamas, Dominica, Jamaica, and other Windward and Leeward Islands. If there is a major hurricane or earthquake in the 16 island countries covered, owners of the bonds risk loss of capital because they will be tapped to pay the CCRIF to cover the losses. And in some cases the bond-holders may have to pay out more than the face value of their bonds. This would pay for repairing damage and also cover the loss of the islands' crops and production plus the resulting lower tax revenues.
In a yield-hungry market, demand was high when the bond was floated yesterday, but the pricing and interest rate have still not been made public. The theory is that floating off this risk on the market is better for vulnerable countries than trying to insure against catastrophe on their own, or using the private P&C markets directly.
Chances are that an investment manager looking after some of your money has bought this novel bond already, or that he or she will snap up future issues which are expected.
Thank you to readers who wrote encouraging your editor after she wrote yesterday about how she was banned from www.seekingalpha.com
Subsequently I learned that the editor who tried to intervene on my behalf, Yosef Levenson, has left the service where the axes are now being wielded anonymously. Anonymity also is increasingly accepted from contributors, including short-sellers which rather lowers the credibility of the 7-year-old investment site.
Today seeking alpha published an anonymous report on Stallergenes, the French maker of sublingual allergy desensitizing meds which was taken over by a Swiss group in 2010. There are still a few shares traded at a low price in Paris. Such advice is manipulation by a nameless guy, “Early Retiree”. In early 2010 I was forced by a Fidelity compliance officer who called me to sell my shares below the STLGF takeover bid price because it was not SEC registered.
Then 'Fido' placed the order, given in euros, for execution in US$. As a result I went into arbitration against the broker, and they simply banned my account in retaliation. I guess expecting ethics from brokers and websites is a futile business.
Today I tease my cleaning woman and her cousin the door person (both Uruguayan) about the quality of the national dental system. When in Europe I will make a visit to Pablo, a Uruguayan expat artist who works on the block where we used to live to tease him too. More for paid subscribers from Israel, South Korea, Ireland, Britain, Brazil, Russia,The Netherlands, Canada, and Australia. And a note about how to hedge.
I leave soon for a 6-week European junket. There will be a blog Monday written from Mudchute Manor, but none Tuesday (travel) or Friday (July 4.)
Seeking Gamma Triple Minus
Last week I tried to explain to a www.seekingalpha.com reader why I was no longer allowed to post on the site despite having been a contributor since 2008. I wrote on June 20:
I wanted to fill you in on my being banned by sa. I wrote up a rather high-risk fund listed on the low-ranked AIM market in London called Africa Opportunity Fund, AOF there and AROFF for USA folks. It trades in dollars and invests in Africa, doing a lot of arbitraging and other scary stuff between markets. A nameless source told me the fund was going to be properly listed on the London Stock Exchange fund list and I wrote this in my note on the subject published first of all in www.global-investing.com for the paying readers of my paid blog. Then I wrote it up for the world on sa.com the editors claimed that I had not given sources for the upgraded listing, which is true. As a journalist I protect my sources. They demanded the name and title of my source on the AOF upgrade. I refused to give it. Then I got banned. Of course since then AOF has relisted and also issued convertible new shares to add to the sums it manages (always important for a closed end fund or the UK equivalent thereof.)
Now I will go away and not talk about Chicago Bridge & Iron because one of my Irish ADRs has turned into a 10-bagger and I have to think about what to do about it. Happily it is in a tax-sheltered account.
Today I got the following from the www.seekingalpha.com “moderation team” which accuses me of “engaging with abusive users” and “debating the author's credibility” in the above note. I don't think I did; I think I was engaging with the editors of the site and debating its credibility!
Dear Global Investing Editor,
We wanted to let you know that we’ve deleted the post [above] and explain why. It was deleted because it contains material that is not directly related to the topic under discussion. Please note that article comments should focus on the analysis in the article, rather than debating the author’s credibility.
As a Seeking Alpha contributor you represent yourself as well as the Seeking Alpha brand. As such, we would appreciate if you exercise extra restraint and hold yourself to a higher standard. Rest assured that cases of abuse by any user are taken seriously, so we ask that you rely on our moderation team to address abusive users instead of engaging them.
Please understand that we do strive to err on the side of facilitating free and open debate. This means that we are never happy about having to remove a comment. That said, in order to ensure that Seeking Alpha continues to be the go-to destination for serious investment discussion, comments must adhere to our guidelines.
Seeking Alpha Moderation Team
Here are comments from another expert at the Bank of America-Merrill Lynch breakfast press-conference yesterday, from Ethan S. Harris PhD, global economist, about our Fed. He notes of the Federal Reserve System that “it has 19 members, 12 members, 13 research departments, 4 super-hawks, uncoordinated forecasts, and misleading minutes.”
Moreover, Ethan Harris added, “there is no hidden agenda.” Fed-watchers have to focus on the directive and the prepared comments. They have to “beware of noise”, which includes the minutes and occasional “slip-ups in the question and answer period.” Dr Harris wants us to focus on the good news from the Fed, which is that there will be a rate rise only with strong growth. The Fed will lower liquidity only if there is growth.
I think Ethan Harris is no relation to Derek Harris, who also spoke at the conclave, the BoA-ML head of Americas equity research, who sounds British. Relations can be important. Are there links between Warren Buffett and a brilliant Israeli investor is discussed for paid subscribers for whom I am also looking into other news from Israel, Britain, Canada, The Netherlands, Brazil, China, South Korea, South Africa, Spain, Saudi Arabia, Australia, and Ireland.
Having trotted around the city collecting insights from the wise I will share them with my readers.
Last night Qaffafew, the quant club, was addressed by Chris McHeffey of Reality Shares for which he has developed a system for isolating dividend growth (initially on the S&P 500) using puts and calls on this very liquid part of the market.
Isolated dividend growth backtested to 1999 shows 150% growth, McHeffey explained. This compares to a 119% in dividends, and a 50% rise in the stock prices of the index. You probably will not have to construct this portfolio by yourself as there will be an ETF soon, I believe.
Here's how to isolate dividend growth. Buy a 1-year call on the S&P 500 and sell a 1-year put. Then sell a 3-yr call and buy a 3-yr put. So you are long the index over 1 year and short over 3. The position is market neutral and you will have to do similar 1-year operations going forward.
This is about a pure USA play so I am sharing it with the world, as McHeffey spoke without requiring me to keep his secret in a public forum (an Irish bar near Grand Central.)
*Insight number two comes from David Woo, the chief forex and rates strategist who spoke at the Bank of America-Merrill Lynch. Dr Woo spoke at the brokerage's mid-year press conference.
That insight is for paid subscribers only along with a company report and some hot news from Australia, Canada, The Netherlands, Portugal, Argentina, Brazil, China, Belgium, Ireland, Israel, and Ethiopia.
Risk, Activist France, and Wierd Ireland
You win some and you lose some. Its activist government seems to have won some measure of protection for research, production, and employment in France by taking a 20% stake alongside GE in Alsthom.
However all the pressure Paris could wield did not save BNP-Paribas for a record fine of ~$9-10 bn for its Swiss sub violating US sanctions against Iran, Sudan, and Cuba in 2007-9. The fine will wipe out BNP profits for 2014 and hurt 2015 as well. Moreover, under French law, the bank does not get to take foreign fines off the earnings on which it is taxed. Perhaps the French will change the tax law.
I must confess that I am uncertain about whether or not the market is toppy. I noted yesterday that some observers, notably Mark Hulbert, editor of Hulbert's Financial Digest, thinks that the spate of mergers and acquisitions is a signal of a stock market ahead of itself, based on what happened in 7 years ago. Of course the situation is different now, however, because everyone remembers the selloff, and so there is still plenty of uninvested money on the sidelines. Much of it belongs to the younger baby-boomer generation which so far has avoided stocks. Moreover, the argument for equities remains compelling in this extremely low interest-rate environment.
But then too the summer is upon us and it is very often a time of down markets. And there are baddies about: front-running high-speed traders, company insiders trading against the shareholders they are supposed to be working for, pump-and-dump scams, widely-disseminated misleading short-seller reports and equally cruddy “research” posted by pretend-neutral writers who have been paid to post.
So how do I play the market as we are about to go overseas for 6 weeks?
I took a coward's way out, buying UVXY at a ridiculously low price of $27.13. This is the Ultra VIX short-term futures ETF which seeks results double the daily performance of the “fear gauge”, the S&P VIX NAV.
Since this has nothing to do with global-investing (the S&P 500 shares are USA) I am sharing it with everyone.
Tomorrow's blog will be late because I am attending a mid-year conference with projections for the rest of the year presented by Bank of America-Merrill Lynch.
More for paid subscribers from Canada, South Africa, China, plus a political trifecta: Israel, India, and, mostly, Irelandl.
The Anvil Chorus
The private-side Chinese purchasing manager's index, run by HSBC, rose into growth for June, with a score of 50.8. Anything over 50 shows orders are rising. In May the level was 49.4. What this means for our portfolio is explained below.
The hammering outside my office where the scaffolding is being partly assembled reminds me of The Anvil Chorus. The perilous-looking tubular structure in the building courtyard was 1 to 2 stories below our apartment when I left for work. We really have to leave for Europe later this week. While this is partly a vacation it is also a respite from daytime racket and the need to close windows during the summer. The pound sterling is near a new 5-yr high in anticipation of my spending.
With no fewer than 3 of my stocks topping the weekly and month top gainers, all up 22%+, I am getting fearful of a market top. My big winners last week were Covidien (which still counts as I only sold half); Shire, which my son put into our corporate profit sharing account; and Williams Cos, a US stock. Mark Hulbert is making bearish forecasts based on the level of mergers and acquisitions, M&A, which affected all 3, with WMB the buyer and the other two the target. Mark writes Hulbert's Financial Digest, which tracks our performance and is published by marketwatch, a Dow-Jones website.
More for paid subscribers from Britain, South Africa and Korea, China, India, Fin-, Scot-, and Ire-land, Spain, Brazil, Mongolia. Australia and Canada including a big annual report and a stock sale.
Portfolio Tables Posted
The www.global-investing.com tables have been posted. Instead of Chinese food today we will be eating home-made pesto on pasta, mainly because my windowsill basil plant will soon be ready for burial. We leave next weekend for a 6 week European stay. The reason is that our building is hammering and removing ceramic tiles facing an eastern courtyard from 9 to 5 every day. This will hurt the poor basil on the windowsill but it will also hurt by quality of life.
Our original plan was to sign up for a Black Sea cruise and muck around eastern Europe and Turkey looking for sites and stocks. But then after the Russians nabbed Crimea, our planned destinations were put off-limits: Sebastopol, Yalta, Sochi, and then also Odessa. Now even the Romanian coast is flooded.
So we cancelled and could not find another easy escape hatch. So we are moving to London and taking breaks on the Portuguese Algarve coast and in Paris. This can turn up a few stock ideas discussed for paid subscribers below along with other matters of interest.
Paris is not only important for French stocks, but also for the largest holding in my US portfolio, General Electric.
The Shamrock Prize
Challenged by a reader to prove that Confucius would have opposed today's Chinese familial political corruption despite his stress on filial piety, I was not short of citations. Here is the best:
“Choose the right people. If you put honest men above the dishonest, the people will have confidence in the government. If you put the dishonest above the honest, you will lose their confidence.
“But first of all there must be no greed in you yourself. Then those under you will not steal.”
(Michael C. Tang, A Victor's Reflections: China's Timeless Wisdom for Leaders, Prentice Hall 1999.)
Today I am facing an embarasse de richesse in my corporation's outside-managed profit-sharing account. An American Depositary Receipt (ADR) it holds, which I refused to buy or write up, is now a 10-bagger. The stock is Shire plc, the Irish drug-maker notorious for flooding the world with a nostrum for attention-deficit-hyperactivity disorder, ADHD, handed out like popcorn to young minority-group boys who misbehave in school.
Today in UK trading SHP rose nearly 14% on news that it had rejected a £27.25 bn takeover bid from AbbVie, allegedly undervaluing SHP.
The outside manager of my company's profit-sharing account is FIC Capital Inc. I will introduce any reader who wants an outside wealth manager firm focused mainly on US shares to my son the CFA who is a fund manager and director at FIC.
More for paid subscribers from Britain, China, Holland, Israel, Ireland, Japan, Mexico and Portugal, including a new stock pick.
The emerging world is divergent, something which catch phrases like BRIC might hide.
*China suffers from the contradictions of Communism. Two Chinese anti-corruption activists were sentenced to 6 ½-yr jail terms yesterday because they took photographs of themselves holding banners urging government officials to disclose their wealth. A third activist was given a shorter sentence after a show trial over charges Amnesty International called “preposterous”. While the current Beijing regime is formally cracking down on ill-got wealth in the hands of relatives of top officials, any populist movement with the same goals counts as a threat to Pres. Xi Jinping whose own family members have vast wealth of occult origin. What would Karl Marx say? What would Confucius say? Neither would lock up the critics of corruption and backhanders;
*India's new premier, Narendra Modi, is a follower of Maggie Thatcher. He is proposing both closer ties with Russia and partial privatization of government controlled companies. He wants to cut the level of state ownership of companies to a maximum of 75% over the next 3 years. The can cut the New Delhi government deficit by $9 bn, money that is needed, while also reducing the interference in business by India's sprawling government bureaucracy. The sales will probably also boost the Bombay bourse which has already risen sharply after the election of a free-marketeer;
*Argentina is expected to hold its nose and negotiate with hold-outs against its refinancing of government debt and make partial payment to them of the $1.33 bn it owes under new US court rulings. According to Bloomberg, Cristina Fernandez's ratings are so low that the population no longer is following her left-wing lead against hedge-fund “vultures” and supports negotiations. Approaches have reportedly been made to Elliott, a US hedge fund owner of the original bonds which refused to restructure them in 2005 and 2010. The bonds defaulted in 2002 and were purchased at a pittance.
We got into the Argentina debt mess early. Back in 2003 I researched in Buenos Aires a yankee (US$) bond issued by two offshore subsidiaries of Telefonica de España (TEF) and determined without any doubt that the bond was guaranteed by Spain's TEF, regardless of what went on in the government bond sector under Cristina's late husband, Nestor Kirschner. So we piled in and made a packet and were bought out 18 months later. I guess we were vultures too.
This week JP Morgan is launching its new Diversified Return Global Equity ETF (exhange-traded fund, ticker: JPGE) which uses multi-factor analysis to select stocks in the FTSE index, mostly from developed countries. The factors include relative valuation, momentum, low volatility, and market cap size. The fund as launched holds 450 different stocks. It is offered as an alternative to ETF's based on market cap or yield. The fee is 0.38%. The managers will use indexes selectively. They are Beltran Lasta who covers global and Europe shares and James Cook, an emerging markets and Asia equity specialist.
While it is always great to run into a new way to slice the global investing cake, the use of multiple factor indexes is unlike to reflect the news (as reported above) because indexes are by definition backward looking. That is why no ETF will really beat the performance of selected stocks.
Peter Schiff claims his Euro Pacific Precious Metals arm offers the cheapest physical gold for US owners. That's false. Without delivery (for which Schiff charges $25), our physical gold advertiser BullionVault (advertising on our website, www.global-investing.com) beats Euro Pac prices (7.5% to 8.5% over spot) by charging a maximum of 0.50% on any trade. And our advertiser only charges 0.12% per year for storage. Gold is up about 2.5% after the Fed projections yesterday, heading for $1300/oz.
More news from Spain (neither about the World Cup nor the new king), Israel, Ireland, Cyprus, Canada, Britain, Portugal, and China, India, Russia, and Brazil (the BRICs). Plus (of course) Argentina.