Global Investing newsletter

Thursday Bonus

Thu, 2018/01/04 - 7:02am | Your editor

Today the children went back to school here in London on a rainy Thursday and we are suddenly back into traffic by cars, bicycles, and scooters—with both mothers and children zipping along. The children all seem to have helmets to protect them, but not the mothers.

Britain in 2017 met its target of generating more electricity from renewables and nuclear energy than from oil, gas and coal. Nuclear power stations provided 21% of UK electricity needs, and low-carbon renewables 29%, as Britain “de-carbonized” its power for the first year. Its ultimate target is for three-quarters of its electricity to be green or nuclear, so it still has some way to go.

Half of Norwegian cars now either are electric or hybrid. It offers free charging and zero tolls, which helped the launch, but may be less generous in future.

Because I have wiggled out of the planned Friday lunch I am writing a normal second Thursday blog with updates and tomorrow will file in the morning, as is appropriate, rather than tonight. So here is a bonus issue. We start with banking news. And a bid for one of our companies!

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Lords a-Leaping

Wed, 2018/01/03 - 3:08pm | Your editor

News in 2018 is proving predictably scandalous. The Brazilian Minister for Industry, Marcos Perreira, resigned today. As a result, the bolsa in São Paulo rose 3.4% (the Brazil S&P index). Whether he was implicated in the Lava Jato (car wash) scandal or did something else naughty, I know not. But it is not illegal to engage in sexual harrassment in Brazil so that was not it.

 

Brazil also plans to investigate Apple updates because they took too long on older iPhones, a key accessory when you are sunbathing on Ipanema Beach. If your iPhone is out of date you may miss a key link-up with a bikini-clad beauty. Perhaps that did ex-Minister Marcos Perreira in.

The British equivalent of the SEC, their Financial Services Authority, is investigating the results reported over the last two years by Carillion plc, a company which provides track and train mechanical and construction support to British railroads. It reported serious losses, but only last month. Meanwhile the new railway station at London Bridge opened on time and on budget. We had lunch there today. Last week when we went to the theater they were still working at night to get the work done.

 

The British papers are full of stories about enlightened mothers of infants referring to their sprogs as them (although there is only one) to avoid pushing a sexual identity on the baby while its diaper is being changed. Having been raised partly in German I can assure the British mothers that there is a better way to avoid sex-casting their babies. Just use the German, es, or it. When I was a kid I would get furious that my mother would say es regnet (it is raining) and es weint (the child, me, is crying.) The neuter goes on well into your teen-age years if you are female. You are a Maedchen, a Maedl, or some other neutral noun until you become a Frau by getting married. So the British moms should start calling their babies it.

Jewish girls don't get away with anywhere as much. As a tiny child I was taught to say a prayer upon awakening to bow down symbolically to thank God for restoring my soul to me. The trouble is that the Hebrew present tense uses a different first person verb form for a girl bowing down (modah ani) than for a boy bowing down (modeh ani.) I would guess Arabic does too, but I don't know for sure.

 

Pimco has doubled the number of “smart beta” exchange-traded funds it offers on Charles Schwab’s ETF OneSource list, with new three smart beta share products. ETF OneSource list is a commission-free ETF platform which offers 254 products from 16 different fund shops, including Pimco, Deutsche Asset Management, and Invesco’s Powershares, with over $100 bn in assets. Retail investors with Schwab brokerage or retirement accounts can buy ETFs completely commission-free. I have such an account.

Schwab has today added 12 new ETFs to the platform, from 7 providers, 3 of them from Pimco which created them along with Research Affiliates (RAFI) last Sept. The $109.3 mn Pimco RAFI Dynamic Multi-Factor Emerging Markets Equity ETF, the $24.7 mn Pimco RAFI Dynamic Multi-Factor International Equity ETF, and the $17.7 mn Pimco RAFI Dynamic Multi-Factor US Equity ETF are now on the Schwab platform. Earlier Pimco offered bond funds to Schwab customers: the Pimco 0-5 year High Yield Corporate Bond Index ETF, the Pimco Investment Grade Corporate Bond Index ETF, and the Pimco 25+ Year Zero Coupon US Treasury Index ETF. That makes it the biggest player on the Charles Schwab ETF OneSource list.

While I tend to be ngative about the ETF phenomenon, because most ETFs are index-huggers and underperform, that is certainly not the case with Pimco and RAFI. Smart Beta stock picking requires that the analyst ponder other factors apart from whether a stock is in the index. And the result is that these funds can outperform. Because of this move we have a strong buy stock pick for our paid subscribers today. We also have news from Canada, Britain, Germany, Israel, Belgium, Ireland, Bermuda, Colombia,Finland, The Dutch Antilles, and Brazil.

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Ladies Dancing

Tue, 2018/01/02 - 2:46pm | Your editor

Today the Frankfurt airport went down because of IT computer woes. Five flights out were cancelled and another five heading there from other airports never took off. Apparently it was impossible to get the flight indicators to show that planes had begun boarding. You wonder why human beings don't simply pick up a microphone to tell people to board.

 

The US purchasing managers' index reported today for December hit 55.1, the fastest rise since 2015. The risk of over-heating is up although the people supposed to demand higher wages don't yet seem to be aware of their power.

 

*It is not only Apple which slows down its older phones. Samsung does the same according to our guy in Canada, Martin Ferera.

 

Again because of family business I will be out on Wednesday morning so I am writing up the news on Tuesday evening instead. We have a lot about finance from the USA, Germany, Scotland, China, the EU, and Spain, Chile and Canada. On industry we report developments in Brazil, Colombia, the Dutch Antilles, and Britain, while our Internet and IT coverage hits Hong Kong, South Africa, Israel, and Canada. Drug stocks from Britain, Switzerland, Israel, and Ireland make news too.

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Maids a-Milking

Mon, 2018/01/01 - 5:25pm | Your editor

2018 is now in full swing so we are back to reporting on news, however meager. It's back to work in London. The good news of 2018 so far is that Kim Yong-un seems to have softened his aggressive line under pressure from Beijing and the USA. In his New Year's Day address, Kim said that while he has a "nuclear button" on his desk, also offered an olive branch to South Korea, saying he was "open to dialogue" with Seoul.

"When it comes to North-South relations, we should lower the military tensions on the Korean Peninsula to create a peaceful environment," he stated. "Both the North and the South should make efforts." If this works out the worst current threat of nuclear war has been reduced by the Hermit Kingdom. Officially, Pyongyang says its move is related to the Olympics in South Korea Feb. 5-29. It that was enough to stop battles between Athens and Sparta it should work for North and South Korea. I hope both heads of state with funny hair (the other one is Trump) realize that a retaliatory escalation of military provocation can to result in a nuclear war neither country wants. Now that North Korea has mastered ICBM weapons and targeting systems and perhaps has tested nuclear bomds, it may feel it is strong enough to negotiate a freeze on more nuclear and missile tests, if it is allowed to keep what it already has.

Asia Times warns that the highest risks will hit after the Olympics as both the US and North Korea may be tempted to try to find an advantage by engaging in an operation which cannot be directly traced to them.

 

A reader out west, DN admits “I worked for Apple once upon a time.” He adds: “I think Apple's slowing down the old iPhones was a good thing to have done. It lengthens battery life and cuts power spikes that might damage hardware. The problem is that they did not tell customers about it, or offer them the option of slowing down or not. That would have required offering an app with a power use control. Not a technical difficulty, but perhaps a marketing one. As so often the problem is the cover up. The market's reaction occurred regardless of what I think” were good intentions. I had no idea this reader was an ex-Apple employee.

 

We have news from Brazil, Canada, Cuba, Demcratic Republic of Congo, Chile, Argentina, Russia, Britain, Denmark, Israel, and Canada. Because I am heading for distant Wimbledon on Tuesday to meet relatives for lunch I wrote this blog New Year's Day.

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Auld Lang Syne

Sun, 2017/12/31 - 11:33am | Your editor

Dear readers,

Before we head off to celebrate the New Year in Greenwich, I posted my close-of-year tables on the website www.global-investing.com where you may view our closed-positions and, if you are a subscriber, our current ones as well. It has been a good year for stocks and also for our stocks, the first time since 2008 that our companies were sufficiently appealing to lead to mergers and acquisitions, the easiest way to make money with a portfolio.

It will not be so easy in 2018 of course, but I think some US stalward oldies like GE or Microsoft may be on the comeback trail. Other markets also have such venerable out-of-favor shares and we own a few of those.

We went last night to the brand new Bridge Theatre (by London Bridge) with my brother- and sister-in-law to see The Young Marx, a comedy about not Groucho but Karl. It was fun seeing that the great bearded one was actually a bit of a hippy and only saved from various dreadful consequences of his actions by Engels and his wife Jenny von Westfalen who the play claimed was a relative of the Duke of Argyle, which I expect the British got right given their passion for lords and ladies. Read more »

Five Gold Rings

Fri, 2017/12/29 - 8:54am | Your editor

Wall Street has got it wrong about Apple's stock drop. It is not because demand for its newest model has been weak that AAPL shares have dropped lately. It is more a matter of the smartphone maker having cheated its customers by throttling their downloads if they had older batteries, inciting them to replace their iPhones.

Now Apple has apologized and admitted that it had let its customers down. It will now sell new batteries for older iPhones at $29 each vs an earlier disuasive price of $79. For some reason information on this scandal is more available on this side of the pond than in the US.

Comments tech newsletter writer Shelly Palmer, “Apple thinks they can buy your love for $29.”

The other hot news in London on the last trading day in 2017 is that the Forties oil and gas pipeline from the Scottish North Sea is now partly back in service. That means the current temporary glut in oil stocks in Europe and the US will not boost prices for much longer. In anticipation of more volatile pricing, China now intends to have a market of its own to trade oil futures, although it is mostly a consumer rather than—like the existing pricing services in Oklahoma and Scotland—a producer. Mexico also wants to allow visible price data for its market to be gathered. It is like its northern neighbor, a producer as well as a consumer.

The oil cartel, under the Seven Sisters decades ago, and under OPEC more recently, controlled markets by controlling supply. A key factor was having the best price data at any minute of the day, while other players had to settle for delayed prices, then often made available by the specialized press. One of the fact sheets was called Platt's Oilgram, my first jounalism employer. It still exists but is on-line with a new owner.

Today's pink paper (Financial Times) notes that the largest passive fund managers in the USA, Blackrock, State Street, and Vanguard, are installing shareholder “stewards” to better deploy their control of proxy voting in major companies. In the US, about a third of shares are now owned by passive exchange-traded funds, which the paper expects will rise to half by 2021 on current trends. In Britain passive funds own a quarter of all shares traded in London.

By voting for management, as they do well over 91% of the time, passive investing funds allow excess reward to the top brass, short-termism in strategy, undersized dividends, and self-perpetuating company management. So the new activist officers can make a differencd. However the reporters conclude that sheer numbers favor the current regime continuing, with no oversight. If a fund employing thousands to track an index puts 20 or 30 people in its “stewardship office” they won't make a different, the FT concludes.

 

More for paid subscribers follows from India, Britain, Canada, Israel, Japan, Spain, Hong Kong, Bermuda, Australia, and New Zealand. Happy New Year.

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Four Calling Birds

Thu, 2017/12/28 - 9:33am | Your editor

The Christmas New Year holiday link is very strong and today my internet went down and it is more than 5 hours into the market day as I write today’s blog. A Microsoft windows update overnight took down my fiberoptic link and I am starting all over again with today’s screed.

Meanwhile the one I wrote on is going round and round with an ill-timed Windows 10 update.

In addition to the gap in performance by exchange-traded funds vs their indexes for fixed income, small caps, and emerging markets--all of which are relatively specialized--a new outlier was discovered by analysts at a UK brokerage which offers stock selection to its clientele. As my source is a family member I am not giving the broker’s name but--yes--it is backing its own book by reporting that 21% of UK stock index tracking funds fail to match their indexes. They either do better or worse, but they do not match.

Since the London Stock Market is the closest large proxy outside the US for passive funds, this gap is surprising. And it also is backing my book, since I feel stock picking still has a role in global investing if not in the USA.

More for paid subscribers follows from Canada, Israel, the UK, Spain, Hong Kong, South Africa, Japan, Brazil, Argentina, Colombia, Israel, and Chile.

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Island Idyll for Three French Hens

Wed, 2017/12/27 - 10:54am | Your editor

Rain and sleet pelt the world outside. Even the ducks on the Thames have sought shelter and there is no sign of our local fox, called Blondie (because his or her pelt is lighter than the normal rust color of fox fur.) But at least the snow is not sticking and will not hit the 5 ft level reported in Erie, PA. The British dote on the winter misery of Americans.

Christmas, which in Britain fills two days with feasting, feeding, and drinking, has wound down to a close even in London. There is a Financial Times again. It is time to plot to escape to warmer climes and the back of the paper has an ad to tempt anyone contemplating an icey, slippery step outside the door with dread. Consider “The Ultimate Christmas Present”, called Bloody Bay, a 13-acre spread on Union Island, in the Caribbean mini-country of St. Vincent and the Grenadines.

It is for sale in lots or as a whole. Offers will be accepted from 400 bitcoin and up. If you are tempted you can register at www.bloodybaybeach.com/

The number of those who could afford this Caribbean haven in its entirety has been reduced by the Saudi regime's incarceration at the Ritz-Carlton Hotel of many of its oligarchs. To get sprung, they have to give up 70% of their ill-got gains. According to the FT a former government finance official has returned home after paying in $7 bn to his jailers. This will not be available to buy Bloody Bay, unles Crown Prince Mohammed bin Salman, who start the graftere purge, is himself tempted.

However, Bloomberg reports today that the world's wealthiest people gained $1 trillion this year as stock markets rose sharply, more than 4x as much as they gained in 2016. This is from the 23% rise in the Bloomberg Billionaires Index, which ranks the 500 richest people (including Michael Bloomberg himself.) The top slot went to Jeff Bezos fo Amazon.com, who gained $34.2 bn and is now the world's richest person with $999.6 bn—down from a round $100 bn at the end of Nov.

 

A correction from reader Steve C to my note on FAANGs yesterday, who pointed out that the N stands not for Netscape (a defunct internet outfit) but for Netflix. Apologies for my error—I go back a few years.

However the scandale over Apple's deliberately throttling down its older models to get customers to replace their iPhones which I also wrote about yesterday, seems to have hit home and AAPL stock is suffering, having lost 2.5% in US trading yesterday. Amazingly a US reader wrote to learn the details from me stuck in faraway Britain, perhaps as she was too busy cooking a feast to read the papers or view TV. To use “the word of the year” I would advise her to “wake!”

 

More for paid subscribers from Britain, Argentina, Israel, Hong Kong, Sweden, South Africa, China, Chile, Japan, Mexico, and a few other places today. We also have a new stock pick, our last for 2017.


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The 2018 Income Picks

Tue, 2017/12/26 - 8:01am | Your editor

My former favorite FAANG stock (the one I use the most) is Apple, and it is looking rather weak at the wending of the year. Its deliberate move to slow down older models is clearly unfair to its customers. And its new phone, the Apple X which costs a few cents under $1000 (before tax) is having issues both on supply and demand—supply because the phone is being produced too slowly in Asia and demand because the high price-tag makes buyers hyper-cautious.

I liked AAPL mainly because it had the largest offshore cash cache which can be repatriated to the US for investments or dividends under the Republican tax reform package. But before the money sails across the Atlantic, the European Union is requiring that Ireland and other havens get some more loot than they had been taxing Apple for earlier.

The impact on other FAANG shares is hard to call but I suspect that in the last week of the year people will start taking their profits on Apple stock which earlier looked like something to hold on to. If you have tax losses they will theoretically be worth less in future years because of the new tax code rates, so you may as well book your gains in 2017. Tax-loss carry-forwards are among the middle class tax breaks perhaps biting the dust now. However the way it will work depends on how the IRS writes the new rules, which may change matters.

My husband early in 2017 talked about buying a few bitcoins, in the presence of me, his sophisticated investor wife, and our son, the Chartered Financial Analyst (under the 3-year CFA system.) We advised him very strongly not to even think about buying a crypto currency and at our last family gathering early in Dec. for the bar-mitzvah of his second child we apologized deeply to him for having kept him out of a stellar investment.

Since that time the bitcoin has risen and then fallen rather sharply as holders decided it was a high-risk volatile investment. It had been that from the start and at several stages in between, but this time the losses were bigger in dollar terms even if they were parallelled earlier in percentage ones. On Christmas Day in open Asian markets, the crypto currency fell another 25%. The sellers were probably Israeli, Korean, and Japanese. Today in the very same markets, bitcoin gained back 10%.

At this stage we are avoiding cryptos leaving them to punters like the Turkish newsagent we go to for our daily papers here in London. On Boxing Day (today, the day when Britons put their presents into boxes to regift them later) I did not see him at all. However, the local fox, which I call Blondie because its fur is lighter than usual, is still on the town here at Mudchute Manor.

More follows for paid subscribers from markets functioning today like Canada, Britain, China, Chile, Mexico, Panama, Israel, Switzerland, the Dutch Antilles, Germany, and Japan.

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The Market Before Christmas

Fri, 2017/12/22 - 11:09am | Your editor

We went to the theater last night, but not to the London opening of Hamilton which was outside my price bracket. We just hopped across the Thames to Greenwich to see the pantomime Cinderella. Its performers were equally multi-racial, as is now common in London. It was surprisingly localized, with “Ella” and her two wicked stepsisters (both played by males) the daughters of Halley, the man who discovered the comet. The only problem I had with the play was that Prince Charming was a bit of a wimp lacking princeliness or sex appeal. Alas, the play had been written before Prince Harry got engaged to Meagan.

A few scandals besides the one we reported on in Mexico yesterday.

As we now all know, Apple throttled older iPhones allegedly to stop batteries from dying, and just by chance also encouraging its i7 and earlier model customers to buy newer phones. As an owner of two i6+ models I am a member of the class suing AAPL.

Despite the Republican attempt to defund Obamacare by removing the obligation to buy health insurance if you want to risk paying out of pocket, in fact Americans are signing up. Drug and hospital shares should gain from news that in week 7 of the open enrollment for Obamacare in the Federally Facilitated Marketplace, covering 39 states, the level has already hit 11.8 mn people.

This is ahead of the S&P target for the whole of 2018. Enrollment can rise further because plans have extended signup times because call centers crashed because of the heavy sales volume and because areas which had natural disasters like Texas, Florida, Georgia, and South Carolina also have extended sign-up periods.

Catalans voted for separatists but barely, which hurt the Spanish bolsa as it means that an early resolution is unlikely. The euro fell 0.5% to $1.1817 overnight.

Bitcoin fell below $12,504 yesterday and opened up only a bit at $13,659.85 Friday, in what I hope was an unrelated move. I did not check with the Turkish-Cypriot newsagent this morning because his son had begun his school holiday and was manning the cash register.

Bloomberg headlined how the former Long Island Iced Tea Wednesday changed its name to Long Blockchain which boosted its share price 183% in yesterday's trading when 15 mn shares changed hands. It has no non-tea assets or blockchain deals yet. It also cancelled a stock sale planned earlier. It is 13% controlled by Briton Eric J. Watson of Cullen Invesrtments who owns businesses, he says, in various English-speaking counties, and which sold its Cullen Agricultural Holdings to the former tea company in 2015.

There will be no blog Mon., a public holiday in most of the world, although the Orthodox and Uniate churches celebrate Christmas in Jan. Instead I will work on the fixed-income part of my outlook for 2018, the equity bit of which came out yesterday. The main problem is that something like 85% of asset managers think bonds are overvalued, a level that has prevailed since Oct., well before the latest Fed interest rate hike. (Data from BofA-Merrill Lynch Global Fund Manager survey.)

One of the few bright bond markets, which had attracted some 43% of asset managers in Nov., was China. Its risks are now scaring them and as of Dec. 15, only 34% of them were buying Chinese debt. About 15% of respondents now expect a Chinese debt crisis to hit in 2018.

Chinese debt valuation would be hit if growth slows, particularly in the hot real estate market, and if inputs and raw materials go up in price because of anti-pollution measures. You have to decide if the Xi Jinping government controls Chinese economic levers or not, which is unpredictable. My challenge for the holiday weekend.

 

The last trading day before Christmas-to-New Year week, when markets tend to be quiet, is mainly about closing deals before 2018 and Catalonia. Not today.

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