No More QE?

Thu, 2014/10/30 - 12:56pm | Your editor

Now that Chris Viehbacher, a German-Canadian national has been fired as CEO of Sanofi., maybe the French firm will opt to hire another foreigner. Among those available is South African-born Jeremy Levin, who was ousted as CEO of Teva in Israel exactly a year ago. Both were sacked for daring to suggest that some verkers might have to be let go as the drug firms restructure.

The Fed will end its quantitative easing purchases of govt debt as scheduled. This boosted the dollar against almost all freely tradable currencies, which in turn hurt gold which is priced in US$. And it may hurt US shares overall as it did to General Electric today. While the Fed isn't buying government debt, Britain (and soon the EU and Japan) are still in QE mode. And the Fed still holds $4 trillion from its QE purchases. If nothing else, however, the end of its buying spree in US T-bonds will defang some of the anti-Fed rhetoric from US hard money stalwarts.

Another issue of Investor's Digest of Canada (dated tomorrow) and another quotation from this non-Canadian non-broker about a Canadian company, this one in a key source of Maple Leaf identity. The ID article quoted me about a maker of ice hockey equipment (formerly Bauer). Thanks to grandchild Claude a hockey player, we cover hockey gear carefully. But I am very proud when I am the source quoted by this venerable Canadian stock market magazine.

Now that fraud has been added to the charges against executives at beaten down Tesco, I thank my lucky stars that unlike Warren Buffett I actually visited various London supermarkets. This led me to sell TSCDY which at last report Berkshire Hathaway still owned. I spotted that its US aims were too ambitious and that its UK competition was fierce because in my alternative life I am a Hausfrau. More neiges d'antan news below.

Thank you to all the readers who agreed with me that Doctors Without Borders medicos are heros rather than publicity seekers. You are a more internationally oriented group of readers than are served by which published attacks on the charity.

More today from Brazil, Hong Kong, Israel, Denmark, Mexico, Canada, and South Africa.

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The Cat's Come Back!

Wed, 2014/10/29 - 1:29pm | Your editor

The cat's come back! He just couldn't stay away.

Italy today urged the European Union to resume efforts to set up a financial transaction tax to raise money. Italy currently holds the EU presidency and it is one of the 11 countries who agreed to create such a tax among themselves, even if other member countries stayed away. But the 11 cannot agree on derivative trading rules, so Rome asked that ambassadors to the Common Market get to work on hammering out a rule that will satisfy the eleven who want a “Tobin tax”. This was reported by both Bloomberg and Reuters this morning.

I just wanted to put in my oar in favor of Doctors Without Borders, which I have been donating to for over 40 years (after my first visit to West Africa, in fact.) Dr KSS, the self-promoting doctors who writes for (which I subscribe too) today attacked the charity because he thinks Africa needs more running water and should not attract other doctors who are looking to become heroes. I think Dr KSS is a flake anyway because of his attack on the management of a biotech start-up he initially recommended on that site, which I bought and am sticking with. More on this below for paid subscribers.

Today's blog is delayed because your editor stayed up too late last night at the gastro-pub and overslept. Then I had to spend long hours covering too many results from out companies for a single morning.

I will write up my notes about Israeli indexation tomorrow. It is a worthy subject for our newsletter on American Depositary Receipts, with implications far beyond the minor market (by world standards) of Tel Aviv.


Over to earnings from Canada, Ireland, and Israel plus news from Sweden, Denmark, France, Australia, Germany, and Britain.

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Riksbank and Abba

Tue, 2014/10/28 - 1:00pm | Your editor

The Real Bottom Line

Sweden has reached the real bottom line today. Their central bank has cut interest rates it charges to banks to zero for 0.25%. The Riksbank today surprised markets by opting to hit the “zero bound” although it had been expected to delay this. No other central bank has pushed the cost of borrowing to zero in the quantitative easing period since the global financial crisis, but now others may follow.

Our Fed targets keeping interest rates at 0.0% to 0.25%; the Japanese CB rate is 0.10%. The Bank of England charges 0.5%. The European Central Bank cut its charges to 0.05% last month.

But the Riksbank rate is now fixed at 0.0%. Zero. Nada. Nichts. Nichevo. Rien.

Adrian Ash thinks this may lead to paying lenders to take Riksbank loans, the next step beyond zero interest rates. The Swedish crown fell sharply on the news, as could have been expected.

There are two real problems with the trend.

Firstly, however cheap money may become, if governments and homeowners and companies do not want to borrow because they do not want to risk investing in infrastructure, homes, or expansion, then cheap money will not create growth. In Sweden or in the European Union, in Britain or Israel.

Secondly, as with any excessive move in a single country, there is an element of “beggar-my-neighbor” in rate cuts. This can go badly wrong, and did so in the recovery from the Great Depression. I fear its return because of what Sweden is.


Stockholm Syndrome

Sweden is a Scandinavian regional financial powerhouse. It is the home of major multinational corporations like Ericsson, Electrolux, Scania, Sandvik, SCA, Atlas Copco AseaAbb, SKF, Aga, Volvo, Hennes & Mauritz, and Alfa Laval. These firms make it a major exporter of cars, telecom equipment, chemicals, phrama, machinery and precision equipment, appliances, wood, and iron and steel. It also remains the banking and investment capital of the Nordic countries. And then there is ABBA!


If you did not read The Financial Times, the Wall Street Journal, or NZZ today, you might believe the European banking sector mostly passed the stress test over the weekend. Beware. Firstly, the ECB ran the results past national regulators (except in the case of Poland which simply was omitted entirely because of delays). That means German banks' solid reputation was boosted by deliberately un-updated inputs from the Bundesbank, which thereby downplayed Deutsche Bank's litigation risks.

Because European Union member countries have different and inconsistent accounting rules for handling bank tax loss carry-forwards and goodwill (both of which are hard to reconcile across borders), the ECB stress tests simply included them in itspublished tallies as part of bank capital. Under the Basel rules which will go into effect in 2017, these numbers will count, and many banks which passed the latest exercise would fail under a full audit.


Israel is expected to again cut interest rates as it last did in August. To help understand what that is all about I am attending a Qwafafew quantitative analysts' session tonight on how to index the Tel Aviv Stock Exchange. This at a Times Square gastro-pub. The lengths I will go to get information for you!


More for paid subscribers including a trade follows from Switerland, Spain, Britain, China, The Netherlands, India, France, Brazil, Singapore, and Portugal.

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Dilma Dump

Mon, 2014/10/27 - 1:27pm | Your editor

Last Sat., Oct 25, marked the New Year in the Islamic calendar, according to a Moroccan source. It should be marked by a Fatwa from religious leaders that the time has come for Muslims to stop killing innocent by-standers who happen to be in target range: British or Canadian soldiers at home, cops, tiny Jewish babies and Latin guest workers waiting for the tram.

I am not sure if the 10 commandments apply to Muslims although they do treat Moses as a prophet of Allah, so I suspect that they also consider murder a sin. But it would help if someone at Al Aksa or some top mosque were to spell it out.


Some years ago, during the global financial crisis, I put a sell on Australia New Zealand Bank mainly because I feared we could not cover it well from halfway round the world. I was premature. ANZ today suspended trading because it published part of its full year profit forecasts, also prematurely. It was due to reveal the numbers on Fri. by division and region to help analysts with their forecasts for FY 2014-5 which ends Mar. 31. Of course the ADR is trading despite the ban Down Under.


From nearer home, Maxcom Telecomunicaciones of Mexico is delisting its ADRs from the NYSE because of high costs and administrative burdens, while only few shares traded. Eduardo Garcia writes in Adios, MXT.


Today's blog focuses on Brazil, which faces difficult times under a re-elected Dilma Rousseff. Barron's today quotes Michael Shaoul (Marketfield Asset Management) as predicting that “Dilma re-elected wouldn't be the same person who destroyed the corporate sector through regulations in 2012. Her mandate has changed. We own a broad Brazilian ETF and individual shares and would buy more in a 'Dilma dump'” More news from Spain, Portugal, South Africa, Israel, Canada, Switzer-, Ire-, and Fin-land, Hong Kong, and Belgium

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Tables Posted

Sun, 2014/10/26 - 3:26pm | Your editor

Today's news pileup has so far only produced the latest stress tests for European banks, from the CB, the European Central Bank. 

The election results in Ukraine and Brazil are far from tallied up yet.

The ECB ordered at least one bank we used to be involved with to tell the CB how it intends to boost its capital. That is Italy's Credito Valtellinese, whose euro-denominated bonds we used to own, and which reached maturity. That bond was tipped by an Italian newsletter we used to trade ideas with, before we were warned off because it was run by stock- and bond-promoters.   In fact among serious EU countries, Italy had the most banks which could not survive a serious economic downturn, a sign of regulatory weakness in Rome.

But the official stress tests aren't the whole story for assessing banking risks. Consider the suicide ratio.

Over the past week, three prominent banks have taken their own lives because of the stresses of their jobs. It may be that they were simply overworked. Or it may be that the bankers feared that they faced scandal and perhaps prison. The best known suicide employer bank is Deutsche Bank NY branch, where Cologero Gambino, a former SEC enforcement attorney, hanged himself. Mr Gambino, an American, is the second top lawyer at Deutsche to kill himself, after Briton William Bolksmit killed himself in London. Later a US Congressional committee revealed how the UK lawyer had helped Renaissance Technology, a fund, turn its short-term gains into long-term ones to evade taxes. I have no idea if Mr. Gambino was ensnared in the same scandal or a different scandal or none at all.

Franco-Israeli banker Thierry Leyne jumped off a posh high-rise apartment building in Tel Aviv. He was a fund manager, and famously offered a partnership role to the disgraced former IMF chief Dominique Strauss-Kahn after he was accused of rape by a NY hotel chambermaid. I have no idea if Mr Leyne was ensnared in a scandal or if he was just depressed.

The final suicide last week was by David Zier, an independent financial advisor in Potomac, MD,with Convergent Wealth Advisors. Mr Zier also ran a side fund for family and friends which was not a sub of CWA (a sub of City National, a Los Angeles bank.)

The family and friends fund did self-custody, so its positions were not certified by the custodians, and they may have been depleted.

More for paid subscribers follows:

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The 0.01%

Fri, 2014/10/24 - 12:47pm | Your editor

The 0.01%

Since 3 readers sent me the following note I guess I'd better react to it. Matt O'Brien wrote Weds in Follow@ObsoleteDogma about research by Emmanuel Saez of UC Berkeley and Gabriel Zucman of the London School of Economics:
“Once upon a time, the American economy worked for everybody, and even the middle class got richer. But this story has only been a fairy tale for almost 30 years now. The new, harsh reality is that the bottom 90% of households are poorer today than they were in 1987.
“This is actually a much more dramatic statement than it sounds. While the Federal Reserve has already told us that the median households is worth less now than it was in 1989 -- that's the household right in
the middle -- it turns out that everybody but the richest 10% of Americans are worst off. That includes the poor, the entire middle class, and even what we would consider much of the upper class.

“This troubling finding [is] based on data from Saez- Zucman's new paper on U.S. wealth inequality, based on tax data. Inflation-adjusted net worth from 1945 indexed to 100, [shows] that the bottom
90% actually did very well during the first decades of the postwar period -- adding more wealth, in percentage terms, than those at the top.
“But these days of shared prosperity have come to an end, gradually and then suddenly. It started in the 1980s when the top 1% awoke from their long postwar slumber, thanks to the combination of lower
taxes, financial deregulation, and new technology. It wasn't a total disaster for the bottom 90%. Even as most Americans saved much less, accumulating far less wealth, stock markets and housing prices
continued to rise. Until they didn't, coming crash down in 2007-2008.
“The problem was that middle class doesn't own that much in stocks, but went into debt to buy lots of housing. So the housing crash turned their biggest financial asset into an albatross, wiping out their
equity but not their debt. And the housing recovery hasn't done much to fix this, since it's struggled to move beyond the 'nascent' stage.
“Stocks, meanwhile, collapsed during the crisis, but came back soon after. The middle class, in other words, missed out on the big bull market in stocks, but not on the even bigger bear one in housing.
“That's why the recovery has restored so little of the wealth that the recession destroyed. The bottom 90% kept losing net worth the past few years, in large part due to rising student loan debt.


Lost 25 Years

“It's been a lost 25 years for the bottom 90%, but a lost 15 [years] for the next 9% too. Altogether, the bottom 99% are worth less today than they were in 1998.
“This isn't a story about the top 1% running away from everybody else. It's a story about the top 0.01% doing so. Since 1980, the top 0.01 percent's piece of the wealth pie has increased by 8.6 percentage points, while the next 0.09 percent's has done so by 5.4. The bottom 99%, meanwhile, have seen their wealth share fall an astonishing 18 percentage points.
“A bit of historical perspective: the top 1% now own over 41% of all the wealth in the country. That's the most since 1939, although still well below the all-time high of 51% in 1928.”

One reader says: “There's a lot wrong with our country when, not only are 90% worse off but also 48% of our entire national wealth is held by 1% of the population. We may even be in that 1% but this situation is not a good inheritance to leave to our children.”

He suggests a few measures:

“Start off by eliminating the capital gains tax break on 'carried interest.' The Romneys have no money at risk for their 20% cut of private equity fund profits.

“Both sides of the Hill have been bought by the billionaires. Obama proposed repeal in 2009 and got nowhere despite a Democrat majority in both Houses.

“Next put billionaires in jail when they violate the law, e.g. Steven A. Cohen of SAC.

“No I am not a lefty. I am totally middle of the road and fed up with our corrupt society.”


Your editor thinks we should vote 'nay' on some corporate proxies which provide excessive compensation for their brass. If the Swiss can stop golden handshakes and Alpine-size golden parachutes, surely we can too. Your editor is a certified liberal Republican of the Rockefeller persuasion, if poorer. But like my reader we made money with the 1% in recent years by being in the stock market, and because we both are old enough to already own mortage free homes.


Sunday is going to be a big news day. There will be results from elections in Ukraine and Brazil. And the European Central Bank will publish the results of the latest bank stress tests.


Some recent polls show Aécio Neves pulling ahead of Pres. Dilma Rousseff prior to a TV debate tonight. Others show Rousseff in the lead. Brazilian polling is primative and in the first round the tallies failed to show Neves's gains over Marina Silves.

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Better Late Than Never

Thu, 2014/10/23 - 5:28pm | Your editor

It is now late Thursday afternoon and after valiant efforts over nearly 4 hours by Soleiman, a technician from Time Warner and your editor (we took a break for lunch), I am back on-line. Soleiman became my friend by declaring that despite being of Hausa (northern Nigerian) background, as the father of a teenaged daughter he thoroughly disapproves of Boko Haram. Of course I was not wearing my chador, so maybe he answered right to pretend to being more Westernized than he is.


There is much catching up to do so this blog will switch over to business for the current subscribers.

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No Blog Emergency

Wed, 2014/10/22 - 4:04pm | Your editor

Wednesday there was no blog. After I listened in to a company report in the morning, my Internet went down the whole working day. The repairman from Time Warner is coming Thursday morning and I will play catch up after I am back on-line.

Apologies to all. Technology strikes again.

I am off to a party at the Harmonie Club, the "Our Crowd" center from the mid-19th century German-Jewish exodus, well before my parents came to America in the 1930s. When I worked for the Senate Foreign Relations Committee, its chairman, Clifford P. Case, R-NJ, regaled me with the tale of how his colleague, Sen. Jack Javits, R-NY, had been blackballed by the Harmonie because he was of Polish Jewish origin.

The party I am going to is for my neighborhood improvement committee which paid to use the club so its officers don't care about our ethnicity.

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Keynesians in Foxholes

Tue, 2014/10/21 - 12:43pm | Your editor

Once again China has come up short of expectations with a 5-year low level of Q3 growth at 7.3% last month. The Chinese locomotive for global growth is late. And the air is still unbreathable and the Hong Kong demonstrators still demand democracy rather than merely a full rice-bowl.

Germany meanwhile is suffering an unexpected lag in growth despite its being the European Fuehrer of arch-orthodox fiscal conservatism. Meanwhile Germans want repairs on the Autobahn, but who will fianance them?

Who will Germany's heralded Mittenstand export goods to if the rest of Europe is forced to cut deficits to meet German standards of rectitude?

Macro-economist Russell Jones today has come out in favor of fiscal activism. He writes in a paper published today by Llewellyn Consulting in London:

“If fiscal policy is to be reactivated to expand demand, it will have to be innovative, designed [so] that debt sustainability is properly taken into account, and the maximum value extracted from each initiative. It will have to be closely dovetailed with monetary policy, and appropriate political fig leaves provided.” Here is more from Jones:

Keynesians in a Foxholes

“As Nobel laureate (and hitherto arch fiscal policy conservative) Robert Lucas put it: 'We are all Keynesians in a foxhole.'”

Jones's reasoning follows:

“On one side are those who aver that fiscal profligacy was the core of the world's recent problems; that budgetary stimilus is impossible to calibrate with busines; that it cannot deliver 'permanent' jobs and 'crowds out' productive private sector activieites; that it risks excessive inflation; and imposed an unfair burden on future generations.

“On the other side are those [with] a more constructive view [of fiscal activism], especially when output is far from potential; private sector animal spirits are depressed; households and businesses are debt- or liquidity-constrained; interest rates are historically low; market failures are numerous; and there is a clear shortage of high-quality infrastructure.

“Notwithstanding the enduring difficulties of fine-tuning and co-ordination, and recognition that exessive optimism and political short-sightedness encouraged disastrouse fiscal incontinence for decades following World War II, we find ourselves much more aligned with the second group than the first.

“Low growth can be as much of a catalyst for high debt as high debt can be a catalyst for low growth.”

More for paid subscribers follows from Britain, China, The Netherlands, Finland, Ireland, Canada, Denmark, Australia, and Argentina.

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Gold? Korea? Germany?

Mon, 2014/10/20 - 1:02pm | Your editor


On Friday, a technical outage took down the OTC markets in the US for over two hours and prices could not be quoted. This kept the recovery in stock prices late in the day from boosting the shares of small caps.

Blue Chip Blues

Meanwhile there is no joy in big stocks. First Dutch Philips Lamps, British Mothercare, and German SAP, and then American champ IBM, reported rotten results. Blue Chips are in trouble.

The transmission belt to the rest of the market is margin trading. Low margin interest is one result of low interest rates overall. But actually the US Fed has a role in this area: setting how much margin has to be posted for a trade is up to the US central bank. Now that the excesses of optimism about stocks is being deflated for owners of the 2014 version of the Nifty Fifty, they are getting margin calls from supposedly stable and non-volatile shares. That means they have to sell other stocks.

According to today's Financial Times, margin debt peaks are “a precursor to bear runs in the past”. The newspaper says that NYSE margin levels were barely off their peak YTD hitting $463 bn in August (from an all-time high of $466 mn in Feb.) In unwinding positive positions, the borrowers spread the contagion.

It's not over yet. There is still Ukraine, Ebola, Hong Kong unrest, deflation in Europe, and stock slumps to worry about. It may be time to think again about that classic safe haven, gold. Adrian Ash writes that it is not that simple:

The Case for Gold

“As the stock market slumps, gold's unique appeal stands out again, Gold has risen nearly 4% so far this month. Major world stock markets have dropped up to 10%. Hot-money hedge funds pile back into gold futures and options. Headline writers proclaim the return of 'safe haven' gold.

“If you want insurance against wars, plagues, or financial woes, a lump of metal won't work. But if you want to insure your own savings, reducing losses, and boosting long-term returns, then history says gold really can help.

“Over the past 4 ½ decades, gold has risen in each of the 5 years when the S&P has lost 10% or more, averaging 34% gains. Adding gold to a standard portfolio split between equities and bonds would have reduced your risk and boosted your returns as well.

“Short term gold often leaves pundits and hacks scrating their heads. When the US stock market tanked, in short order gold often went with it.

“The S&P 500 index on 8 occasions since 1969 [sank] 10% or more in one month. Gold has fallen alongside it 4 times, including the Lehman's crash of October 2008, and lost a monthly average of 4.5% overall.

“Longer term, beyond the horizon of newspaper headlines, gold haa helped smooth losses and boost returns.

“Start with a simplified model of 60% in US shares and 40% in Treasury bonds. Since 1969, that has earn[ed] 9.7% annualized with a maximum 1-yr loss of 14.2%.

“Switching 1-tenth of your money into gold and holding 55% stocks, 35% bonds, and 10% gold would have earned 10% annualized with a maximum 1-yr loss of 12.8%. Equity dividends and bond interest are included but [not transaction costs or ] taxes. You rebalance to keep your target allocation each new year.

“Or go plumb crazy and put 20% of your savings into gold. Your split of 50% stocks, 30% bonds, and 20% gold would have earn[ed] 10.1% annualized since 1969, with a maximum 1-yr loss of 11.6%.

“According to regulatory warnings, the past is no guarantee of the future.”

World Gold Council Line

Adrian Ash is head of research at, our London-based advertiser, which offers a cheap and taxable way to buy and hold physical gold. His data on adding gold to a portfolio is based on studies by the World Gold Council, which owns shares in bullionvault and the SPDR Gold ETF, GLD.


When it ran out of water because of drought, we sold our Saneamento de São Paulo state-controlled waterworks shares. Now cornered by revelations of corruption at Petrobras, which funded her party under her watch, Pres. Dilma Rousseff is using the SBS water supply cuts to attack Aécio Neves, her opponent in the Oct. 26 runoff vote. Neves heads the state govt of São Paulo which sought to cut water consumption by offering price breaks for people and industry using less. She may get away with it as the latest polls show the race is neck and neck. Unlike corruption, droughts are Acts of God. More on this below for paid subscribers.


New Pipeline

Across the eastern edge of Canada a new pipeline is growing, Energy East. It is an alternative export route for Canadian Athabasca oilsands to the still-contentious Keystone XL which would head for US Gulf ports, and will remain totally on Canadian soil on its way to St John, New Brunwick, a distance of over 3000 miles. The Energy East partners are TransCanada and Irving Oil. It will handle only about 1/3 as much heavy crude as Keystone and will cost more to build. With other alternatives ranging form safer railway oil-shipment tankcars to an export port in Hudson Bay, all plans depend on the price of oil not falling as far as anticipated Saudi Arabian oil chiefs, to $80.

What this means for one of our stocks is discussed below.


More from Britain, Brazil, The Netherlands, Israel, Ireland, Switzerland, Germany, Belgium, Mexico, and South Korea.

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