Dodged Bullets

Tue, 2017/04/04 - 1:28pm | Your editor
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While I have been very preoccupied by a bit of bad luck over my computer and email account having been hacked, I have not focused enough on some bullets we dodged thanks to our well-informed team of reporters and analyst contacts.

The only exit from a perilous stock I managed on my own was over Chicago Bridge & Iron, which despite that all-American name is a Dutch company engaged in specialized construction for the energy sector. It was allegedly using misleading accounting, and rather than tackle with the intricacies of how project costs are handled by builders (a specialized set of rules) we left CBI. Now it is the possibly innocent bystander in the bankruptcy of nuclear power station builder Westinghouse, another misleadingly red-white-and-blue company, as it is controlled by a Japanese firm.

Other bullets dodged we owe to our reporters like Martin Ferrera, who warned that we should get out of Old Mutual before it cut the links between its British and South African financial services subsidiaries. Martin, who was born in what is now Zimbabwe, has a good sense of African risks as a result. While nobody could have predicted that Pres. Jacob Zuma would ultimately succeed in firing South Africa's respected Finance Minister Pravin Gordhan (after trying to for years to silence Mr Gordhan's attacks on corruption), Martin was smart enough to worry about political risks.

Our Latina reporter, Frida Ghitis, warned us to exit from Banco Popular whose first mess was in Puerto Rico, right in the USA. Now the Spanish parent is in upheaval over fraudulent accounting which has led to heads rolling from the board room on down. The scene weas described in today's Financial Times as a “blood wedding” (referring to a play by Frederico Garcia Lorca.)

Our man in India,Abhimanyu Sisodia, helped me opt out of Infosys, the bellwether Indian IT company, over concerns that its ambitious plans to grow in size were unrealizable,, Now INFY is being hit by one of those boardroom squabbles Indian companies get into so often (another of our Indian companies already went that way,.) When facing difficulties like the blockage on US visas for its technical staffers under Donald Trump and a fall-off in business from cash-strapped banking and finance corporations, a fight in the executive suite over stock options and pay scales is likely to waste time and energy. So this is another exit whichturned out to have been well-timed.

Finally, my very public saida (exit) last week from Vale was boosted by an analyst who would not appreciate being named. The Brazilian company is the world's largest producer of cheap iron ore and already was having problems with Chinese demand for its output falling, and interference by the Brasilia government over its top officials, some apparently involving threats to their lives if payments were not made to the political parties in power. That was enough to get me to sell. Now it turns out that some local investment banks made out like bandits as VALE reorganized its holdings to cut its debt—to the tune of over $21 billion each. The banks are Morgan Stanley, a US biggie, which presumably did the work, and a top Vale shareholder with board seats, Banco Bradesco, which can be assumed to have done whatever was necessary in the way of peddling influence.

We don't always get things right and have a few clunkers in our portfolio as well as big winners. But anything like fiddled accounts, threats of murder, boardroom battles, excessive growth ambitions, and interference from a corrupt government gets me to say “sell”. More for paid subscribers from Brazil, South Africa, Ireland, Mexico, Canada, Australia, andDenmark, Hong Kong, Norway and a few other places

Later today I will update our charts for Q1 2017, assuming that the bugs don't interfere. Please visit to view the charts you are allowed to see: closed-positions for pre-subscribers, and both stock and bond, and fund spreadsheets for paid subscribers. Just log in to see.

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