Forty Thieves, Gold, and a Stock Buy

Tue, 2014/09/16 - 1:52pm | Your editor

The Chinese are creating a link between Shanghai and Hong Kong stock exchanges but Alibaba would not list in Hong Kong because it was not willing to accept HK corporate governance rules and a requirement that there be a single stock class. Some Chinese friends of Jack Ma are definitely among those who benefit from the special class deals he was protecting. So, according to today's Wall Street Journal, are some “quiet winners” who subscribed convertible preferred shares in a private placement two years ago.

Despite what Bloomberg is writing from China, it is not Chinese exchange controls and use of special rules for qualified investors that is the cause for the impossibility for its customers to buy BABA. Hong Kong will only list a single-share single-vote class of shares. The New York Stock Exchange allows different classes of shares, allowing stock to be issued without diluting insider control of a company.

It is because of the Hong Kong rule on shares classes that the Chinese public cannot buy Alibaba, because the rules meant it had to be listed elsewhere. The reasons is that the company founders, starting with the charismatic Jack Ma, who took over Alipay without compensating Alibaba and who earlier gave special deals to bigshots in China and on Wall Street had to deny IPO buyers control of the BABA stock. Alibaba is to be listed on Thursday without the buyers getting pro-rated voting rights comparable to what is being kept by the founders and their 40 friends. Or 40 Thieves.

This matters, according to Mohamed El-Arian, former chief of equities at Pimco, also writing in today's Bloomberg:

At a possible $22 bn to $24 bn, it could well be the largest IPO in history. So it really matters how investors fund their purchase of Alibaba shares.

“The broader market would be least affected if the incremental funds came from a healthy and sustainable increase in borrowing, associated with a greater willingness (and ability) on the part of investors to assume risk. The deployment of idle cash would also have minimal effect on the rest of the market. Although both will occur to some extent, they are unlikely to be the main drivers.

“This leaves plenty of potential for downward market pressure as investors sell existing holdings in order to make room for their Alibaba purchases. Given that most investors don’t know as yet how many shares they will receive, most of the selling wouldn't materialize until quite far into the IPO process. “The combined effect could be quite significant.”

Adrian Ash, head of research at our advertiser www.bullionvault.com writes from London about one of the assets likely to be sold off to buy into Alibaba:

"Last week was a bad week for gold prices, but a good week for gold buyers. Down 2.7% against the Dollar, gold's worst drop since May saw BullionVault users continue to add metal to their holdings as a group. Silver also got bought on its drop.

"Bargain-hunters might get a better chance this week too, according to Wall Street and City analysts. You [can] expect more violent swings, we think, whether or not gold gets back to 2013's low of $1180 per ounce.

"[Today] the world's most important central bank, the US Federal Reserve, will announce its next policy statement. The financial world will be watching for one word: "considerable". That's the length of time the Fed has promised to keep interest rates unchanged ever since its QE [quantitative easing] money-printing scheme reached its peak in late 2012.

"Now several big-name economists think that, with QE set to end this month or next with the final 'tapering', that word will go as well.

"Does it matter? Back in 2003, then-Fed chairman Alan Greenspan used the words 'considerable time' when promising to keep rates at 1% after the DotCom stockmarket crash. One Fed research paper said it clearly pushed down longer-term interest rates on 10-year US Treasury bonds. That let the government borrow more cheaply and reflated asset prices, most notably US housing, with a flood of cheap money.

"Here in 2014, dropping the word 'considerable' from Wednesday's statement would be dramatic at least for economists and the trigger-happy financial markets. And especially with the Dollar's No.1 competitor as world currency, the Euro, facing a new QE-style deluge of its own when the European Central Bank starts running its printing press on Thursday this week.

"But another key word this week however is 'No'. Or maybe 'Yes' from voters in Scotland's independence referendum on Thursday. The big risk here is to Sterling. Knocked lower by surveys pointing to a dead-heat, it could rally very fast, knocking gold prices for UK investors much lower,if Scotland in fact votes to stay in the Union.

"But if Scotland splits? As we told The Sunday Times, BullionVault has seen Scotland-based users (as a proportion of all active clients on the Order Board) swell by over 40% so far this month compared to the previous 2014 average.

"A little insurance looks wise. Because while the UK authorities are only now preparing for a "Yes" vote, their likely response to capital flight from Scotland is obvious. Owning physical gold or silver in a secure, foreign vault, ready for instant sale if you need the cash, would at least keep some wealth far away from [possible] 'emergency' controls on domestic [British] bank accounts.

[While] price-risk is plainly an issue with gold right now, there are other reasons to buy physical bullion and own it, outright, in a safe place beyond your own borders."

More for paid subscribers follows from London, The Netherlands, Ire-, Switzer-, and Fin-land, Brazil, Bermuda, Canada, Mexico, Portugal, and China. Plus a new stock pick from our returned prodigal, Amb. Harry Geisel, MBA.


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My Pink Paper

Mon, 2014/09/15 - 1:07pm | Your editor

The made-over Financial Times came today with a self-congratulatory special supplement about its charms. As a reader of the FT since the 1960s, when it was edited by Sir Gordon Newton, I found the new layout fine, but I miss “Lex”, the gossip column. I searched all over the paper and could not find it.

There used to be two gossip columns, the other called “Men and Matters.” Neither was particularly authoritative and anyone who invested based on these columns deserved all the losses of money which ensured. But it was fun to get a writer's opinion on businesses, stocks, or events. Now they seem both to have bitten the dust to make room for more photos, maps, and graphics, and wider headlines.

Today there was still Lucy Kellaway, who writes about the linguistic and logical failings of self-congratulatory businesses (but of course not her employer.) But she was writing about the perils of forecasting 50 years into the future, and it was a serious article. Give me back my breakfast dose of British understatement and humor.

On a day when Bill Ackman announced that his Pershing Square fund will issue stock for the very first time to raise $2 bn with shares listed at $25/each, I would have appreciated Lex's comment, since Mr.

Ackman's retail-priced shares will trade... in Amsterdam, not Nieuw Amsterdam!

With two Mme. Presidents turning up for a South ABC program about Pres. Jacob Zuma's wife—and Mme Z 3 and Mme Z 4 practically coming to blows on camera--surely we need Lex today!

 

 

*Fund news first. The Thai Fund is now over 27% owned by the London closed-end fund (investment trust) investing in closed-end funds, City of London. TTF is down because of political uncertainty in Bangkok as yellow- and red-shirts battle for power while the aging monarch is in ill-health. The amount rose from less than 7% a month ago. The fund of funds run by Barry Olliff is a major holder of US closed-end funds invested in emerging markets. We remain in TTF but sold half earlier this year because of political uncertainty, despite Paul Renaud, our Bangkok-based source, being disgusted with my failure to stay the course.

 

*Mexico has removed 4-yr-old restrictions on businesses using US$s and the greenback can now be used to price international sales, and deposited freely in Mexican bank accounts reports Eduardo Garcia in www.sentidocomun.co.mx with which we trade blogs. In my opinion, this relic of exchange controls being ended will boost the visibility and global strength of Mexican companies and our Mexico Equity and Income Fund, MXE although the immediate impact will be on companies selling retail goods and service for cash rather than credit cards on both sides of the border. The regulations allow businesses to avoid expensive exchange rate fees which often leads them to holding on to the dollars themselves.

The resulting inflow of currency into Mexico should make the Mexican peso exchange rate stronger and less volatile, while also boosting Mexican tax receipts, as more money comes into the official system. (Special controls make sure that cash deposits doesn't come from criminals laundering money. Small businesses have to know their customers, have been operating for at least 3 years, and may only deposit $14,000/mo. )

As we reported last week, in Mexico American Express is now jointly issuing Mexican bank cards, hitherto the domain of Visa and Mastercard. The new cash rules further open the border across the Rio Grande.

*Our Mexican REIT, Fibra Uno, which already reports its purchases in dollars, can now follow through in explaining the rentals it is buying. FBASF.

This ends my second offer for pre-subscribers for a blog about funds, aimed at newer and poorer investors than the full blog and prices at $49 per year. I would like some of what Germans call "feedback." Only one response so far from a person getting our macro-oriented blog. This is how you can use the information without having to buy individual shares. More for paid subscribers follows from other corners of the world: China, Russia, Brazil, Britain, Israel, Canada, Finland, The Netherlands, and Spain.

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Performance Tables Posted

Sun, 2014/09/14 - 6:31pm | Your editor

I have just posted our performance tables after returning from my volunteer work. You can view whatever you are qualified to see at www.global-investing.com

Everyone can view the closed positions table but only paid subscribers get our current positions and my opinions on them.

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For Pre-subscribers

Fri, 2014/09/12 - 1:02pm | Your editor

My notes from pre-subscribers continue to pile in. Thanks to everyone giving me their views. Here is one pre-subscriber's reasoning and my response:

“Having cash in these markets seems crazy. I also strongly wonder about the wisdom of investing in a country where the ruling class seems to hate business and not understand who pays the bills. Further, it shocks and scares me that they seem willing to just fine the banks huge amounts almost just to prove they can do it. The banks were forced to make loans in neighborhoods they knew were not profitable. “They then figured out a way to move the "risk" which led to the meltdown. That is simplistic, but I also believe it is basically true.”

I replied:

While I admit the US is not the worst offender I am not advising purchase in the US stock and bond markets. My writing is exclusively about non-US stocks. The US ruling class doesn't hate business; it is split right down the middle which makes it incapable of doing much at all. And I think we need serious moves on tax reform, healthcare and education upgrades, and infrastructure spending rather than a leviathan looking like laocoon and incapable of doing anything.

If your principles lead you to say out of the market you are missing some real easy gains. Our 1-yr returns according to Mark Hulbert (despite the high dollar hurting our positions) was 18.8%, my best year ever according to this Dow Jones newsletter rater. You can do even better in US shares which are being boosted by the Fed and are in dollars.

Why say no to profits because you think Obama is insufficiently pro-profits? Are you insufficiently pro-profits?

 

A more important suggestion came from another pre-subscriber. SG suggests that I offer a weekly summary of news on the part of our portfolios more interesting to her because she wants diversification and not too much work as she is 77: the closed-end and exchange-traded funds only. We cover such funds for investment outside the USA, and also hedge currency risks with ETFs. Moreover we mostly own gold via funds, another hedge.

A sample of the weekly is below.

She didn't suggest a price point but it could be as low as $49 per year. Is anyone else interested in this?

Today's blog is late because my newspapers didn't get delivered. But we bought them at the newstand. We have a note about the Holy Ghost at The Mouth of Hell, a stock downrating, and news from China, Israel, Mongolia, Canada, Britain, and fund updates.

*Poland resumed delivering natural gas to Ukraine today despite a cut in normal delivery levels from Gazprom all week. PGNiG, the local state-owned gas company, was able to cover the shortfall by importing gas from Germany and Czech Republic for trans-shipment to Ukraine. Kiev now has to import its gas from other sources as Russia has blocked its direct supplies when Ukraine could not pay quadruplied gas prices imposed after the fall of the pro-Russian Yevtushenko govt. Poland ships 4 mn cu meters of gas to Ukraine and is a stalwart supporter of Ukrainian independence. Russia in the past has blocked Polish supplies over political disputes.

We have a horse in this race, MSCI Polish Investable Index Fund, an ETF, traded as EPOL.

 

*Newsletter watcher Mark Hulbert writes in asknewswires@dowjones.com today that what investors really want to buy is an ETF that invests in “boring” “yawnfest” shares, which are the least volitile. The boring ETF returned nearly 20% from 1990 to 2013 while the most volitile shares returned only 10%.

While focused on US shares, he actually wrote about two low-volatility shares in our portfolio based on his own measure of volitility: recent dd Novartis (NVS) which is Swiss; and Canadian BCE Inc (BCE) a telco. You can buy them (plus a lot of bog-standard US stocks) via iShares MSCI USA Minimum Volatility Index Fund (USMV) and the Power Shares S&P Low Volatility Portfolio (SPLV). While Mark doesn't say which fund holds shares we also recommend, I expect it is the latter. He also called Toronto Dominion Bank which we don't own a good low-volatility play. To be listed the share had to be low volatility according to his screening and be recommended by at least one newsletter which has beatn the stock market over the last 15 years. I think I made the latter cut. Mark edits Hulbert's Financial Digest which tracks newsletter performance.

 

*One way to cover risk in your portfolio is through an ETF, Proshares Ultra VIX Short-term Futures

or UXVY which aims to double the return of the S&P daily volatility index using 1-mo forward futures. They work better in short bursts but I just keep them around as a form of portfolio insurance I don't have to watch.

 

*Mongolian Growth Fund reported on its July results which saw rental income rise 22% over July 2013 levels in Mongolian Togrog. Billed revenue rose 1.6% to TGG222.7 mn. This data is for properties held 12 months or longer only. The occupancy rate last July was 94.7% for properties which include retail and office sites. MNGGF also reported that Mongolian GDP rose 5.3% in H1 in real terms (I am not sure if this was during H1 or annualized, but it's pretty impressive either way, but from a low base.)

It is seeking access to world markets via a piepline for natural gas from Russia and Russian Development Bank funding for thermal power plants at US$74 mn. Other neighbor China is offering $162 mn in development loands to Mongolia and giving it access to 8 Chinese seaports. Both Vladimir Putin and Xi Jinping visited Mongolia in recent weeks.

Mongolia copper exports hit $1.2 bn in the year to end August, vs a mere $470.4 mn in 2013 (either in the 7 months or for the full year.)

 

*Aberdeen Global Income Fund will pay a 7 cent dividend at the end of Sept. flat with earlier. It is made up 74% of investment income and 26% of untaxable return of capital. FCO now reports this at mid-month rather than right before the payment is made, under new Aberdeen rules but the levels have been the same all year. At the end of the year there may be an adjustment in the breakdown with the issue of 1099 forms.

 

*Aberdeen Asia Pacific Income fund will pay us a flat 3.5 cent dividend at month end, made up 62% of investment income and 38% of return of capital. FAX payout breakdown is also flat but it also may be adjusted in the IRS forms.

 

*Cecilia Gondar who recently retired from Thomas Herzfeld's Miami closed-end fund brokerage and fund management firm to move to Virginia, has been named a director by the board of Herzfeld Caribbean Basin Fund (CUBA). She counts as an interested person under SEC rules.

 

*A writer on www.seekingalpha.com named Jack Foley of Madrid said to buy Power Shares US$ Index Bullish shares, UUP, because he thinks his neighbors in Spain and other Europeans will be buying dolalr assets. His entry point will be a lot higher than the $21.08 we paid.

 

*Later today we should hear from closed-end EatonVance Tax Managed Global Dividend Equity Income Fund on the makeup of its monthly distributions. In contrast to earlier, last month EXG reported its entire dividend was from investment income (dividends and realized capital gains.) It yields 9.5%.

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Special Table Posting

Thu, 2014/09/11 - 2:03pm | Your editor

For technical reasons, a busted trade, I had to revise my stock and bond portfolio today, and I took the occasion to update on trades done this week as well. I also revised the public closed positions table.

View the ones you are allowed to see at www.global-investing.com

Neither I nor the webmaster can access your personal account data on our site. If you forgot your password there is a clickthru  you can use to reset it which goes to your e-mailbox.

I am working on a marketing campaign with a copywriter and have just managed to figure out no fewer than ten reasons to buy global investing stock picks despite geopolitical risks and the high dollar and Wall St. It will be sent out free to people on lists we'll rent but not to existing recalcitrant pre-subscribers unless they ask for it. We also plan social media campaigns. That doesn't mean I intend to tweet or twitter or link in or facebook or post nude pix on Apple.

There will not be another update Sunday as I'm doing some volunteer work at my former high school and cannot do both. Read more »

Special Table Posting

Thu, 2014/09/11 - 2:03pm | Your editor

For technical reasons, a busted trade, I had to revise my stock and bond portfolio today, and I took the occasion to update on trades done this week as well. I also revised the public closed positions table.

View the ones you are allowed to see at www.global-investing.com

Neither I nor the webmaster can access your personal account data on our site. If you forgot your password there is a clickthru  you can use to reset it which goes to your e-mailbox.

I am working on a marketing campaign with a copywriter and have just managed to figure out no fewer than ten reasons to buy global investing stock picks despite geopolitical risks and the high dollar and Wall St. It will be sent out free to people on lists we'll rent but not to existing recalcitrant pre-subscribers unless they ask for it. We also plan social media campaigns. That doesn't mean I intend to tweet or twitter or link in or facebook or post nude pix on Apple.

There will not be another update Sunday as I'm doing some volunteer work at my former high school and cannot do both. Read more »

What About the Picts? What about Reg S

Thu, 2014/09/11 - 1:01pm | Your editor

It's all very well for the Scots to vote for independence, but who is giving a voice to the Picts? Back when Hadrian was building his wall it was intended to stop Roman Britain from attacks by the Scots and the Picts! Picts were Celtic raiders from the north (north of the River Clyde and the Firth of Forth) who were separate from the Scots. The Romans called them Picti because they painted or perhaps tattoo'ed themselves. Their name from from pictus, Latin for paint. They are mentioned by The Venerable Bede.Irish writings call them Xritani (the X is how linguists write the ch in the Scottish word loch), and the very word Britain may be derived from it.

Independent Xritani!  More on Xritani for paid subscribers below.

All these variant nationalisms and particularisms are blamed on the 19th century by Rabbi Lawrence Hoffman (at a lecture and book signing I attended last night.). He thinks the ecumenical thrust of Judeo-Chrisitian relations has wrongly focused on Passover which he says is a recollection of Jewish particularism. It is all about how the Israelites escaped Egyptian slavery, a miracle retold at family Seders now increasingly also being organized for Christians whose ancestors were presumably not slaves in Egypt.

Instead, Dr Hoffman says the focus should be on the High Holidays (the 10 Days of Penitence, which begin this year at nightfall on Sept. 24th, the Jewish New Year, and run til Yom Kippur Oct. 3-4.) His book is called All the World, a reference to the Jewish hymn sung at New Year services. It begins “All the world shall come to serve Thee”, stating the reason why the Jews are the “chosen people”. They have the mission of converting all of humanity to monotheism.

The theme is also picked up in the second reading of the Bible on the holiest day of the Jewish year, Yom Kippur. It is the story of Jonah, who is called upon by God to preach repentence to the people of Nineveh (in present day Iraq near Mosul) who were not Jews. He is told to warn them that if they do not reform Nineveh will be destroyed in 40 days. In seeking to escape this call, Jonah heads for Tarshish (Tarsis) by boat and famously is swallowed by a whale (large fish) which then spits him out. Jonah reluctantly goes to Nineveh and calls for repentence. Then he gets angry because instead of continuing in their wicked ways, the Ninevites, led by their king, put on sackcloth and ashes and fast and are spared. Jonah is so embarrassed at God's mercy that he asks to die.

So God replies: “Should I not have compassion on Nineveh where there are many thousands of persons (children) who do not know the difference between their right hand and their left?”

A third universalist element of the High Holy Days is the frequent recital of the “aleynu” prayer which begins with thanks to God for giving Jews a different destiny than that of the Nations. It ends with what was considered heresy from Jews living under Christian rule, and by the Inquisition. Here is my translation from the Hebrew:

It is written that the Lord will be King of all the world.

On that day, on that day, on that day, the Lord shall be one

And His name shall be one.”

This song denies the doctrine of the Trinity, emphasized by repetitions of “on that day.”

More follows for paid subscribers from Britain (Xritani), Portugal, Brazil, Ireland, Russia, China, Israel, and a couple of sunny islands for Shady People:

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Welcome Ana Patricia!

Wed, 2014/09/10 - 12:48pm | Your editor

 

Poland says it received sharply lower than expected supplies of Russian natural gas this week via Belarus, which made it harder to send gas back to Ukraine. Russia cut supplies to Ukraine as part of its program to back separatists in the east of the country. Poland consumes about 16 billion cubic meters of gas each year, mostly in the winter.

Poland's state-owned PGNIG SA said deliveries from Gazprom were as much as 24% below contract levels early this week and as a result the Gaz System SA pipeline operator cut off all gasflows to Ukraine. Ukraine transport network firm Ukrtransgaz said yesterday the cut was a Russian move “to disrupt reverse deliveries from Poland.” PGNIG also said its storage tanks are full now and moreover it has the ability to import 7.5 bn cu m of gas from Czech or German supplies if needed.

Russia's Pres. Vladimir Putin says reverse gas shipments are “illegitimate” and it has a right to block them although countries like Poland and even Germany say their contracts don't give Russia a veto over how they use the gas they buy. Ukraine, which produces 20 bn cu m of natural gas/year, needs about 33 bn cu m to survive the winter.

This is the last time Putin can play his Siberian gas card as Poland will have built its own natural gas liquefaction port on the Baltic Sea by next autumn. This would open the markets in Poland and its neighbors to natural gas from other sources including the USA.

The ruble is weakening against the dollar while the Russian stock index, the Micex, is also weak. Tomorrow the European Union countries will either apply new tough sanctions against Russia—or not. The vote is today and depends on whether the military truce with Ukraine is being observed by Russia.

While Poland and the Baltic trio are firmly backing Ukraine (in part because they have Russian-speaking minorities like Ukraine) a weak link is Finland where the Social Democrats (in the ruling coalition) oppose sanctions.

 

More for paid subscribers follows from Spain, South Korea, Brazil, Dubai, Jordan, Israel, Britain, plus a new stock buy to mop up the cash from our two Canada trades yesterday.

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Trading Alerts

Tue, 2014/09/09 - 2:10pm | Your editor

Trading alerts are only for paid subscribers.

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Why Blog?

Tue, 2014/09/09 - 1:47pm | Your editor

I voted in my NY primaries. Then I got held up by hordes of schoolchildren blocking the exits from the basement polling place; I think they might also constitute a fire hazard without older people on the stairs. Hence the blog is late. Sorry.

It is New York Fashion Week but I have no idea if the new modes will sell.

There is a huge full moon expected tonight but it may rain on the lunar parade; luckily we saw a fat moon two months ago at the Stratford Westfield shopping mall.

I do not have any insight into what makes Vladimir Putin tick or how to deal with ISIS, Islamic State, or whatever it is called now.

I am stumped about the cure for Ebola virus, and by the way also for Marburg virus.

I have no idea if we should buy Alibaba at the ipo even if the 40 Thieves are included in the deal.

Adrian Ash from www.Bullionvault.com (our advertiser) set my mind to rest about the new regime at the London Metal Exchange. LME changes affect only centralized forward price data distribution, not spot. Bullionvault is a site where you trade spot gold. Forward trading in London is marginal according to Reuters, accounting for only 5% of gold trading, mostly mining industry hedging. Adrian is head of research at www.bullionvault.com, in my opinion the easiest and cheapest way for Americans to own physical gold.

Another pre-subscriber wrote about finding my insight into political situations interesting, why he “devours” my free blog. SR adds:

“My investing history is another story. My family has a long history of trading which I fell into as a young man. I even became a licensed commodities broker.

“At 69 years of age I am looking to buy and hold quality dividend-paying stocks. I am basically going it alone and there is no one else I would even consider following.” But he isn't following me either.

Meanwhile KAJ writes that he plans to sign up “once the market dips.” Right after they ring the bell? Why do I blog?

Maybe I should copy Bill Bonner and Louis Navellier and launch a limited entry family trust to monetize the work I do.

More follows for those who read my blog to make money in stocks rather than for my insights or amusement. We have not one but two sells today and news from Australia, Britain, Brazil, Canada, Singapore, Spain, Switzerland, Israel, Dubai, Mongolia, and Ethiopia. Plus a company report.

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