Global Investing newsletter
100 Days Mess
The market is reacting with enthusiasm to vague Administration promises of tax reform, a sign in my view of excessive bullishness. Also boosting Wall Street is talk of a deal delaying the building of the Great Wall of Mexico to keep Democrats on board so the government will not be shut down, another sign of Trumpian confusion. He is also rumored to be planning to allow offshore oil and gas drilling in areas blocked by the Obama Administration, and in a betrayal of the New York State Republican heritage from Theodore Roosevelt, to allow drilling in US national monuments and parks under the 1906 Antiquities Act.
54'40 or Fight. Trump has also unleashed Wilbur Ross, his Commerce Secy, against our NAFTA partner to the north, and preliminary countervailing duty was set at nearly 20% on Canadian softwood lumber heading to the USA. Lumber exports account for about 1% of Canadian GNP so this first shot across the Maple Leaf means there is trouble ahead.
Having campaigned as a mold-breaker, The Donald, short of experts and expertise in Washington, is having trouble defining his positions and programs, be they economic, diplomatic, fiscal, environmental, or trade- or public safety-related. This is not the way to go and ultimately we will be left with a mess.
Interestingly enough in European trading today, the market took its revenge by selling Berkshire Hathaway, blaming Warren Buffett for the White House follies. Buffett is not a Trump supporter but his shares were down 9.12% in German trading heute.
The Canadian central bank is likely to fight back by weakening the C$, which would go some way to offset the penalties at the border from the renegotiation of NAFTA Trump wants to see.
Inflation concerns have led the Argentine central bank to up its reference rate 1.5% to 26.25% despite Sept.'s mid-term elections, a sign that things are not going as well as the Macri Administration hopes. BoA-Merrill Lynch remains upbeat, forecasting that if inflation decelerates during the Argentine summer (which starts in June), the CB will be able to cut rates to around 22%, still up for the year, however.
More for paid subscribers follows from Britain, Israel, Spain, Germany, Canada, Ireland, Kenya, Bahrain, Kuwait, Oman, Qatar, UAE, Saudi Arabia, Libya, Singapore, India, Malaysia, France, Germany, Hong Kong, South Africa, Panama, Switzerland, Denmark, and Mexico. We have really bad news to start with.
French Meet Expectations
Mysteriously, polls proved to be more accurate in forecasting the French election outlook yesterday than they had been over last year's votes on Brexit in Britain, and the US presidential election. However, given that Emmanuel Macron, now expected to become the next president, offers policies as ill-defined as those of Theresa May and Donald Trump, today's market euphoria in Europe is overdone. French banks on average gained close to 10% and those of other Euro-zone countries about 8%.
This despite or perhaps because of a shareholder revolt against Crédit Suisse for excessive generosity to its top brass—even after their bonuses had been slashed by 40%.
Also boosting banks was the Chinese regulatory crackdown on some of the country's specialists in shifting funds offshore on behalf of oligarchs and fraudsters seeking protection of their gains.
And simply shocking revelations about how Goldman Sachs allegedly arranged to hide payoffs to Angolan government with the help of US lawyers who said any payments did not violate US rules against bribery.
We have winners in this bank boom, not always ones you might expect.
Bad characters are still hanging around European companies. Today we saw the resignation as CEO of Lafarge-Holcim of Eric Olsen, who apparently paid of ISIS to keep the companies' Syrian plant operating in the run-up to French Lafarge's merger with Swiss Holcim in 2015. We have two winners in this imbroglio. And some US firms where rainmaker Olsen was a board member have also let him go.
A French drug major, Sanofi, said that confusion over US drug price rules made it reluctant to buy American drug start-ups. Again there are surprise winners in our portfolio.
Having backed the Trump candidacy in Asia Times, David Goldman (AKA Spengler) now says the Administration is facing Zugszwang (which this Germanophone misspelled). That is a chess move which gets you out of a hole you have dug for yourself. Any move the US makes over North Korea or the Middle East will lose it the game. It is also what Goldman faces personally. He also thinks Trump backed Le Pen in the French election, which probably is not the case.
More today for paid subscribers from Britain, Spain, Germany, Mexico, Ireland, Australia, Hong Kong, Argentina, Malawi, Kenya, Saudi Arabia, Switzerland, the Dutch Antilles, Panama, Chile, Canada, and Colombia in a busy news day.
I have just posted the updated tables on the www.global-investing.com website where they can be viewed. Only paid subscribers get to see our current positions and outlook, but pre-subscribers are allowed to see closed positions to know what they are missing. As always, log on and use the "printer-friendly" button to view spreadsheets. More for paid subscribers follows: Read more »
Terrorists and the Euro
After a terrorist attack on the Champs-Elysées last night, fears of a victory for Marine Le Pen of the anti-immigrant National Front in Sunday's Presidential election took down the euro and US stocks. The euro fell below the symbolic level of 1.07 to 1.0699 to the US$, sold down sharply from its prior day opening level of 1.079.
Pres. Trump meanwhile decided to do battle for his protectionist agenda with friendly fire, attacking Canada for farm subsidies and South Korea for steel exports to the USA. He also made nice to those supporting his infrastructure initiative (like me) b6 promising $200 bn for this budget item, unfortunately including the Great Wall of Mexico.
Moreover, as a heavily taxed New Yorker, I don't think eliminating deductions from my Federal taxes for state and local levies is a good idea, even if it will help fund ACA (Obamacare) subsidies to the poor. And as for eliminating the Obama era rules against corporate inversions, the way USA companies became foreign ones by buying Irish or Swiss firms, this is not the way to go. Instead, there should be tax penalties for these moves, so they would be made only if they make sense, not just to save taxes.
More for paid subscribers follows from Mexico, Israel, Panama, the Dutch Antilles, Brazil, Chile, Argentina, India, and Canada including two quarterly reports which might have been better.
“What should we be doing now” asks Prof WS, to “play swollen valuations yet keep on board the train?” He suggests the answer himself: high dividend stocks. In general the payout level on foreign stocks is higher than that for US ones. Playing global yield disparities is a Ricardian solution to investment risks. David Ricardo's theory on economic rent, published only after his death, discussed the surplus return over and above the opportunity cost, or what was necessary to earn it. The opportunity cost includes a transfer payment, which is what we get for investing abroad.
He also defined the role of a central bank, first to issue secured notes, and then to act as the state bank and when necessary to issue un-backed notes (in an amount greater than the gold held in its reserves). This is the justification for current Fed policy. Ricardo also wrote on how central banks should price gold bullion, and on political economy and taxation.
The world this week is celebrating the 200th anniversary of the publication of Ricardo's “On Foreign Trade”, part of his opus Principles of Political Economy and Taxation. This the British-born but Dutch-Hebrew-educated businessman produced with help from both John and John Stuart Mill, plus Robert Malthus. His classic economic theories came out at the height of the Industrial Revolution in Britain.
Ricardo published his book on April 19, 1817 after making his fortune by betting on Britain winning the Battle of Waterloo with purchase of beaten-down government bonds. (The coup is frequently mis-attributed to Nathan Rothschild. Ricardo bought first, before the battle was even fought. Ricardo was the George Soros of his day.)
He famously invented “the iron law of wages”, stating that if wages go up above the natural price, profits tend to fall. Wages, he wrote, should be only enough to enable the worker to subsist and raise children, but not enough to earn a surplus. He also wrote that the natural price of labor will fall as new markets are developed and more goods are imported and against any government interference in the free negotiations between workers and their employers on how much they should earn. Laissez faire was his call. Labor's gain would be costly to profits, hurting the economy overall.
The “iron law” and laissez faire theories gave Ricardo a bad rep. His theory was cited by Malthus against workers who had too many children to support properly. Laws setting minimum wages, Ricardo argued, would harm the country while not helping the poor. Ricardo himself was born in London in 1772, the third of 17 children, exactly the sort of breeding Malthus preached against.
Ricardo's Sephardic parents had emigrated from Holland. At age 11 he was sent to Amsterdam to a yeshiva (religious school), and at 14 he came back to London to enter his father's stock-jobbing and banking business. But he blotted his copybook by marrying outside the Jewish faith to Quaker Priscilla Wilkinson 7 years later. Both converted to Unitarianism. Ricardo then set up his own stock-jobbing business which thanks to his bet against Napoleon made him a millionaire. But he was hampered by being denied support from the Jewish community and treated as an exotic by the British. (Unlike Disraeli, who could blame his parents for falling away from Judaism, Ricardo did it himself.) He bought himself a stately home and seat in Parliament, the done thing in the early 19th century.
Ricardo's trade theory examined two goods traded between two countries, cloth from Britain and wine from Portugal (his then-home and the ancestral home of the Sephardic Jewish Ricardo clan.) He wrote it after reading Adam Smith's Wealth of Nations, published in 1776. Each country specialized in producing goods where it had a comparative advantage which made both countries better off. The input factors which cannot be moved, like labor and the cost of capital, are lost to foreign competition if a country tries to produce everything itself.
Mercantilism (which Trump's America First policies favor) attempts to block imports and favor imports, however uneconomic and senseless to Ricardo. He argued that each country should specialize in producing those goods where it has a relative advantage and use the proceeds to buy the rest. Free trade allows both England and Portugal to win by exchanging cloth for wine, and visa versa.
He summarized: a country may, in return for manufactured commodities, import corn even if it can be grown with less labor than in the country from which it is imported. There is a price for wine and cloth which helps both sides of the deal who are specializing. Ricardo also argued that high profits in business help a country achieve prosperity and happiness for its people. While counter-intuitive, Ricardo's theory of comparative advantage is the key to justifying free trade. If you cannot understand why you need to read up in almost any basic economics textbook. Alas, Donald Trump doesn't like reading very much.
Ricardo died in 1823 of an ear infection. He had three sons, only one of whom produced a grandchild or great-grandchild, so he more or less followed Malthus in his own life. His Gatcombe Park estate, built for King Charles I as a hunting lodge, and bought by Ricardo in 1816, is now the residence of Princess Anne and her daughter Zara Phillips.
More for paid subscribers follows with news from Britain, France, Brazil, Panama, Israel, Ireland, Sweden, Denmark, Finland, India, Mexico, the Caribbean, Canada, Colombia, Hong Kong, Japan, and a few other places.
A Message Not From Microsoft,
Yesterday night we got a mystery message claiming that our computer was attacked by ROOT_TROJAN_HARDDRIVE_HIJACK.EXE. We were told to fill out a form giving our user name and password, and not turn the computer off, and to than call a toll-free number to talk to Microsoft, 1-888-920-0310. Without giving away our secrets I called the number and, surprise, surprise, the respondent had an Indian accent and admitted that the call was not going to Microsoft at all.
Because of the recent hack of my office system I was aware that Microsoft does not contact you to tell you about hijacks on your computers. This is a fraud or a scam. But the question remains: how did they get to drop this bomb onto our system, and get it to remain big and visible until I did exactly what the message said not to do, running our anti-virus software and then rebooting the computer?
The owner name for the toll-free number is not available and there doesn't seem to be any way to complain about the attempted fraud. 'Cortana' is singularly unhelpful although she works for Microsoft.
Among the risks of the 21st century, tech support scams and hoaxes allegedly from Microsoft (or from Google, the one I fell for last month) are scamsters claiming to be from established Internet companies but in fact operating from somewhere in India. This warning is posted as a help to the world. The problem with my having been hacked that still bothers me is that I was given the number to call by my cable company's tech support team for “roadrunner”, an email system I use. So the hack was by insiders at Time Warner Spectrum, which is particularly worrying.
On April 18 my broker finally mailed an updated 1099 to me which really doesn't help meet the April 17 deadline for filing with the IRS.
Today even Toshiba rose in Japan. Ditto for Honeywell International. Hope springs eternal.
However starting in European trading, IBM has been sold off on what Barron's calls “ugly Q1 margins”, despite higher profits and a continued rosy outlook for the rest of the year. It has taken down the Dow-Jones average which was supposed to recover today. Because of the way the DJIA is weighted, stocks which tend not to split are more heavily weighted than ones which did split.
Readers who want to read the full version of a recent issue before subscribing can visit http://talkmarkets.com/content/global-markets/prime-minister-may-be?post=131910&uid=4662/ While public access is free, my company gets paid for visits by the talkmarkets group.
More for paid subscribers follows from Denmark, Panama, Mexico, Israel, Switzerland, Britain, Ireland, Spain, The Netherlands Antilles, Italy, Australia, Romania, India, Argentina, and the Falkland Islands. Hitting all 4 I countries is a rare achievement as is covering two bunches of tiny islands offshore America.
Prime Minister May-be
New York City is not only the world's financial capital, it is also where the independent press was invented by one Peter Zenger. The busy port was the source of newspapers and other information coming from across the Atlantic on prices of stocks, bonds, and commodities.
The founding fathers were active supporters of economic growth, notably Alexander Hamilton, who before starring in a musical was the author of the Report on Manufactures in 1790. New York founded the first American stock exchange under a buttonwood tree in 1792. But Wall Street only really got going in 1825 when the Erie Canal was opened, linking the NY Harbor with the west.
Initially daily broadsheets covered stock trading, with closing prices input by hand. But in a New York moment, things soon sped up. By 1844 the telegraph was invented and financial information was available instantly. The closing Wall Street prices could be input into ticker tape machines which delivered the codes to banks and brokers all over the country. Ticker tape parades celebrated heroes and warriors until the tape became redundant.
During the Great Depression even more information became available to investors, like Fortune, founded in 1930 by Henry Luce, and its rival, Business Week, a favorite of my father's when I was a kid, and where I got my first journalistic job. In the economic crisis people also turned to the radio which reported on stock markets at the end of the day.
With the abundance of news, fake news, and false news on the internet today's financial news is virtually free of charge, but not necessarily without cost to those who believe what they read. That is why I am so tough on web advisories which quote supposed analyst notes backing short sellers. Shorting is legal but spreading false news is very dangerous to your wealth and should be controlled better by publishers and consolidators of stock advisories like marketbeat.com which can cause havoc. It is distributed by my broker (because it is free) and repeatedly writes up fake bad news about a company we own.
Today Theresa May belatedly fulfilled one of my predictions, by calling an election in Britain for June 8. However she did not take up my suggestion that the vote be treated as a second chance to remain in the European Union. My UK national husband will insist on being in London to vote, and I will go with him. Germany's foreign minister said that the vote “can lead to more clarity and predictability in negotiations with the EU.” It may also offer Britons a chance to reconsider the whole Brexit move.
Sterling rose to $1.266 against the dollar and London stock crashed. Under new rules Parliament must vote 2/3 in favor of an earlier poll than the next one slated, for 2020. The Labour party indicated it would back the June vote but Scottish nationalist leader Nicola Sturgeon warned that the vote might give the Tories a stronger majority and lead to cuts in social programs.
In my list of disasters caused by errant computer programs I did not include receiving an updated 1099 from my stockbroker by internet notification April 14. (I asked for it to be mailed as it is too late to change what was filed yesterday.) I don't think this really was the fault of computers, but in fact the fault of E-trade's cost-cutting zeal keeping human beings out of the process until it was too late.
More for paid subscribers follows today from Britain, Brazil, Mexico, Germany, Japan, Hong Kong, Belgium, Australia, Panama, Sweden, South Korea, and China.
What Robots Get Wrong Is Hard For People to Fix
As promised, here is a list of disasters over the Easter weekend which resulted from human stupidity over robots taking control of matters they had not been programmed properly to perform.
For Good Friday US subscribers to the Financial Times received a notification on how they could read an electronic edition of that newspaper on-line. It read: “How to Read the FT on Good Friday.”
Your editor, devoted to the pink paper, duly logged on to the site to read what was posted. And there result was nothing whatsoever, either in the USA, the UK, Asia, Europe, or the Middle East. In fact the newspaper worldwide was observing the closure of markets on the traditional day of the Crucifixion. There was no paper to view, unlike the case when Britain is functioning and the US is not, like on Thanksgiving.
I also again discovered that marketbeat.com, which claims to report on brokerage opinions of stocks, again dissed one of my favorite Canadian shares. After I alerted its editor, he wrote back? “We go through and ban junk publications like HiramHerald every few weeks. I'll go through and weed out the latest crop of these garbage sites on Monday.” My stupid question to Matt Paulson is why they are included in the analyst rating network emails in the first place. It is not just the one he mentions but also AmericanBankingNews.com, Twincitytelegraph.com, and other fake news sites. More on this issue for paid subscribers below.
The code generator on to my bank account went down on Friday and I got timed out every time I tried to get in. Rather than enabling me to override the device, the system shut me down despite several calls to the bank's holiday helpers in The Philippines. It was only today that I was able to order a new device and get the old one turned off. More on this for paid subscribers follows.
One of my very long-time readers who is over 80 could not get into her account on-line and for some reason did not get her e-mail either. Looking into the matter, I think I figured out that her email address included capital letters which the system does not recognize although they were probably correct when she first signed up for Global-Investing.com, which also has capitals.
There were other snafus. We had an invitation to go to Brooklyn for a family gathering near the Botanical Garden and carefully set out with an insulated cart holding cava for the adults and Passover fizzy peach juice for the children on the normal Lexington Avenue subway route. This would take us from the East Side of Manhattan to where we change for the Grand Army Plaza 7th Avenue train. There were notices all over saying the 4,5, and 6 were not running but the person using the loudspeaker could not be understood.
My cellphone did not work in the station despite the upgrading by the MTA. So I called the help line. After about 14 minutes of telling me to wait the woman at the other end admitted she did not know what we should do. As a native New Yorker I realized we could shuttle over to Time Square from Gr and Central which we did in a very packed and very infrequent train before resuming our journey without having to change trains again. But the 2 was running local and also skipping lots of stations and there was plenty of confusion among the passengers, especially tourists headed for Liberty Island or Chinatown. My hosts had to wait to deal with their dry throats.
So spare some sympathy for the worst perpetrators of unacceptable customer service last week, the tone-deaf over-bookers at United Airlines. The sad fact is that many web systems are ill-programmed leading to confusion, error, fake news, and the need for clumsy human intervention failing to resolve matters.
Today we have news from Britain, Canada, Mexico, India, the Dominican Republic, South Africa, Russia, Panama, Switzerland, Finland, Ecuador, Hong Kong, Germany, and South Korea.
Chag Pesach; Happy Easter
I have just posted the tables on the global-investing.com website where paid subscribers can check on their holdings and pre-subscribers can see what our gains have been like, to learn what they have been missing.
Several readers report that they have had problems logging in recently. It may be because of stray capital letters in passwords which do not "take" in our system, or because their browsers have been blocking our issues as "spam". The technology is increasing out of human control, a subject on which I plan to hold forth some more tomorrow in my blog.
Meanwhile remember that the tables are easier to view if you click "printer friendly" display even if you do not intend to print them out.
I am off to a multi-generational family gathering in darkest Brooklyn. Read more »
Catch-up Thursday Re-send
With computers and laptops and cellphones all to hand, hacking and stealing is now becoming easier than before. With the arrival of the Internet of Things, the proliferating system security holes will become a pathway for lucrative criminality.
Medicine on the go will check your heartbeat or your blood sugar levels creating health vulnerabilities for your enemies (or impatient heirs) to exploit.
An app will look into your refrigerator to make sure you are not running out of milk while you are at the supermarket—and will tip thieves off that there is no one at home.
A doll or teddy bear will use the Internet to chat with your child who will become vulnerable to a kidnapper or molester.
Drones will fly through the sky listening to your contacts on-line with your bank or broker and nab your passwords and your money.
O Brave New World.
Yes, of course I am particularly aware of the risk after the hack of my laptops. In the end to clean them up the techies erased all my backup drives, which makes it harder to check on what I have written before. Of course it is all accessible on our website.
Pres. Trump removed his charge that China was a currency manipulator and then blamed the fact that the dollar is too strong. He then called for lower US interest rates. Marine Le Pen gained some poll advantage in France. The neo-populist trend led investors to pile into blue chip euro-denominated bonds from Germany, Holland, and Finland. Their volume has soared and yields are falling in both euros and greenbacks. Bond ivestors are also buying Mexican sterling issues and Pemex euro bonds. British 10 year bonds hit a half year low. Emerging market bonds, often unrated or not in the index, are the new focus in a desperate search for yield. I assume Melania Trump is among those buying Slovenia (her homeland, where a major retailer has just gone bust) with the money she extracted from the Daily Mail which accused her of having been part of an escort service rather than a model when she first came to the USA.
More today from India, Israel, and Ireland, Canada and Colombia, Switzerland and Sweden, and Britain and Brazil, Trinidad, Hong Kong, Denmark, and Mexico, plus New Jersey and Nevada. But only for paid subscribers who can learn about our stock picks.