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

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Golden Years Investment

Thu, 2014/04/10 - 12:50pm | Your editor

Today is my husband's birthday and we will celebrate by going to a boat-race dinner tonight. The boat-race is being held in London, between Oxford (his alma mater) and Cambridge. But what we are thinking about is not which shade of blue is faster on the River Thames, but what being a year older means for our portfolio.

The golden years have hit us both and it is worrying. Both my parents benefited from multiple pensions, particularly my mother who arrived in the USA in 1937 already owning American stocks which had been given to her grandmother by a NY relative working on Wall Street. By the time she retired, at 62, besides a healthy stock portfolio build up over the years, she collected Social Security, a pension from her job at what was then Chase-Manhattan Bank, and an-ever-higher pension in German marks from her job in Germany before she emigrated. When my father died she added a widow's pension to the pile even though she turned down inheriting his estate (which went to her child and grandchildren.) The pensions were not taxed.

Given her background, and after taking over my father's holdings, mom was invested mostly in US dividend-producing stocks, with a few foreign yield funds for diversification. I and my readers still own some of these yield funds today. Among my inherited stock portfolio holdings is Bristol-Myers Squibb which my mother bought because of a prescription she found healthful.

The days of ample retirement are gone. While we write about fixed income investments, we are not wildly enthusiastic about them. With one exception discussed below. Currently you can pick up a yield of 7 to 8% with some bonds and preferred shares from outside the USA. This sounds like it will see you out. But financial repression is always a risk: unleashing inflation to cut budget deficits here and abroad. So are new taxes (or default risks) on vehicles like triple tax-free bonds favored by geezers like me.

Plenty of experts say bonds make investing sense, including some older writers like Mark Hulbert, a commentator on marketwatch (who also rates newsletters), or General Joe Shaefer, USAF-ret., who writes a newsletter for investors in his Stanford Wealth Fund. Both say there are arguments for bonds. I am not yet convinced.

 

Yesterday I changed many of my passwords to avoid the Heartbleed Internet spy. Note that our website does not collect your credit card details directly, but only through the authorize.com system we use to link to our bank. So far my bank has not sought changes in our signup, perhaps because Jamie Dimon has other expenses to cover before JP Morgan Chase (successor to the bank where my mother worked) can deal with this irritating lack of cyber-security for its high-fee credit-card services. I will tell you when it is safe to change your password to get into www.global-investing.com Meanwhile google, yahoo, and probably lots of other e-mail sites are urging customers to change their passwords. Note that the risk of e-mail access is greater if you use the same password for many sites including your bank account. Be more creative.

 

More for paid subscribers from Britain, Canada, Hong Kong, South Africa, Ireland, Australia, Denmark, and India. Including an important note about our biggest yield play of all.

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Trading Alert Plus Reprint of Pessimo-Economist Macro Worries

Wed, 2014/04/09 - 12:50pm | Your editor

This note for is being re-sent because it did not reach presubscribers today. It will be followed by a trading alert only for paid subscribers only. Russell Jones writes (for Llewellyn Consulting LLP) about his pessimistic outlook for future macroeconomic policy:

 

"The misuse of fiscal policy over the much of the post-war era is little short of a tragedy. Time and again governments were happy to embrace fiscal expansion in even the mildest downturns, but then found excuses not to unwind stimulus in the subsequent upswing.

"Furthermore, the effects on government deficits and outstanding liabilities of this habitual policy asymmetry were regularly compounded by optimistic forecasts, politically motivated tax cuts, the supply-side effects of which were often overstated, and a failure to make allowances for the temporarily benign influence of demographic factors on public finances or the [need for facing] a major future financial shock.

"The result was historically high public sector debt then further inflated by the fiscal imperatives of the Global Financial Crisis. However, once the worst of the crisis was past, with more malign demographic[s] felt on public sector balance sheets, the overwhelming focus of fiscal policy became debt sustainability, if not a desperate scramble for solvency. The scope to use fiscal policy actively to respond to new demand shocks was widely perceived to have been exhausted.

"Yet the results of 5 years of onerous budgetary adjustment have been disappointing to those who viewed it as unavoidable. Initial hopes of ‘expansionary fiscal contractions’ rapidly evaporated. Instead it became clear that fiscal multipliers are greatly magnified when economies are all following the same consolidative policy prescription. The headwinds to growth proved formidable, jobless rates [failed] to fall, and real incomes suffered a prolonged squeeze. But the real indictment of this strategy is that budget deficits remain large and public sector debt burdens have continued to climb to new heights, while tax burdens have risen to levels that impinge on incentives, infrastructure spending has been neglected, and elements of society least able to fend for themselves [have been] put under extreme duress.

"Austerity fatigue is building. Political landscapes have become more fragmented, mercurial, polarised. Nationalism and populism are on the rise. Fiscal slippage is likely to escalate, deficit and debt targets will be overshot, and governments will increasingly to move the policy goalposts. There is also the strong possibility in Europe that further large sums will need to be spent in fixing a still dysfunctional financial system.

"With fiscal policy severely compromised or widely perceived to be so, monetary policy has had to shoulder the overwhelming burden of macroeconomic stabilisation. With output dropping far below trend and [slow] to recover, financial sectors in trouble, and inflation uncomfortably low, central banks have pushed nominal policy rates down to the zero bound and pursue other unorthodox strategies: asset purchases and variations on forward interest rate guidance. The Fed may have begun to scale back its bond buying, but both the Bank of Japan and the ECB are preparing the way for yet more unconventional initiatives. There is more unorthodoxy to come.

"With animal spirits depressed and banks still in trouble, the effects of unorthodoxy have not matched expectations. There is only so much demand for goods and services that can be brought forward from the future. Recovery has been shallow, patchy, and subject to serious set-backs.

"Inequalities between the asset-rich 'haves' and the asset-poor 'have-nots' are increasingly in evidence, while the willingness of central banks to purchase large proportions of government debt issuance is creating malign incentives for politicians and running against the priority attached to budgetary consolidation. The effects on asset market dynamics and business and consumer confidence of the unwinding of these exceptional policies remain unclear. Monetary policy policy has been asked to do too much. It has become over-burdened.

"Policy-makers will have to become more innovative, more willing to 'think outside the box', more accepting of unorthodoxies into conventional wisdom." (Published with permission from www.llewellyn-consulting.com of London, UK.)

 

Next Monday there will be only a brief blog as I am traveling to the Boston area for family Passover Seder celebrations. There will be no blog on Tuesday or Wednesday, both Jewish holidays. There will be a catch-up blog on Good Friday despite US markets being closed. The following week will also be shortened by the Jewish holidays April 21 (also Easter Monday in much of the world) and April 22 (which is also Earth Day.) More from Japan, China, Russia, The Netherlands, Israel, Denmark, South Korea, Italy, Guinea, Brazil, Poland, and Dubai. We have from Chris Loew a stock switch in Japan following up on his note published yesterday, but of course this is only for paid subscribers.

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A Pessimist Warns While Stocks Go Up

Wed, 2014/04/09 - 12:00pm | Your editor

 

Russell Jones writes (for Llewellyn Consulting LLP) about his pessimistic outlook for future macroeconomic policy:

 

"The misuse of fiscal policy over the much of the post-war era is little short of a tragedy. Time and again governments were happy to embrace fiscal expansion in even the mildest downturns, but then found excuses not to unwind stimulus in the subsequent upswing.

"Furthermore, the effects on government deficits and outstanding liabilities of this habitual policy asymmetry were regularly compounded by optimistic forecasts, politically motivated tax cuts, the supply-side effects of which were often overstated, and a failure to make allowances for the temporarily benign influence of demographic factors on public finances or the [need for facing] a major future financial shock. Read more »

Jungle Bunnies, Polls, Mercenaries, and Corruption

Tue, 2014/04/08 - 11:12am | Your editor

Our correspondent Chris Loew writes from Japan:

My wife stocked up on household items and got our car serviced in advance of the hike in the consumption tax from 5% to 8%. Many acquaintances timed purchases of cars or major appliances to avoid the tax rise. Front-loading expenses results in contraction later.
The tax exemption for mortgage interest was also recently halved. Wage increases have not kept pace with inflation. The weak yen has brought an increase in fuel prices. So consumers must tighten their belts. I expect consumer durables to tank.

Many US state sales taxes exempt food, but Japan doesn't. Nonetheless, a recent TV report quoted department store execs as saying they are counting on their specialty food sections (usually in the basement of Japanese department stores) to offset reduced sales elsewhere. Perhaps people will load up on cheeses and wines, rather than buying a car or computer. Food is viewed as a defensive sector. But there is already consumer resistance to food price increases, while food companies are being squeezed by higher import costs from the weaker yen. It is hard to expect big profits there.

The best performing companies will be ones with more sales and production outside of Japan.

 

As Indians line up to vote, most observers expect a victory for the supposedly pro-business Bharatiya Janata Party (BJP) of Narendra Modi. One result has been a boom in Indian stocks and the rupee. The rise, in my opinion, is illusory. The BJP confirmed yesterday that it would ban foreign supermarkets from the $500 bn Indian retail sector, according to Reuters.

Of course this is bad news for global chains. But it is also bad news for Indian households. The BJP said it welcomes foreign direct investment in all sectors that create local jobs, except supermarkets. That's what "free-markets" means in India.

Some 18 months ago, the current Congress government allowed foreign supermarket chains in but then left it to individual states to set conditions. So politically powerful local traders could block global chains like Carrefour or Walmart. Small shopkeepers have clout with the BJP. Having seen improved living standards as big retailers arrived in European countries like France and Portugal to compete with high-priced village shops, I think it outrageous that Indian grocery consumers will not get the same money-saving chances.

 

Our advertiser BullionVault, which offers a way to own physical gold with low trading and warehousing costs, today reported that it has set up a new US dollar client account with Wells Fargo Bank which will make it easier for customers to deposit money for buying the yellow metal. You can view details at www.bullionvault.com by clicking to it from our www.global-investing.website and then going into USbankingdetails.do on their site. Or you can telephone tollfree to 1-888-908-2858, mentioning that you are a Global Investing reader. For now the awkward procedure with Bank of America I used to transfer money to buy my gold with the British firm will also remain in place, says BullionVault's head of customer service, Nittin Seehakoo.

 

More for paid subscribers from Canada, Israel, Britain, Ireland, the Netherlands, China, Brazil, Russia, Colombia, Singapore, and Mexico. Lots of snippets. I am off to a lunchtime concert.

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Scandals at Drug Companies, Russian Plays, Chinese Grandma Stocks

Mon, 2014/04/07 - 12:36pm | Your editor

Twenty years ago today the Hutus in Rwanda began slaughtering the Tutsis, among the worst genocides since World War II. Anne Aghion, a film-maker friend who produced the indie "Gachaca" movie, reminded me of the anniversary.

 

With markets down, pessimism is in fashion.

Kamakura Corp raised its forecast 1-mo T-bill rate peak at the end of 2020 to 4.05%, up from a mere 3.86% just a week ago. Ten year notes are expected to rise steadily to a level of 4.23% by 2024 by which time mortgages will cost 5.935%/yr in interest. The Hawaii-based analysis shop uses historic data as a given and doesn't using changes in the Treasury yield curve which could cause much steeper rises.

 

Today The Guardian, a UK newspaper, published an article by guru Larry Elliott, who writes:

"Optimists could be right. This could be the start of a long global upswing built on technological change and middle-class spending power in fast-growing emerging markets. Or it could be another case of groupthink.

"Imagine that in 5 years' time the IMF (International Monetary Fund) is [again] doing a postmortem on a period of global turbulence. What will it say were the warning signs missed during 2014?

"The first will doubtless feature the global economy's dependency on exceptionally low interest rates. Britain and the US have only been able to revert to their trend rate of growth through looser and looser monetary policy.

"The second threat is a bond market crash as central banks try to return monetary policy to a more normal setting gradually reducing the amount of bonds [bought] under quantitative easing [and] using forward guidance to reassure borrowers that any increase in interest rates will be modest and gradual. When the time comes to sell bonds back to the market, the greater supply of bonds will depress prices and raise yield. A rush to the exit would be swift and painful.

"Is there a bubble out there everybody is missing? How about fracking? Getting oil and gas out of the ground is proving costlier and less profitable than expected. The third threat is that fracking proves to be the new sub-prime.

"Finally there are problems the world ignores at its peril, the risk of resource conflicts unless the international community serious[ly] deal[s] with global warming. The inaction of policy makers on climate change is the same as Greenspan's on asset-price bubbles: deal with the problem if it arises. We all know how that ended.

"Action needs to be taken against rising inequality. For the 3 decades after [World War II] a rising tide lift[ed] all boats. That is no longer the case with a tiny elite grabbing the lion's share of global growth. At the bottom, and increasing for the middle, [this means] wage squeezes, high unemployment, debt, austerity, and poverty. The 85 richest people own the same wealth as half the world's population but seem oblivious to the risk of widespread social unrest. [Like] the Bourbons and Romanovs."

 

More for paid subscribers follows from Russia, Israel, Germany, Iraq, Ireland, Mexico, Chinese grandparent stocks, Britain, Canada, and Mongolia. Including not one, but two drug company scandals, and two Russian buys.

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