A Day Early

Tue, 2018/02/13 - 1:45pm | Your editor

The bloom is off the rose even before Valentine's Day when I predicted there would be a drop in stock prices. Bears have come out of hibernation a day early.

Today the experts indicate that despite eight quarters in a row of economic growth, Japanese inflation is still well below the target of 2%--and only at 1% under the most generous estimate. In early April, Haruhiko Kuroda's first term as central bank Governor at the Bank of Japan, will come to an end, after all his unorthdox moves to boost assets and push up yields failed to trigger higher prices or even the expectation of higher prices.

According to Russell Jones at LlewelynConsulting in London, Mr Kuroda had better be kept in office despite Japan's slowness to adopt inflation, because there are now “belated hints of success in meeting the inflation target”--despite recent BoJ “stealth tapering” of the purchase of government paper and exchange-traded funds. One trick would be to reduce the target to 1% instead of 2% and claim victory—blaming the gap on labor shortages. But there is also a risk that central bank actions will rebound with security sales in the private market and cause (for Japan) “positive inflation surprises”, meaning higher interst rates.

Without this reaction, which Mr Jones carefully hedges, the BoJ will have to again resort to “helicopter money” (mis-attributed to former US Fed head Ben Bernanke) to try returning to normal monetary policy.

The US currently looks more normal than Japan because our CB has committed to raising interest rates this year, what is terrifying the US bond and stock markets. Higher interest rates would be needed if the spare labor capacity of the US dries up and wage inflation risks arrive.Higher interest rates make older bonds cost less, and nip economic growth because companies and people have to better control their spending if they cannot borrow cheaply.

Fiscal policy in the US is now recklessly expansionist in a growth period when it is not normal to run deficits. So it is up to the Fed to take away the punch-bowl just when the party was really warming up. This is a quote from Democrat William McChesney Martin jr., who ran the Fed after being named as governor by Harry Truman.

'Truman expected Martin would let the White House run things. For 20 years he did the opposite under Presidents Eisenhower, Kennedy, Johnson, and Nixon. While Pres. Trump has little patience for precedents he is unlikely to try to bully the Fed.

UK inflation meanwhile is the highest in 6 years and boosted both the pound and the London FTSE index.

(The Japan material is from www.llewellyn-consulting.com in London, run by the former deputy chief economist of the OECD whom I know from Paris.)


Fidelity brokerage has blocked its clients from opening new purchases of reverse volatitily exchange-traded funds and notes and slapped a high margin on the whole volatility ETF and ETN group. You still can sell them. Because Fido is a private company it did not inform the market of its moves which took place on Feb. 6, but only confirmed it to Bloomberg last Friday. Another volatility vehicle, the LJM Preservation & Growth Fund, est. in 2006 with $800 mn under management, cashed out all its open positions. But the fund itself did not liquidate and asked its clients to be “patient.” Managers Anish Parvataneni and Anthony Caine claim LJM investz in “long and short options on the S&P 500 index that seek to profit, primarily, from the volatility premium' fell 82% in 2018 before it went into all-cash on Feb. 9.


More for paid subscribers from Israel (again because 3 companies there made news), Jordan, Russia, Ireland, Canada, Switzerland, Norway, Mexico, South Africa, Spain, Italy, Hong Kong, the Netherlands, Australia, Argentina, Chile and Finland.

We also explain why large well-known liquid American Depositary Receipt stocks do less well than smaller cap shares when markets are in the bear mood.

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Mon, 2018/02/12 - 3:22pm | Your editor

Fiscal year caught me today. Here is a correction for paid subscribers. Read more »

Taking Stock After the Debacle

Mon, 2018/02/12 - 2:24pm | Your editor


Gen. Joe Shaefer wrote today on seekingalpha.com today that “true passive investing cannot result from an index fund whose components are changed regularly.” Joe, who runs Stanford Wealth Management and writes a news letter, explains:

“The committees that decide what stocks constitute their index change their minds regularly. This is not buy-and-hold investing. It is buy and let someone else determine what you will own.”

He then wonders if buyers of supposedly passive funds know what they are getting into.  Of course both Joe and your editor are stock pickers whose customers are active investors so we are singing from our own hymnal.


Volatility, which has triggered the recent market sell-off, is not the same thing as risk, although if you listen to enough pundits you might think they mean the same thing. When VIX goes into orbit, in theory the smart money sells out. It didn't happen last week because the reversed volatility ETNs, like XIV, were sold off massive by “weak hands”, Wall Street lingo for retail investors. Right now according to Morgan Stanley quant Christopher Metli, equity market inflows and a really cheap price for VIX gamma (forward traded-volatility) means that they are good value compared to current VIX—if those ignoring gamma, according to ProTrading Research are right.


The SPDR S&P 500 ETF suffered $23.6 bn in outflows last week, an 11-year record in amount and a 10-yr record in percentages. This was about 8% of the fund's total assets at the start of the week and means that position unwinding can lead to further selling this week from risk parity funds and commodity traders, to say nothing of exiles from bitcoin.


However according to M&G's Eric Lonergan, the recent volatility spike was not triggered by news and therefore is less serious than the China devaluation rise in the summer of 2015 and the 208 financial crisis. However he warns that investors are all moving in lockstep which means asset prices move more than the fundamentals account for and it may take longer to clear the panic. Also using volatility as a proxy for risk, he writes, is a “recipe for pseudo-science and over-confidence” in tech and statistics.

And of course volatility is not the same thing as risk, because the only risk investors care about is loss of their capital. Volatility may raise it.  Note that because retail US customers often could not get hold of their brokers last week they may still have trades they want to make from the panic, which may show up as soon as Weds.


My mother-in-law died in a car crash on Valentine's Day, so it's a holiday we don't celebrate. This week it will also be a make-or-break day for the US stock markets which will get new data on US consumer price inflation. It was the trigger for Wall Street crumbling so far this month. Two of our companies are reporting, not enough to turn Wednesday into a terrible Thursday coming a day earlier. We also will see a couple of our favorites go ex-dividend.


*Today I got another mysterious stock tip form Russia from a different writer, Marthena Maus, for a stock called PBYA, Probability Media Corp., which trades OTC. If you get this stuff from Putinland, remember: “there is no such thing as a free lunch.” You do not get stock tips by email from legitimate analysts with whom you have no relationship. There is a footnote in Ms Maus's plug saying it had been paid for by notes granted to Pickwisk Capital Partners LLC of White Plains NY, a licensed broker-dealer. Where is the SEC in this imbroglio?


Today we have news from Switzerland on Israel, Canada, Switzerland, Japan, Ireland, Britain, Netherlands Antilles, Colombia, South Korea, Argentina, Mexico, India, Finland, Russia, China, Australia, Germany, and Brazil. Israel is first for stock market reasons, not Zionism.

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Tables Posted

Sun, 2018/02/11 - 1:57pm | Your editor

Before letting you check on my tables, I wanted you to also be able to check on my prescience. So before you visit www.global-investing.com read my blog of January 5, 2019 which was sent from London a whole 5 weeks before the stock sell-off began. I reproduce it complete with editing goofs.

Fri, 2018/01/05 - 10:13am | Your editor


A new high of the Dow-Jones inevitably makes pundits ponder what will pull the stock market back down. It only took 23 trading days for the DJIA to go from 20,000 to 25,000, the fastest rise in the index's history. Overnight the MSCI Asia Pacific Index advance a half a percent and the Japanese index gained nearly 1%.

The bulls are running and everyone is trying to guess which matador will first slay the creatures. It will not be in Catalonia (near where Catalan-laden Pamplona is located in Navarre). The sell-off will not be triggers in an increasingly marginal market like London or Frankfurt or even Tokyo.It must be on Wall Street. But the euphoria translates well according to S&P indexes: Brazil up 4.51%; Japan up 2.1%; Germany up 1.9%; Hungary up 1.1%; China and Britain both up 0.9%; Argentina up 0.5%; Hong Kong up 0.4%. The Swiss index and the London Stock Exchange both hit new records.

What will make the Dow and its fellow indexes fall?

It will not be yesterday's horrible snow dump in the US financial capital (which I missed by being in London) because the index rose despite the blizzard.

It's not going to be nuclear war because North and South Korea have arranged to begin talks and Seoul has postponed its 3-country military exercises until after it hosts the winter Olypics.

It's not going to be because of inflation because, despite the glorious US hiring binge, wages have remained tame. Now the Dec. report shows that US job growth slowed down because of lower retail employment in the runup to Christmas than had been anticipated. Department stores and some speciality retailers are vulnerable to internet competition, and that holds inflation at bay.

It will not be the speculative excess any fool can see in the bitcoin market frenzy.

It may result from the rise of the euro against the greenback but David Goldman who addressed that risk in Asiatimes.com says he is not sure. If Goldman is not sure about something it really is a hard call.

And it will not be the revelation that computer hardware (and not merely software!) is seriously flawed and vulnerable to hacking to steal data and passwords. This for the first time hurts Mac users as much as Windowers, and appears to be very broad.

Nor will it be the problems of regulating banks in Europe or negotiating a post-Brexit trade deal for Britain or even whether on not Prince Mohammed bin Salman's reforms are implemented. Since Putin is a shoo-in it markets will not suffer over his re-election, and because Italy is marginal it will not suffer over elections there. Spain has important political choices to make but they will not rock the boat for shares.

The German political impasse and the problem of what to do about Catalans will not derail the Dow because they failed to cut its rise. China, however populous and aggressive, is still far away. Japan ditto.

Realistically, as the accomodative Fed becomes tougher, there is no way that money won't flow out of stocks into bonds. Tax cuts, already in the price-earnings ratios,will not work their magic again.

My own guess is that the chaotic White House and the prospect of the Republicans losing their Congressional majorities will take down the US stock market and eventually those of tits trackers. Steve Bannon is prepared to play Samson to kill the Philistines if his revelations to Michael Wolff mean anything. As there is always an edge for being early, we are going to start exiting our high-flyers before the trend becomes totally clear, meaning soon.

But, beware,I am unsure how deep the drop will be and how long it will go on for. There are more warnings for paid subscribers below.

[The reason I recalled how well I had called the pending stockdrop is that my blog of Jan. 5 was sent out last week by Investor's Digest of Canada which featured it in its third issue of 2018, dated Feb. 9. So it was not clear from the reprint how well I predicted the drop in stocks]. More for paid subscribers follows:

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Another Day in the Market

Fri, 2018/02/09 - 2:43pm | Your editor

Now it's officically a correction if the Dow Jones remains down until the market closes. It may not. There now is an abundance of theories about why the fall occurred. My Swiss National Bank thesis has not been picked up by other analysts but many are blaming higher bond rates for having triggered the stock market fall. While the fall in bond prices as yield go up (because they move inversely to each other), the coordination of stock falls to bond market ones was slow getting going. It was more the likelihood of further rate hikes rather than their actual rises that started to stock selloff.

The impact on stock prices of the collapse in reverse-volatility plays (derivatives long on low volatility like XIV, the reverse of the VIX) is a technical factor being blamed for the continued share price weakness. It is probably being overstated. Whenever there is a crash in the stock market, pundits like to blame a technical factor. Among the culprits past are portfolio insurance; over-leveraged mortgage market losses; options strategies (put-buys or call-sells); and Wall Street bankruptcies ( in 2008-9's correction: IndyMacCIT; WaMu, Lehman Brothers, AIA, Merrill Lynch, etc.)

Blaming it on a technical factor absolves the market from having to blame itself for plummeting stocks. “It wasn't me”.

Or to blame the economic outlook for the bear market, which means it is a real danger.

Or for the US to blame the White House or Congress, for example for the looming rise in US government deficits and their pro-cyclical tax “reform”. Or the inexperienced new Fed Chair.

My own secret theory is that everyone knew it couldn't continue so they were trigger happy after the DJIA and the S&P 500 ran up the longer series of gains last year since the 1950s, which even I can barely remember. (Yesterday I was carded when buying hard cider, for the first time in about 40 years so I must be well-preserved, to use the French back-handed compliment.)

It is another day overladen with results, so enough chatter. We have results from Panama, Mauritius, Canada, and Japan, plus more news from other places. And a new stock pick in China which reported yesterday (our writer was waiting to be sure.)

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A Worm in the Apple

Thu, 2018/02/08 - 3:08pm | Your editor

There's a worm in the apple.

In case worrying about the stock market is not enough to keep you anxious, here is what the Swiss are frightened of today: a major leak of the source codes for the Apple internet operating system used for iPhone and iPads. The NZZ today quoted an insider as calling it “the biggest hack in history” affecting more than a billion devices.

Which doesn't mean Wall Street or indeed Zurich's Bahnhofstrasse are calm, cool, and collected today. As noted already, the Swiss Central Bank selling of its US stock portfolio used to invest funds it gathered to keep the Swiss franc cheap, was a trigger for the US stock market drop last week. The Swiss Central Bank, according to today's Wall Street Journal, last year made $55 billion from its global portfolio holdings—more money than Apple did.

Today the CBOE stock dropped another 15%, taking it down 25% since last week when the VIX soared and the XIV sank. It is a Chicago-based options market which trades volatility but also lots of other things.

Mexico raised interest rates because of inflation fear to a 9 year high which hurt Mexican shares.

European stock indexes fell to a 5-month low.

This is another terrible Thursday so we have corporate results to report, from Canada, Mexico, and Israel, plus news from around the globe. Here goes.

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Wed, 2018/02/07 - 4:04pm | Your editor

If you were wondering, we have not had a correction because US stocks so far have not closed 10% below a prior close, the formal definition. But we have seen the volatility demon ending its multi-year hibernation and come roaring back.

So those producing forecasts and strategies based on calm quiet markets continuing are now jumping out of the windows on Wall Street, even if there are no other signs of panic.

Notable suicides include VIX, the VelocityShares Daily Inverse Exchange-Traded Note, crafted by Crédit Suisse to give investors (and professional managers of hedge funds using leverage) a way to make money from low volitility. It is the inverse of betting on the VIX, an ETN which pays when volatility goes up at the CBOE.

CS yesterday announced that the $2 bn ETN redeemed on Feb. 21. The face value of the XIV on that date of course is not yet known. Both CS and the CBOE have been hit by panic sales in turn, which cut their share prices by enough to lead to a trading halt for the Swiss bank. Another reverse volatility funds run by ProShares Safe For Now ProShares Trust II, or SVXY, had its trading halted but did not plan on redemption while iPath S&P VIX Short Term Futures with lower volumes or greater liquidity just continued trading.

I quoted a respected CS equity analyst, James Golub, arguing that US and Canadian company results for the Q4 were showing less bullish surprises over sales, earnings, and earnings per share. I was of course, arguing that there is more chance to make money with stocks from Mr. Golub's alternative investment venue, EAFE, which stands for Europe, Australasia, and the Far East. That is what global-investing.com preaches too.

Having said that, this special sauce is clearly high-risk. And, alas, while we don't own Crédit Suisse we do have a stock in the business of selling high or low volatility, discussed below.

We also have an annual and Q4 report from one of our stocks and news from Britain, Canada, Israel, Denmark, Sweden, Mexico; Colombia, Brazil, Canada, Bermuda, Germany, much of Latin America, California, and Japan. Today's blog is late and is being filed after the market closed, which is unusual.

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The Year of the Dog

Tue, 2018/02/06 - 3:22pm | Your editor


What to do about the stock market? Here are some responses.

1) From Asia Times, here is the CLSA brokerage's outlook for the Year of the Dog, which begins next week, its now-famous tongue-in-cheek look at the year ahead. CLSA's predicts: “The Dog represents duty and loyalty and is a sign of defense and protection. It’s a good time to be level-headed and to err on the side of caution. Entrepreneurs should stick with their most loyal clients, and investors are advised not to bite off more than they can chew.”

2) James Golub, chief US equity strategist for Crédit Suisse, examines the outlook for the rest of the world vs the US using the MSCI EAFE index (Europe, Australasia, Far East) and the S&P 500. Q4 EAFE expectations: revenues up 6.6%; earnings up 15.3%; earnings per share (EPS) up 14.6%. Among the regions, Japan at 17.4% and Europe at 16.5% top the earnings forecasts. US and Canadian forecasts are lower. Q4 S&P company revenues are expected to rise 7.7%; earnings by 12.7%; and EPS by 14.1%. (North American EPS went up faster than earnings because of stock buybacks, why EPS was so much higher than earnings.)

But back in the USA, earnings surprises were more modest. Among companies which already reported, sales beat by 1.1% vs EAFA's 3.3%. US-Canadian EPS surprises were 4.1% over consensus forecasts while EAFE EPS surprises were 10.2% over forecasts. Among those EAFE firms which already reported Q4 results, EPS beat forecasts in double digits and sales beat by triple the rate for US-Canadian firms. Japanese firms beat with an EPS rise of 15.1% while European companies topped EPS forecasts by 4.5%. Mr Golub concludes that international companies have greater operating leverage than their US counterparts. US firms are delivering stronger earnings growth despite weaker revenue trends. [ED: Mr Golub used weighted S&P, MSCI, Thomson Financial, FactSet, and CS house data for this exercise.]

  1. Paul Tudor Jones, a vintage hedge fund investor, wrote to his clients that his days for betting on market rises may be coming to an end. “To everything there is a season, and a time to every purpose” he wrote, quoting the Bible. Now he expects to face “inflation with a vengeance” which may force the Federal Reserve to accelerate interest rate rises. He wrote that policy-makers should have been “more aggressive” “rejecting the fiscal impropriety associated with the most recent tax cutL. “This market's current temperament feels so much like either Japan in 1989 or the US in 1999. And the evernts that transpired in January make me feel more convinced than ever of this repeating history.” Jones founded Tudor in 1980. [Ed: theextracts are from a 10 page note published by Bloomberg.]

  2. Switzerland-based retiree JH suggests sports or drawing. “When I pick up my pencil I forget about stock markets!” [Ed: he also contributes to talkmarkets.com.]


More for paid subscribers follows from around the world, including EAFE countries for the most part, but also Canada. We have a company report which offers an earnings surprise, and in case you didn't realize it, we are seeing recovery in Japanese stock prices, and several European majors, the easiest way to listen to the Swiss bank.

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Swissies Part 2

Mon, 2018/02/05 - 2:22pm | Your editor


Having weighed in yesterday with a report on the logic of selling US stocks if you are the Swiss central bank, I don't want to go so far as to predict that the selloff which continued today in Asia-Pacific and European markets is inevitable. It's not.

The US equity rise last year (and indeed since the bottom of the global financial crisis in 2009) is highly unlikely to go on. Our country, apart from an appalling administration, faces triple-whammy risks of higher inflation and higher bond yields. This trio of trouble is not shared by most of the rest of the world. And inexperienced Trumpians running the Departments of State and Treasury plus the Federal Reserve.

Another country where the downturn risk is as high as in the US right now is Britain, where the Theresa May government faces a Tory rebellion from hard-Brexit supporters like Jacob Rees-Mogg, Boris Johnson, and Michael Gove. Whether or not they manage to burn PM May who has another lousy track recover, they will affect the way the negotiations with the European Union proceed. Unfortunately for stock markets, overthrowing May may open the door to left-leaning Labour under Jeremy Corbyn, a risk the US Democrats will spare us from. She also cut her links to Trump by defending the UK National Health System which he added to his list of stuff to be rude about, which may help her with moderates.

In Mexico too I fear a switch to the left in the coming election, which will feature another attempt by the veteran Andres Manuel Lopez Obrador.

A curiosity is the mcuh bigger sell-off in crypto-currencies than the one in stock markets. Are they related? That suggests another idea.

More for paid subscribers on what to do now with news from the Americas, Europe, and Asia.

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Sunday Special File

Sun, 2018/02/04 - 2:07pm | Your editor

The Sunday tables were just posted on www.global-investing.com with our first trade for 2018 giving morale a great boost, because it was very profitable. However, the gain was because this was a takeover, a nice way to get out of a speculative stock with triple digit gains. We also have two new sells, not yet done, one positive and one negative, because my Friday limit orders have not yet been executed. Paid subscribers can see the sell recommendations and check on Friday's post to see my reasonong. Pre-subscribers have to settle for being only told about completed trades.

Your free sub may have suddenly ended, because under pressure from google, I have had to cut back on how many blogs are sent out daily from my account. Sorry about that but if you want to get my opinions you have to shell out some money which, if the past is anything to go by, will pay off rapidly with stock gains.

Note that last week saw a coordinated drop in almost every share we own, except for a few marked in the model portfolio with a star. That is because the selling was very broad and relentless. I think there is a reason for this, which may mean that the market can recoup. I explain this below for paid subscribers only.

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