Oxford Vienna Letter

Sun, 2015/04/26 - 6:45am | Your editor

Our farewell gathering with the Oxford alumni was a brunch at the residence of the British ambassador to Austria, Susan le Jeune d'Allegeershecque. What is astonishing is not only that HM's ambassador is a woman, but that she has an incredibly Belgian name. Which tells you something about how European Britain has become.

Despite that, a former friend and supporter of Nelson Mandela's who lives near my sister-in-law's in Stockwell, south of the Thames, has announced that he will vote for the United Kingdom Independence Party, or UKIP, because the local candidate is black. This excessive local focus is even worse than the way Iowa leads the nation into heavy farm subsidies by demanding re-guarantees in every primary. Read more »

Every Fund Bites Apple

Thu, 2015/04/23 - 6:07am | Your editor

Every fund bites Apple. By alchemy, the confession of a fund management flak came my way from a reader. The PR wrote about how index investing has become a self-fulfilling prophesy:

“Our actively managed large cap strategies are up 3-4% above the index YTD, a refreshing change as they don’t always beat. The market sure has moved, but overall remains essentially flat YTD.

Apple (and some others) are such a large index component now that most managers must have a 5% position in Apple (it is our largest position in some portfolios too) so they don’t under-perform the index if Apple continues to rise!

“Beating the index has become more challenging as indexes move the strong names in and the weak out. Yet the trend with retail investors is definitely toward index funds. Even Fidelity is beginning to accommodate as Vanguard surpasses them in asset-gathering each year. All active managers expect to outperform. But with the volatility this year, it becomes more likely.”

I think these remarks on how fund managers are all chasing a statistic they are also generating are more damning than the revelations of how a then-31-year-old London suburban (Hounslow) trader spoofing on the Chicago Mercantile e-minis futures caused the May 2010 “flash crash”. However, the revelations of ease with which the British guy (who still lives with his parents) took down the markets pushed Wall St down yesterday.

FYI, during the 2010 flash crash Navinder Singh Sarao may or may not have caused, Apple fell 18% in about 14 minutes.

Today the China purchasing manager index from HSBC (which has more street cred than Beijing data) shows the biggest drop in orderbooks for the past 12 months. Yet thanks to traders, the impact has, so far, been minimal.

More for paid subscribers follows from Switzerland, Mexico, Britain, Canada, India, Denmark, Japan, Korea, Finland, and Holland, and including a quarterly report from one of our companies. It is mostly about the impact of currencies like Swissies and Yen. There will probably be no blog tomorrow as I am flying off. We are not flying EZ Jet which doesn't go toVienna, so we will not be hit with a £10 rebooking fee from the airline if our flight is cancelled.

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Mergers & Acquisitions

Wed, 2015/04/22 - 4:35am | Your editor

When I was in college, I used to go shopping with my Boston aunt at Filene's basement, a downtown landmark for the savvy clotheshorse. You found what you wanted, and then waited a few days before returning to buy it in the hope that no one else coveted the same garment. Its price fell from week to week. It was as much fun as a casino.

Filene's closed its doors about a decade ago, before my new Boston family got going. I now hit Boston often to visit a dozen relatives. I go to museums and to the old campus. But I do not shop. Only a boarded-up building stands where the bargain basement had been, a waste of good real estate and potential. A historic site, the Filene's building will be expensive to restore to meet modern regulations. But it cannot be torn down.

Luckily, of all things, the British are coming to the rescue. Primark, a UK clothing chain which is a sub of Associated British Foods, ABF, is about to open a Boston shoppe—using at least part of the old Filene's site. ABF in turn is owned by a family trust, presumably less interested in instant profits than a normal retailer.

I expects bargains galore! And a new spiffy-looking department store at the Hub of the Universe.


I am not sure about the links between “Wrong Way Corrigan” and Wall Street but I think the early flying pioneer collected bets from brokers on how long it would take him to fly from New York to California and then took off and flew east to Ireland instead of to the West Coast. So getting it absolutely dead wrong, as I did in forecasting yesterday a matter of minutes before the news came out made me cite that story. I had lots of comments from readers on this most of it also wrong-way.


More for paid subscribers from Israel, Portugal, Luxembourg, Germany, Britain, Finland, and France.

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Wrong Way Corrigan

Tue, 2015/04/21 - 8:47am | Your editor

Your editor is the reincarnation of "Wrong-Way Corrigan", a Wall St. legend. More details for paid subscribers follow.

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My Line Exactly

Tue, 2015/04/21 - 7:20am | Your editor

Here is the latest from The Boston Co. sent by a long-term subscriber, as it supports my line exactly:

“Investors may be wondering why they should put their money anywhere else besides the U.S. After all, the U.S. is poised to continue growing, at least over the next few years, while international economies are contending with a host of challenges, including a strong dollar, rising volatility, tentative consumers, and geopolitical tensions.

“We see several reasons why investors should consider buying international stocks – particularly small-caps – as the investing climate shifts in favor of active managers, including better diversification, more attractive valuations, more opportunities for stock picking, currency advantages,and stimulative central-bank policies in Europe and Japan.”

The note also later points our that Europe and Japan stocks pay higher yields. This outfit of course is not objective: it wants to get more clients to sign up for its active management rather than buying into indexed funds. And moreover, The Boston Co. is a sub of Bank of New York-Mellon, the largest depositary bank for American Depositary Receipts. ADRs are our beat too.

A savvy global reader who also has an account with HSBC thinks that my theory that the French are out to stop us getting cash from the ATM is not fair. He says that ATMs block your extracting too much money in a 24-hour period to protect you from armed robbers who may be forcing you to withdraw large sums from your account with your password and that the limits kick in at 10:30 pm. The only problem with this theory is that I attempted to extract money from my account at a Paris HSBC branch during broad-daylight early-afternoon hours local time. And it was morning in America as well. After this blog goes out I am off to a UK branch of HSBC to sort things out, as my relationship manager in New York has given them my ID data.

Goldman Sachs has raised HSBC to “conviction buy”, its highest rating, from buy. If they treat me right I may agree to buy stock of the former-Hong Kong bank which is now British. Let no one mistake me for an objective analyst!

More for paid subscribers follows from more than a dozen companies including three reports from our companies, one good, one excellent, and one mixed, plus news from Britain (where I am now), Israel, Sweden, India, Luxembourg, Canada, Finland, much of Africa, France, and Germany.

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La Loi Florange

Mon, 2015/04/20 - 4:31am | Your editor

The big French government plot against capitalism has moved from taxing the super-rich 75% of their income, now ended, to administrative jiggles to control cash movement and give the state a bigger say in companies where it owns a stake. The banking blockage I wrote about on Sunday.

Here is the latest on la Loi Florange, the law passed March 29 aiming to give faithful shareholders double proxy votes for having held a share two years or more. It sounds like a nice way to stimulate long-term-mindedness among shareholders, but that is not what is really going on at Renault, the French national auto-making champion. The law goes into effect automatically unless more than two-thirds of shareholders vote to preserve one-person, one-vote. Florange sounds nice: flower+angel. It isn't.

With Renault, La République française upped its shares from 15% to 19.74% with a temporary purchase for about 1 bn euros April 16th which will be used at the next annual meeting April 30. Have no illusions that the government will not reach the 33% threshold to force through la Loi Florange. In addition to direct shares the state also owns some through the national pension wealth fund, La Caisse de Dépôts et des Consignations, founded before the French Revolution; via existing double-vote shares held by the State; and through cross-shareholdings with other government controlled companies. In addition, a key shareholder in Renault, Nissan Motors of Japan, is not allowed to vote its 15% shareholding under French laws on cross-shareholding. Expected to back the govt too are the unions which have 3% of Renault shares and the 1.4% of Renault shares held in reserve. I think that Daimler with 3.1% of Renault shares will vote “nein”.

According to Le Monde, the left-leaning French daily, the govt has enough votes to force through the Loi Florange, after which, ironically enough, it will proceed to sell the extra 4.74% it recently acquired. The paper reported that the Ministry of the Economy subscribed fixed price options with Deutsche Bank which will allow the extra to be sold without a loss in the next half year.

Renault execs, led by CEO Carlos Ghosn, are fighting mad. Mr. Ghosn warns that Nissan will be furious that it is not being allowed to support managerial independence. Ghosn, a Brazilian, also wants to continue to be paid a high salary with performance bonuses, like the euros 7.2 mn he earned in 2014, whether or not the Socialist government and its union backers think this is fair. The last year when he worked for Nissan before Renault bought 43.4% of the Japanese company, Mr. Ghosn earned euros 7.6 mn and had fewer responsibilities.

Last Thursday, the Renault board held a vote on the double vote. The 2 state board reps abstained and the 17 other board members voted against the Loi Florange. Within Renault management, the word is that the state should cut its stake to 10% or so to keep out of business management. “Do not destroy something that works well,” they say.

However, I expect a different dénouement. Being smart, M. Ghosn is probably arranging to keep his salary and perquisites in return for unblocking the double vote. The public only owns 57.8% of Renault, however you slice and dice the shareholdings.

Oil company Total, after it took over Elf, accepted double votes for the state sector which had insufficent funds to bail out Elf's debt. NYSE-listed TOT applied the Loi Florange before it existed.

The Loi Florange will apply at GDF Suez, as the government already owns 33.3% of the shares outstanding. Nobody will be able to stop a double vote. The Orange telco and the Aéroports de Paris are also likely to apply Florange after shareholder votes. In these listed firms, the French state directly owns 25% and 50% respectively of the shares out.

The motive for getting double votes is to cut the French deficit. If the state can maintain its control of companies with fewer shares, it can raise as much as euros 16.5 bn by selling off surplus shares it doesn't need, according to an analysis by Exane-BNP-Paribas.

The private sector also is confronting the new rule. Vincent Balloré, the Brittany-born heir to the listed private Vinci holding company, after the new law passed brought his holdings to 14.5% from the earlier 8% level. Vinci already had a double-vote rule and he controls it via cross-shareholdings in group companies Balloré controls. The brilliant manager and rainmaker managed to keep the double vote in place. But this was opposed by the French Amundi asset managers, the PhiTrust private pension plan, and the US Calpers pension plan. For all his brilliance buying of cheap assets and selling them dearly, Balloré's company, lacking proper corporate governance, trades at significant discounts from the value of its holdings.

As of last week, among the top 40 shares traded on the Bourse de Paris, 11, not including Vinci (too small to be in the 40 index, it is in the Next 80 index) or Total, initiated a shareholder vote on the Loi Florange. Without a blockage, it goes into effect at the end of the year.


This was the week that was, or TWTWTW. The Friday selloff, ostensibly because China made short-selling easier by a technical change in market rules, for the first time this year pushed down the US$. Now China is also allowing banks to lower their required reserves to 18.5% of assets (ie loans out) from 19.5%. This is the second cut this year. The Beijing logic is to balance modest moves to pop the stock market bubble with moves to make it slightly easier to borrow money. China is hesitant in pursuing either policy because its leaders have no experience with credit policy. They cannot learn from other countries because the levers of control are all in state hands, whereas elsewhere there are other market forces at work.


Two reader comments about my note yesterday on French blockage of ATM fund extraction. One old Paris hand, LP, noted that in the past it was the USA that was supposed to lead the way to a no-cash electronic economy, while the Europeans were expected to stick with bills and coins. The reverse is happening. FBN meanwhile was comforted by the fact that stupid moves to stop tax evasion are also be made by foreign governments, not just the US.

The key difference is that US measures are publicized and explained to the citizenry. The French don't bother to. We return to London today, more or less broke, with a huge batch of potential high fees on our credit cards. I will demand that my bank cover them given my HSBC bank debit card, which does not incur exchange rate fees, failed to work in Paris. I notified the bank of my plans before I left and had no warning of any ceilings on cash dispensing.


More for paid subscribers from around the globe follows, Holland, Spain, Italy, Israel, Britain, Finland, France, and Belgium:

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Money and Museums

Sun, 2015/04/19 - 5:38am | Your editor

Since it's way too difficult to access US stock prices from Paris, I offer readers impressions from the first half of our long weekend here. We arrived on the Eurostar from London to discover the Gare du Nord full of fierce CRS special police who had hung yellow tape to stop passengers from connecting to the Metro and RER city system. We had to shlep our cases to the last metro entry on the boulevard and line up at the single functioning window (with one working clerk and two who sat beside her not doing anything) to buy our tickets along everyone else. Making it worse is that my carefully hoarded stock of tickets from our last visit to Paris did not work, nor did my US credit card. We were already out of euros from our last trip. So I hit an ATM for euros 500.

A CRS man I asked told me that the station would be closed till 6 pm, nearly 4 more hours, because of “a suspect parcel”. The next morning there was no word in the papers about any security issue in Paris; they caught 5 kids planning a bomb attack in Canberra. Read more »

A Paris

Fri, 2015/04/17 - 2:02am | Your editor

As I am off to Paris today, this blog is being filed early and fast. We went to a marvelous play last night by the Theatre sans Frontieres in Southwark (London). The play was Federico Garcia Lorca's Amor en el Jardin performed in Spanish with supertitles for those who needed them. In many ways London is now a European center. As for Paris, on verra.

The use of a fiddle to stop shareholders from blocking further state intervention at Renault is not exactly a sign of good business practice in France. The Loi Florange, which rewards longer-term shareowners with greater voting power, was used (or abused) to keep out capitalistic impulses at the state-controlled French car-maker.

More from Israel, China, The Netherlands, Panama, France, Mexico, and Finland. Two companies reported overnight.

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London Letter

Thu, 2015/04/16 - 3:35am | Your editor

Our arrival day was glorious, full sun, warm, lots of greenery in glory and flowers budding like mad. On the Thames, there was lots of birdlike bobbing and dipping to impress their fellow drakes and above all the lady ducks. So naturally we conked out to catch up on our sleep.Today we are rested and the outside world is greyer and colder.

Just when spring has apparently sprung the price of oil is firming greatly, with the crude future price up 5.25% yesterday to $56.25/barrel. This boosted Wall Street and hurt the US dollar. Today in European trading Brent crude is up another 3% to over $63. The rally will almost certainly reverse.

The headlines again predict that Greece is on the skids, mainly because Wolfgang Schaeuble is blocking a deal at the level of the European Union ministers. You may be as puzzled as the rest of us about who Mr.Schaeuble might be, but Standard & Poor's has decided that his "nein" puts paid to any further payment of its debt by Athens in May. Greek 3-yr debt now commands an interest rate of 24.6%. At least it is not 25%. Read more »

Haste makes Waste

Tue, 2015/04/14 - 1:43pm | Your editor


Thanks to readers for correcting my blog sent out early this afternoon in a rush because I am flying to Europe tonight. Especially first responder Patti the Biotech Maven. Read more »