News from Mozambique and on 4 Railroads

Thu, 2014/04/03 - 1:38pm | Your editor


Russell Jones and Rose Ferrer writing for in London ponder emerging market bond risks:


"One useful starting point is the ‘Rule of Four’ initially proposed by Norges Bank Deputy Governor Jan Qvigstad to provide a simple-to-calculate, easily-understood portent of danger in the OECD economies. [I]t can also usefully be applied to emerging market economies as a gauge of a currency’s vulnerability to a deterioration in external financing conditions.

"The Rule of Four focuses on a country’s inflation rate, and its current account and budget deficits expressed as a percentage of GDP. In advanced economies, a value of 4 or above for any variable is a warning signal.A value of more than 4 for two or more variables almost certainly spells serious trouble.

"While accepting the relevance of twin deficits as a determinant of EM crises, critics could argue that, when applied to the developing world, the 4% inflation threshold of the Rule of Four is too low. In many cases they have a point. The ‘Balassa-Samuelson effect’ suggests that faster-growing emerging economies will have higher inflation rates than slower-growing, mature economies. Consistent with this, whereas the average inflation rate for the developed world [w]as a little above 2% since 2005, the equivalent figure for the rest of the world is around 7%. The IMF forecasts non-OECD inflation this year at just under 6%.

"Such caveats notwithstanding, however, the various EM countries’ currency sell-offs were broadly in line with their Rule of Four scores: the higher the score, the bigger the currency decline.

"Who’s in the firing line now? The largest and most worrying budget deficits are in India, South Africa, Argentina and Mexico, with the Indian government by far the most fiscally incontinent.

"The largest external deficits are in South Africa and Turkey; both exceed the 4% threshold. Chile also has a current account imbalance issue.

"Not surprisingly, the majority of inflation rates exceed the Rule of Four threshold. India, Argentina, and Nigeria appear to have inflation rates that are troublingly high even for developing economies.

"When the outturns for the three sub-indicators are cumulated into one single reading, India, South Africa, Argentina, Turkey, Indonesia, and Brazil are flagged as the economies most at risk from disruptions in the flow of global capital.

"When these overall scores are compared with those recorded in 2013, it is noticeable that, with the exception of Argentina, they have improved in all the economies deemed most at risk. This fact may perhaps temper the potential downside for their respective currencies."

Separately, the Global Research team at Bank of America-Merrill Lynch set out to figure out which emerging markets present the highest risks. The 'fragile five' Alberto Ades and his team selected are: Turkey, Chile, Taiwan, The Philippines, and India. (I do not consider Chile or Taiwan emerging markets.) Sharp-eyed readers will see that the two lists overlap in bearishness about Turkey and India.


More for paid subscribers follows starting with China, whose growth outlook is the unspoken backdrop to both of the above exercises, plus India, Spain, Netherlands, Mexico, The Netherlands, Ireland, Norway, Canada, Brazil, Portugal, Israel, and its neighbors. Plus two news items about Mozambique. There are four articles about railways and one about ferries. And two on NRIs, non-resident Indians.

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April Fool's Day + 1

Wed, 2014/04/02 - 1:51pm | Your editor

It isn't April Fool's Day today but from the headlines you might think it is:


*A retired Italian Fiat auto worker learned he owned masterpieces by Bonnard and Gauguin hanging in his kitchen. He bought them for 45,000 lire (about $20) in 1975 at an auction of abandoned railway property. The paintings were stolen 5 years before and were listed with Interpol and other databases.


*The European Central Bank was accused of falsifying growth data to understate deflation and back continued austerity--by Swiss experts.


*The new French cabinet of Pres. François Hollande includes his ex-ex-ex mistress, Segolène Royal, mother of his 5 children, who ran for president while they were together, and was badly defeated.


*A strike by German pilots took down all planes operated by Lufthansa, the by-word for reliability.


*Cong. Paul Ryan's latest budget-balancing exercise counts savings from Obamacare to offset corporate tax cuts he plans. Ryan is committed to repealing the Affordable Care Act (Obamacare).


*With new Google C-shares coming out tomorrow, the stock symbol for the A shares has changed from GOOG to GOOGL. Multi-share classes enable the founders to keep control. Allowing them is why Alibaba is listing here rather than in more strictly-regulated Hong Kong.


*The US Supreme Court in a 5-4 partisan ruling removed the ceiling on how much companies and unions may donate to political campaigns in the name of "free speech". Money talks.


More on M-Pesa from an Africa-born writer on our team. The Kenya-developed cellphone money transfer system by-passes banks. It can be used to invest in Old Mutual "Toboa" funds by phone using a 4-digit pin and a registered phone number.

Each investment has to be for 7,500 shillings, whereas earlier buys through banks required the investor to put up KSh 200,000. A Kenya shilling is equal to 1.2 US cents. Old Mutual is South African; M-Pesa is owned by Britain's Vodafone, but was developed in under-banked Kenya by its Safaricom sub.

Another app sells M-Kopa Solar systems for Kenyan homes which are off the electricity grid in a jv with Safaricom. Buyers get finance collaterized by a syndicated debt facility from Commercial Bank of Africa, a Kenya big bank, and the Bill and Melinda Gates Foundation and other do-gooders.

Kenya customers pay back their solar loands with their phones via the huge dealer network of M-Pesa storefronts. The hope is to replace the KSh 86 bn Kenyans pay annually for dirty and unsafe kerosene for lighting their homes in rural areas without power lines.


More for paid subscribers from Canada, Mexico, Britain, Finland, India, China, and Spain.

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Jambo Africa, Asanti Sana

Tue, 2014/04/01 - 1:03pm | Your editor

My note about M-Pesa yesterday drew a note by Kenn from Kenya via Canada. He visited his Nairobi-based daughter over Xmas and that she used the cellphone payment system to pay for taxi cabs and everything under the sun. "It is slick as a whistle, fast, and trouble free. I predict it will take over the world." My reply in Swahili was: Jambo (hello). Asanti sana (thank you).


Oops 2: Reader Van pointed out that the cost of a gas pipeline cannot be $1 per mile and is likely to be $1 mn/mile. He gets a 3-mo sub extension for correcting Maurice's correction. This is becoming costly.


Today is April Fool's Day. A US banker, Bob Diamond, is ex-CEO of Britain's venerable Barclay's Bank, the old Quaker institution which bought most of Lehman Brothers in 2009. He was removed in 2012 at the orders of the Bank of England, the UK central bank, for failing to control staff manipulating interest and exchange rates.

Mr Diamond and partners have created a new fund to invest in Africa, Atlas Mara. It raised $325 mn from investors and just announced its first deal, to buy Botswana's BancABC, with a third of its business in Zimbabwe. It will pay $265 mn in cash and shares. This is no April Fool's joke. It's real.


Our sole Zimbabwe holdings are via a closed-end fund. You cannot buy in the Zimbabwe or Botswana stock markets as a non-resident retail investor. You cannot even buy in Kenya where I tried to open an account on my last safari. Our fund's strategy is based on market arbitrage similar to what I think lured Mr Diamond into ABC: that the Zimbabwe stock exchange can be a cheap back-door way to acquire cheaply assets elsewhere in Africa countries. We already have a return of 17% on this fund only bought in mid-Dec. 2013.


More on this and other news from around the globe in today's global investing including lots on closed-end funds where we invest our starter portfolio, for those with $20,000 to invest outside the US. Plus another article on the perils of Africa investment for a metals giant, news from Guinea and Ethiopia, Belarus, and Russia, Mongolia, and China plus staid old Canada, Ireland, Holland, Israel, Singapore, and Britian.

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Mon, 2014/03/31 - 4:55pm | Your editor

Thanks to keen-eyed readers Paul, Maurice, and Boaz who spotted errors in recent issues of

If you spot a substantive error (not a typo or a spelling error) please let me know so I can correct it. If you find errors you win the green-eye shade award, which extends your paid subscription with complementary bonus issues. It is not available to pre-subscribers, however.


*I gave the ticker for Electrovaya as EFLUF Friday but Boaz says it is EFLVF. I can't read my own handwriting.

*He also noted that I had the ticker Veresen as FCGCY, but it is supposed to be FCGYF. The ticker and the name are so different that I goofed.

*Veresen's cost of building its pipeline is $1 per mile not $1 bn per mile. Maurice in Canada spotted this.

*Paul pointed out that the note about DeNA's female former CEO was from The Economist, not the NY Times. He spotted my source as he doesn't read the NY Times in London. I misremembered what I read over the weekend.


Bad News from UK, Canada, Ireland, Brazil; Good from Israel, Canada, Spain, Brazil

Mon, 2014/03/31 - 1:59pm | Your editor

Today's Financial Times reports about what will probably be the ultimate digital virtual currency, and it ain't bitcoin. It is a mobile-phone text-based payments system invented in sub-Saharan Africa called M-Pesa. This is a way to pay for goods and services using funds from your cellphone account. M-Pesa means mobile money in Swahili, the lingua franca of Kenya, from which the system has spread.

Today Vodafone Group plc, a major UK-based cell-phone operating company, number 2 worldwide by subscribers and revenues (after China Mobile) began to offer M-Pesa in Europe, starting with Romania where VOD has 8.3 mn subscribers. Only a third of them have bank accounts. Romanians currently pay everything with cash.

A mobile phone text message is all that you need to pay bills and shop using M-Pesa. All the seller needs is another mobile phone. You can also deposit cash or withdraw it from licensed agents (ATMs are few and far between in Romania and other emerging markets.

Vodafone licensed and launched M-Pesa in 2007 on its Safaricom network in Kenya. Since then it has been spread to Egypt and India, as well as non-Kenya sub-Sahara African countries like Lesotho and Mozambique. Of course the system pays off for the telco, which gets transaction revenues plus the float. And it also makes its customers less likely to switch telcos as competition for basic cheap calling services increases.


More for paid subscribers starting with a 2013 reports from two companies plus news from China, Mexico, Spain, and Colombia. We have bad news from Britain, Canada, and Ireland; good from Israel and Canada; and ambiguous news from China, Israel, Brazil and more.

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Model Portfolios Update

Sun, 2014/03/30 - 12:04pm | Your editor

Today we are about to dine on pizza because I am getting bored with Chinese food, however cheap and good. Before the lunch I update the model portfolios. Closed positions may be viewed by all who will note that despite the flat US market YTD our closed positions are up over 25%. To learn the current positions you need to be a paid subscriber. To view the spreadsheets more easily, please click the "printer-friendly button."

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Non-US Mutual Funds, REITs, Currency Plays and More

Fri, 2014/03/28 - 12:55pm | Your editor

UK investors are being cheated compared to US ones by being charged 58% more to buy open-end mutual funds, according to a report by the True and Fair campaign (TAFC) published by The Investors' Chronicle. The report also argues that hidden charges can erode over half of total fund returns after inflation. UK investors receive just 6% of the economies of scale from big funds vs 33% in the USA.

TAFC's report shows that charges rose by 28% since supposedly "clean" funds, free of commission to advisers, were introduced at the start of 2013.

TAFC is calling for an Office of Fair Trading investigation of the retail investment industry. Telling investors about the Annual Management Charge (AMC) instead of all fees charged is "completely misleading", because the AMC typically accounts for less than half the total costs of investing. These are not falling but rising.

The AMC on an average fund used to be 1.5%, half to the fund and the other half commission to the advisor or platform which landed the customer. Now buyers are paying an average 1.92%, 0.75% to the fund as before but another 1.13% to the advisor or platform. Moreover administration charges, initial fees, and hidden transaction costs, add another 0.82% in annual costs, so the total cost per year is 2.74%.

Regulatory obstacles keep Britons from investing in US mutual funds, and keep us out of theirs. That is one of the reasons I don't cover open-end funds (or UK or Canadian investment trusts.) The other reason is that there are too many of them.

I am halfway to restoring my e-mail system. Jeffrey, recommended by my Internet Service Provider, worked on my system yesterday afternoon. He gave me access to my personal e-mail account cut off earlier this month by unheralded changes in Google Gmail. This is the 2nd time Google email changes caused havoc. 18 months they began classifying any mass-mailed e-mails (like our daily paid-for blogs) as promotions and filtered them out of g-mailboxes into a special promotions mailbox where recipients often could not find them.

Still to be done is getting Gmail to allow me reply to messages from grandchildren and friends without using my corporate signature. This requires only that the reply go to the same account as received it, but seems to be too hard for the Googleplex to set up. It too was removed without warning users.

I fully agree with the complaint AZ posted with Google:
"This problem is disconcerting and a violation of privacy. Any time a setting is 'undone' it potentially exposes my information to people who I don't want to see it. To make matters worse, gmail hides the 'respond from' email address so users don't realize this is a problem until it's too late. Time to share this on social media so everyone knows what a [beep] google is these days." More on how to play this (maybe) for subscribers below.

The Australian dollar is tipped to strengthen beyond its fresh highs but will be held in check by a resurgent US dollar, currency experts told the Sydney Morning Herald.

The Australian dollar hit 4-mo highs mid-week, after a surge when Reserve Bank of Australia governor Glenn Stevens made upbeat forecasts for Down Under in a speech in Hong Kong. RBA is their central bank.. Now speculators are reducing their net short positions on the Australian dollar, according to data from the US Commodity Futures Trading Commission, meaning they are less negative about its outlook.

Year-to-date, the A$ is up 3% against the greenback. Longer term the US economic recovery may boost the US dollar against the Aussie one. More for paid subscribers on how we play currencies and other news from Spain, Brazil, Colombia, Norway, Canada, The UK, Israel, India, Ireland, Indonesia, Finland, Australia, Mongolia, and the Netherlands. By sectors we have articles about oil, alternative energy, telecoms, consumer spending, pipelines, natural gas, pharma, medical devices, fish-farms, REITs or yield spinoffs, and waterworks.

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Green in Spain, Classic in Canada, Two Buys, Two Sells

Thu, 2014/03/27 - 1:27pm | Your editor

If this keeps up I will have to get an extension for tax filing this year. The reasons is that my e-mails continue to bounce. There is no way to get a hold of a g-mail human being to try to unbounce them. This is particularly galling in tax preparation time when the CPA is sending me quibbling but vital questions almost daily about 2013 portfolio moves.

Google posted my complaining issue two days ago in their search engine under so they clearly are aware of my distress. But they are unreachable electronically or by telephone to resolve the matter. They can, however, make things harder because I complained! And I suspect that is happening.

We know Sergei Brin, co-chief of the googleplex, was born and raised in Putin's country. Sometimes I think how the search engine and its e-mail treat their customers is modeled on how the Russians treat theirs.

The role model is Stenka Razin, the Cossack who made life easier for his band by drowning his new bride in the River Volga.


Today we have some big trades (because I want to have more problems reporting for 2014!) Two sells and two buys plus oddments of news from around the globe.

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Venezuela and Argentina Down, Colombia Up, Brazil Mixed

Wed, 2014/03/26 - 1:15pm | Your editor

When my late father was a boy, he collected large-denomination beautifully-printed currency during the great German Inflation of 1921-24. At one point in 1923, every US dollar was worth 1 trillion (million million) marks.

My father's bill collection was added to by a very large bill from Zimbabwe contributed by one of my reporters who was born there (and now lives quite far away.) Zimbabwe after hyperinflation in 2008-9 gave up on its downward spiraling currency and now uses the US dollar. At one point the country printed a 100 bn Zimbabwe dollar bill. The big bill plus my daddy's are in our safe.

Now collectors have a new potential hyperinflation currency target, the Venezuelan Bolivar fuerte. Yesterday, to quell violent unrest, the Nicolas Maduro government lifted some exchange controls, allowing the first free trading of the Bolivar or VEF, in years. The free market, called the "permuta" locally was banned a decade ago, allowed to be re-opened under the late President Hugo Chavez, and then banned again in 2010.

The VEF is officially worth 16 US cents. In its first free market day, the VEF fell to under 2 US cents, as it took 51.8 VEF to make up a single Greenback. The Caracas central bank reserves have fallen sharply lately resulting in shortages of vital goods (famously including toilet paper and life-saving drugs). Venezuela also blocked foreign corporate exports of their Venezuelan profits. The central bank reserves are reported only about US$20 bn.

To feed the new "permuta", Caracas will feed some of the daily dollar earnings of its nationalized oil company, PdVSA, into the market, at a rate of $100-200 mn per day. The theory is that other Venezuelans holding dollars will also rush to sell dollars get big amounts of Bolivars.

The "permuta" has a serious side effect. The massive effective devaluation uncovers just how high Venezuelan inflation really is. Estimates are that prices are rising 56% per year.

In due course I want to add a Venezuelan high-face value bill to my collection. I will pay in US$s. I would prefer a bill picturing Hugo Chavez (still to come) to one featuring Simon Bolivar who is on the 100 VEF note, I think the largest bill in current use. (You carry great wads of them.)


Things are hardly better in Brazil. Standard & Poors lowered its Brazil foreign currency sovereign credit rating by one notch to BBB- last night and placed the debt credit outlook as stable. S&P has been the most aggressive rating agencies. It cited the deterioration of the Brazil's fiscal accounts, in particular use of off-budget finance. This the rater says undermine policy credibility and transparency. BBB- is one notch over junk. The impact on our Brazil stocks was decidedly mixed, as paid subscribers can read below.


Separately, Colombia, birthplace of our Latina expert, is now Latin America's number 3 economy, replacing Argentina.

Another impact of the Ukraine crisis I failed to mention yesterday is rise in US futures prices for corn and wheat. The famous black earth produces great harvests but they have to be exported via the Black Sea to places like China, Egypt, and Western Europe. In addition, Ukraine is the world's leading producer of sunflower oil, a major sugar exporter, and supplier of meat and dairy. Moreover, it is the largest producer of natural honey in Europe, and an exporter of nuts (the ones you eat.)

However, Ukrainian farmland is still nationalized and therefore a political upheaval might increase export levels long-term while cutting it in the near-term.


G-mail does evil. Because I criticized their parent company's storage limits in my blog yesterday, delivery to some G-mail subscriber accounts was blocked as "phishing" and readers had to tell their mail service that they knew the risks of receiving e-mails from If you didn't get yesterday's blog please e-mail me using the website address. Thanks.



More for paid subscribers from Canada, Mexico, South Korea, Hong Kong, Ireland, Finland, Britain, Brazil,  Ukraine, and Portugal.

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Tue, 2014/03/25 - 3:49pm | Your editor

If you want to know the time ask a policeman. Don't ask your sometime contributor in Mexico City. There are all those awful jokes about mañana. They exist for a reason.

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