Another Bad Day for Global Markets
It has been a tough day so far on world markets. You could have expected the news that Dilma Rousseff was pulling ahead of Marina Silva in the Brazilian election polls would hit Brazilian shares and the real (currency).
Tien An Min All Over Again
But the real selloff is over Occupy Central (the Hong Kong business district.)
Michael Kurtz of Nomura Hong Kong reports that the Hong Kong Hang Seng index “gapped down a chunky minus 1.9% today” and that the Hong Kong dollar weakened”.
“These moves came largely on overnight news of Hong Kong's largest police clash with protesters since its 1997 return to Chinese sovereignity.”
Tensions remain high, he writes, “with some local workers declaring intentions to strike and 'Occupy Occupy Central organizers “publicly committed to 'an era of disobedience' with 'wave after wave of action'.”
But how to explain the impact of Hong Kong democracy demonstrations on share prices not just in China and Hong Kong, but from Mongolia to Toronto, from Scandinavia to Britain—and on to the USA? China is losing its role as the fast-growth economy in any case. So surely a bit of push for political rights should not derail stocks around the world.
For the first time tomorrow, China celebrates Martyrs' Day. I worry that the name may prove to be too accurate in troubled Hong Kong. This week also features Wednesay's National Day holiday. Then Oct. 1 to 8 is Golden week. So combining their days off, Chinese people like to go on vacation, often to Hong Kong to shop. Unless there is too much pepper spray and tear gas, that is.
Your editor found a stock to buy in this mess, not from any of the above countries.
More for paid subscribers follows from Hong Kong, Bermuda, Britain, South Africa, Ireland, Israel, Switzerland, Spain, Portugal, Germany, Ghana, the Netherlands, and (a first) Monaco.
Performance Tables Posted
The tables have been posted at www.global-investing.com where you may read whichever you are allowed to view: all 3 for paid subscribers and the closed positions tables for pre-subscribers. Remember that you can use the printer-friendly button to view the spreadsheets more easily.
News for paid subscribers follows about CUBA and JIM CRAMER.
Our Forecasts: One Down, Four to Go
Bend It Like Apple!
The Jewish new year got off to a rotten start, hit by the “bend it like Apple” risk of another bad launch. It was also hurt by some BASH: the arrest of Vladimir Yevtushenko who runs Bashneft and other firms in Russia and the rise of the BASH “shellshock” virus which hits Apple computers. Most viruses aim at Windows.
Please do not buy into the German Rocket ipo. Alibaba was seriously underpriced compared to this new tech launch.
Buffett and Keynes on Forecasts
Last year Warren Buffett wrote about how he avoids Rockets:
“You don't need to be an expert to achieve satisfactory investment returns. But if you aren't you must recognize your limitions and follow course certain to work reasonably well. Keep things simple and don't swing for the fences.
“When promised quick profits respond with a quick 'no'. Focus on the future productivity of the asset you are considering. If you don't feel comfortable making a rough estimate of the asset's future earnings, just forget it and move on.
“No one has the ability to evaluate every investment possibility. But omniscience isn't necessary; you only need to understand the actions you undertake.
“If you focus on the prospective price changes of a contemplated purchase, you are speculating. There is nothing improper about that.
“I know I am unable to speculate successfully and am skeptical of those who claim sustained success in doing so.
“Half of all coin-flippers will win their first toss; none of those winners has an expectation of profit if he continues to play the game. And the fact that a given asset has appreciated in the recent past is never a reason to buy it.
The Playing Field, Not the Scoreboard
“Games are won by players who focus on the playing field—not by those whose eyes are glued to the scoreboard.
“Forming macro opinions or listening to the macro or market predictions of others is a waste of time. Owners of stock too often let the capricious and often irrational behavior of their fellow owners cause them to behave irrationally as well. Because there is so much chatter about the markets, the economy, interest rates, price behavior of stocks, some investors believe it is important to listen to pundits, and worse, to consider acting upon their comments.
“The main danger is that the timid or beginning investor will enter the market at a time of extreme exuberance and then become disillusioned when paper losses occur.
“The antidote to that kind of mistiming is for an investor to accumulate shares over a long period and never to sell when the news is bad and stocks are well of their highs. The 'know-nothing' investor who both diversifieds and keeps his costs minimal is virtually certain to get satisfcastory results.
“Indeed, the unsophisticated investor who is realisting about his shortcomings is likely to obtain better long-term results than the knowledgeable professional who is bling to even a single weakness.”
Listen to the Oracle of Omaha about timing. This spring I joined a forecasting game called “The Good Judgment Project” on politics and foreign affairs, a 4-year program funded by Uncle Sam. It used volunteers who competed in working out the odds of various events. It was run by a US university on the Internet.
Using “aggregative contingent estimation” the program sought panelists' votes on the likelihood of an event. You won points if you were right. After learning about the project from The Economist, a magazine I used to write for which I read, I had to take an exam to get admitted to the contest panel.
Then I and many others lost points because we forecast that Russia would invade Ukraine. The reasons were a deadline of March 1 for the invasion which had to be confirmed by an objective observer (whatever that might be) stating that Russian military had crossed the border. I quit the panel in disgust. Subsequent events totally changed which panelists forecast rightly or wrongly.
After that experience I hesitate to forecast which stocks will gain in 2015. What if the deadline passes and the share soars in 2016? Being ahead of the gang is penalized just as it was over the taking of Crimea and the cross-border incursions into eastern Ukraine.
Moreover it is hard to predict patterns to appear in the future if you are not one of those making the patterns appear. So what you really are forecasting in a list of stocks is not which shares should go up based on their valuations or business, but which shares will be bought by more people and then rise. So what you are really trying to forecast is what analysts will like better in the course of next year..
You are not trying to select the most beautiful woman; you are trying to guess which woman is viewed as most beautiful by the largest numbers of those who get to pick her, an insight I owe to Lord Keynes.
Pimco, Merrill, Lehman, Bear?
I run a small newsletter with few subscribers. We do not often make markets move. One solution would be to replicate a bunch of forecasts from big kahunas in the market. I could copy major fund shareholdings (assuming they are correctly valued, not always what happens at Pimco.) Until he unexpectedly resigned today I could have copied Bill Gross at Pimco for bond ideas.
Or I could plagiarize analysis from Wall Street biggies like the thundering herd (formerly Merrill Lynch, and now—because it didn't correctly forecast the global financial crisis—Bank of America-Merrill Lynch.) In 2008 I could have copied a next-year portfolio from Lehman Brothers or Bear Stearns.
That is because stock picking is not always the key to making money; it depended during the Global Financial Crisis on the analyst or forecaster anticipating the marco-economic collapse, which few did.
Moreover, what funds and brokerages publish about stocks may not be everything their forecasters have to say particularly as the year goes on. Sometimes they shift gears but only share this information with people who pay for instant upgrades, usually institutional clients are brokerages or the house-team at a fund rather than those getting updates every quarter.
There is also the problem of self-fulfilling prophecies. If a stock guru got a forecast right chances are that his or her other forecasts will be followed by those seeking guidance. And if a guru got it badly wrong about one stock, his or her following would fall.
So that solution to the problem would not only be dishonest; it probably would fail.
Another problem is what the benchmark is. With US shares a well known index like the S&P 500 grades the return forecasters achieved. But what is the benchmark for global markets? Mark Hulbert of Dow-Jones's Hulbert's Financial Digest uses the Russell 4000 to include more small caps. But his benchmark is pretty much of the USA and not right for www.global-investing.com/
But as he has been rating us for decades, I don't complain too loudly.
We pick foreign stocks exclusively and a major factor in their performance is the exchange rate of the currency of the country where they have their primary listing vs the US dollar. So we would have to get the foreign exchange trends right to do well. And foreign exchange markets with vast sums at stake and running 24 hours a day can turn on a dime.
And that takes us right into the macro morass Warren Buffett warned against!
After that dose of cold water, I begin today with my predictions for 2015. I aimed to have 15 picks for the year but the copywriter who is helping us market our blog said that was too many to avoid MEGO (mine eyes glaze over) reaction. So I am aiming at 5, using the last digit of the year. I will not pick a Single Best Idea because that is like walking at the edge of a steep cliff. In a hurricane.
The first new 2015 stock is written up today for paid subscribers. There will be four more.
Today's blog has news from Canada, Finland, India, Switzerland, Denmark, Malaysia, Britain, Kenya, South Africa, Mexic, Israel, and Dubai. Plus bond and fund notes.
More Numerology and Holidays
Gold Boost Ahead?
Adrian Ash of our physical gold advertiser BullionVault.com writes about more festivals:
Today marks the last day of Shradh, the period of 'closed observance' on Hindu calendars when it is deemed 'inauspicious' to start new ventures or make new investments. Also known as Pitru Paksha, the shutdown has been used to delay nominations for upcoming elections.
This summer's delay to India's elecioral process angered many who want to reduce what they see as the stifling (and corrupting) effect of India's deep culture of religious observance.
Gold and politics are rarely apart in India's deep religious culture (as well as its huge bribery and corruption problems.) The peak demand season in the world's heaviest consumer [gold] market starts now, running until Diwali at the end of Oct.
Where India's younger citizens are breaking with tradition over gold, suggests a report today on Mineweb, isn't how Western observers might expect. Instead, some younger people have broken Shradh to buy gold at recent low prices.
The only thing to dim India's appetite for gold has been government anti-import rules imposed because 2013's demand was so huge [after a] price slump.
India's gold industry find[s] ways around that, smuggling gold through the backdoor. News today [is that] the old value-added-tax round trip scam, where the same metal is imported and then re-exported to earn sales tax regates illegally has a new use: helping get around [import controls.]
Keep a close eye on how India's demand develops as Diwali inveting, gift-giving, and temple offerings draws near.
Thanks to Financial Times writer Jennifer Hughes we have more numerology news today. She writes that Alibaba's NYSE ticker symbol, BABA, was chosen to sound like “88” which is a means double fortune. And even its issue price, at $68, was chosen for the lucky 8.
Citibank has been named depositary for the Alibaba ADR. The reason nobody talks about the 40 Thieves is now clear: 4 is a homonym for death. And of course we don't mention thieves when launching a massive IPO.
Today's blog is late because an update of Real Player Cloud gummed up my computer as it did not meet the systems requirements but could not be stopped from trying to install. Perhaps things will be organized better in 5775, a palindrome.
Here are some others. The first words spoken by man:
Madam, I'm Adam
Connecting the oceans:
A man, a plan, a canal: Panama
Able was I ere I saw Elba.
Because I anticipated a US Treasury-IRS crackdown on tax inversions, we sold out of Mallinckrodt and its former parent Covidien in good time, to avoid a breakup of the deals.
More for paid subscribers including a boardroom shuffle and an unexpected bonus plus news from Britain, Denmark, Ireland, India, Israel, Singapore, Canada, Brazil, and Portugal.
Saving The Earth and The IRS
Fall has fallen and the smokers among the building staff are now huddled outside my office window to avoid unhealthy drafts, forcing me to shut it for my own health.
Tomorrow night the Jewish Year 5775 begins, a palindrome number, the first in my lifetime. I am not sure what it signifies, nor do I have much confidence that the Jewish date goes back to any meaningful event. There will be no blog on Thursday as I will be praying.
Happy New Year to all!
Another ancient people had marginally good news today as the HSBC China Purchasing Managers Index came in not only positive (over 50, at 50.5) for mid Sept. but also more positive than last midmonth's 50.2. This (perhaps) may signal improving economic growth in China and the world.
Yesterday the revelation that China did not plan any more economic stimulus crushed global stock markets just as the remaining Alibaba euphoria was expected to boost share prices.
Chinese and western countries have a few things in common, namely number superstititions. In China, the number 4 is considered a bad omen as “si” sounds like the word for death. Eight, on the other hand, is considered an auspicious number because 8, “ba” sounds like “fortune”. And 88 comes out as “double fortune”. Chinese buildings often have no 4th floor and sometimes no 40th to 49th floor either. In Malaysia, the Petronas building's towers each are 88 storys high.
In New York, apartment towers often skip the 13th floor. Our apartment is on what should be the 13th floor, but labeled 14th. It may have been a bit cheaper as a result.
Among Jews, the best number is 18. Before numbers were adopted, Hebrew used letters of the alphabet to write numbers, but backwards. So 8+10 is auspicious as it spells “chai” or “life”.
Chinese-speaking readers who want to help forecast how markets will perform over the next Jewish year should tell me what 5775 sounds like in Chinese.
A Tesco and Tasket
Early in 2012 from London the housewife in me took over from the stock analyst, and I put a “sell” on Tesco, TSCDY, the UK supermarket chain. There were two reasons, one which was expected and the other which was a surprise. The expected Tesco problem was that its ambitious US plans for a West Coast chain of “Fresh 'n Easy” mini-marts focusing on produce had come a cropper, as the Brits say. That is what happens when British retailers and other consumer companies, lured by the fantasy that a common language can produce marketing success, go for broke across the pond.
Adding to concerns about the US venture were problems I discovered at the British supermarket chain in London. Its prices were being undercut by big-box low-overhead discount grocery chains invading from Germany, Aldi and Lidl (pronounced “Little”).
Now after a series of profit warnings starting after we sold, it turns out that Tesco had also overstated its H1 sales this year.
Inversions Tougher; Germans Coming Here
Tax inversions in the future will be tougher for US firms to gain from as the Treasury has imposed new rules for companies changing their country of domicile. The move, without requiring a Congressional vote, was made effective as of last night.
Republicans cannot complain. Under Pres. George W. Bush, prior rules on tax inversion were also imposed by the US Treasury acting without a vote.
Instead of US firms fleeing the country to access their overseas wealth without paying US taxed, the new trend will be foreign companies buying US firms to boost their growth. According to The Wall Street Journal, the big players in these deals are from Germany. It was the source of $70 bn in US acquisitions so far this year, just behind Canada's $77 bn.
So far in Sept. the WSJ writes, we have Merck KGA buying Sigma-Aldrich (pharma); ZF buying TRW Automotive; SAP buying Concur Technologies; and Siemens buying Dresser-Rand (energy equipment).
More For Paid Subscribers
We have some merger & acquisition news among our own companies to report to paid subscribers. News from Canada, Britain, China, Portugal, India, Israel, Brazil, and Spain.
Testing a New Format
Apparently China's reformers have “no stimulus plan”. This came out at the G20 meeting over the weekend when Finance Minister Lou Jiwei revealed that the Emperor has no clothes. China has no major policy plans to counter recent weak economic growth data.
Asian markets today slashed their 2015 targets for Chinese growth which impacted several of our stocks.
The malaise spread to European trading and now to Wall Street.
Russian Oil Deliveries Cut Again
Austria has become the latest victim of Russian energy supply cuts, according to the Vienna regulator, E-Control. Slovakia also reported that Gazprom deliveries are off by 20-25%. Because other countries in Eastern Europe are supplying Ukraine by reversing pipeline flows, Russia cannot put pressure on Kiev to pay its hike gas prices without imposing cuts on neighboring countries, starting with Poland and Hungary, already reported last week.
I have a solution but I'm not sure it will fly: the US has to allow exports of shale-sourced petroluem and supply shale gas to European markets. My way to do this is using quick-build modular gas liquefaction plants from companies like Chart Industries of Cleveland. Since this is a US stock idea, you are free to follow it up on your own. GTLS is traded on Q and for reasons that have nothing to do with foreign policy, it is off about 40% in the past 12 months. (This is not a recommendation; I already personally own a foreign stock which is also a key player in liquefaction.)
The Wall Street adage is that “Dr. Copper forecasts the health of markets”. But in a global economy moving toward services à la Alibaba, can a commodity still determine the way the world is going?
In Chile, the reformist Bachelet govt is having to boost the capital of Codelco, where the easiest ore has already been mined. The largest source of govt funding has to spent close to $24 bn to increase output, of which $4 bn will come from a bond issue. And Chilean tax receipts, originally earmarked for education spending, are now having to be invested in the mines.
Meanwhile the huge Buenavista copper mine is flooded and production has been halted.
And in Zambia, copper production is suffering from electricity shortages which have cut supplies to the mines. So the current price of the red metal is being boosted by supply issues. Copper is up ~12.5% in the past year, whereas most commodity metals have fallen. How to play this is discussed below. And no, we are not loading up on copper bars or stealing the wiring from vacant homes.
More for paid subscribers from Russia, Brazil, Hong Kong, Britain, Ireland, and Indiana. Today's report focuses on supply chain companies.
Update of Friday newsletter
The latest Investor's Digest of Canada reprinted an article from this newsletter about a Canadian bank. Given that they get all the analysis Canadian brokerages produce, and many US newsletters like mine, I am very proud when they decide my write-up is the one to use. Paid subscribers will be told more below.
Since we stayed up late to watch the Scottish poll results come in I was somewhat groggy this morning and omitted the note above in my pre-subscriber blog. So here it is along with a note for paid subscribers below: