EPFR reports that US fund flows have been heading China-ward because of the appeal of 'reform' programs (details pending or unknown) under a new Beijing government. The Cambridge (MA)-based analysts report that China equity funds received the biggest quarterly inflows in over a decade last month. Moreover, China has won these funds despite other so-called BRIC countries lagging far behind. Cumulatively and by country Brazil, India, and Russia have seen huge net outflows of money in funds this year, and all-BRIC funds have declined even more.
Earlier this year, from March to Sept., over $11 bn was pulled from China funds because of concern over its real estate and banking sectors. Since then there have been 4 big inflows into China equity funds, with the last one at a 45-week high.
But the boom in China failed to spread beyond its borders with emerging market equity funds bleeding asset levels for 5 weeks, and new money heading for developed market stock funds. Overall the developed markets took in $350 bn so far this year.
In the last week in Nov., investors put more than $13 bn of new money into equity funds and $1.24 bn into bond funds. They pulled $2.3 bn out of money market funds.
Just in time for Christmas and the last day of Chanukah, gold and silver are up today. But precious metals were low during Diwali.
And just in time for close of year reporting the European Union competition authorities are hitting banks with euros 1.7 bn in fines for collusion in setting the interest rates for the London Interbank Offer Rate for dollars and euros (LIBOR and Euribor.) Other probes of collusion and fiddling in setting other benchmarks and the gold price are still pending.
More for paid subscribers follows from Finland, Israel, Brazil, Britain, Belgium, Ireland, and The Netherlands.
We don't live in Financial Times after all. The London newspaper suffered a fire at its printing plant which denied their daily pink fix to all subscribers on the US East Coast. You had to telephone the customer service number and click a bunch of codes to be put on hold for an operator to tell you this. She did not offer access to the Internet edition. This is an indication of poor customer service and lousy management from the newspaper which loves to write about management and service for businesses.
How to play the demonstrations in Ukraine and Thailand by orange-, red-, and yellow-shirts? There must be a cheap maker of easily-dyed T-shirts whose stock will benefit.
Today we have news from the wild frontier (Jordan, Myanmar, Mongolia) and other countries: Singapore, India, France, Canada, Brazil, China, Britain. Plus a sell.
Back from my Thanksgiving break in Boston, our website was down, presumably because of the pressures of Cyber Monday.
I reflect on how the new economy is changing the way we live now. I went to three kiddy events over the weekend around the former powerhouse link of the Boston high-tech hub. The first was a Rube Goldberg-style circuit of a golf ball through ridiculous mechanical devices crafted by teams of pre-teens around the MIT sports center, setting off explosions and flags on its complicated route. Called Friday-After-Thanksgiving, this is a "chain reaction" using Leggo and Tinker-Toy and pulleys and tubes to move that ball.
All MIT undergraduates meanwhile had been expelled from their campus dormitories for the 4-day weekend. Some foreign students might have shacked up in the gym rather than paying for a hotel. Another argument for Internet education unless Cyber Monday is advanced to Thanksgiving next year.
Then we went to a rock-climbing center installed in a former warehouse or logistics facilities near Route 128. Fitted out with harnesses and pulleys and foam floor covers, the building was now kiddy climbing heaven. But before the grandchildren could cavort their dad had to fill out an insurance waiver.
Then for my middle grandson's 9th birthday another former factory lured the happy boy and a dozen of his boy classmates. After pizza and cupcakes the lads (and one disgruntled big sister and one very happy little brother) headed for bouncing trampolines. Again parental waivers (one per family) were required which our son had collected from the parents via e-mail.
Presumably the factories and supply chains that one ran around Route 128 moved to China. There they will join older relics of Boston industry. No insurance can protect against that.
Closer to downtown, parks have replaced the watercourses of Newton and Waltham where early 19th century factories once stood, powered by falling water. Before the New England textile mills had moved west to Lowell and Lawrence and switched to steam, they had run from clean waterfall power. Steam power can be generated anywhere, and the abandoned old mills which financed two great American poets are now becoming shops and studios, the basis of gentrification. The ones nearer Boston are museums of industry.
A final socio-economic commentary. Door-buster Thanksgiving sales drew smaller crowds this year than last. Thanks to Blue Laws, Massachusetts was spared the mob scenes which desecrated Turkey Day in other parts of the USA as shopping was confined to "Black Friday". But even where legal, Thanksgiving and Friday sales numbers both fell from last year, despite there being fewer days until Christmas. People are shopping on-line to avoid the queues at the door and the battles at the pile and the delays at the checkout. Maybe some Americans feel guilty about denying the poorest-paid Americans from their family feasts, the ones manning the checkouts.
Or maybe even flush Americans are spending with less frenzy this year.
The US Purchasing Manager's Index soared to 57.3 from 56.4 in October mainly from new orders and more production. So the US economy is not the cause of slack shopping numbers. The PMI numbers from China and the European Union also came in ahead of the gloomiest forecasts.
More for paid subscribers from Canada, Israel, South Korea, South Africa, Brazil, Britain, Ireland, Thailand, China, and Belgium.
Tobin Tax Back
Germany tentatively has a government after months of negotiation between Angela Merkel's coalition which fell short of a majority, and a team from the Social Democrats, SPD, which played up the fact that it is the only possible partner for the Christian Dems and their Bavarian allies. The Greens said 'nein' and the ex-Communists are not 'salonfaehig' (socially acceptable.)
Playing a strong hand, the SPD now will get its members to vote on the program it hammered out with Merkel's reps. It includes lots of socialism. There will be a national minimum wage, something Germany has never had, which will hurt those who are not worth paying it, mostly in East Germany. There will be rent controls (German cities do not have coops or condominiums but merely rental apartments), which will discourage new housing construction. Pensions will be raised. Infrastructure spending will increase. Germany will not take on more Euro debt from its southern neighbors.
The Euroland markets are in an optimistic mood today on the deal. By and large the German 'grand coalition' platform includes no tax increases despite a euros 20 bn spending spree. With one exception.
The exception is a nasty bombshell for us. The vexed Tobin tax on financial transactions is back, forced into the platform by the SPD. This tax has to be extra-territorial, or else all trading in German stocks, bonds, currencies, derivatives, investment assets, and financial instruments will move out of the country imposing it. The idea of a punitive fee on trading to finance bank bailouts has been kicking around the Euro-zone for 3 years, vigorously opposed by US and British market players like depositary banks, brokerages, and even some Euroland issuing companies.
The proposed tax applies if any of the participants in a financial instrument trade come from the taxing country: the company whose stocks or bonds are traded, the seller, the buyer, or the intermediary bank or broker. The originator of the financial transaction tax, France, has now backed off on the advise of its Finance Ministry. The European Union has accepted that a broadly applicable FTT will hurt markets and may be illegal.
Germans, apart from not owning apartments, also do not own shares or bonds like other rich populations. So there the FTT is alive and dangerous. It is on the platform SPD party members will vote upon to accept joining Angela Merkel in governing the country. There are 474,000 of them who will be polled by mailed ballot by Dec. 14.
I urge visitors to our site to investigate our advertiser BullionVault which offers a way to own tradable physical gold or silver without using a fund. This is cheaper and safer. The UK group holds the precious metals in your name in vaults in Zurich, London, New York, Toronto, or Singapore, and you can sell for next day cash should you wish to.
It is a legitimate operation, with The World Gold Council among the shareholders in the company which has $2 bn in custody for its 48,000 customers. The World Gold Council (a promoter of investing in gold owned by the mining industry) is also a shareholder and promoter of SPDR Gold Shares ETF, GLD.
People agonize about whether to buy GLD or the Sprott Physical Gold Trust, PHYS. Both have higher fees than BullionVault which benefits from cheap insurance.
The London twice-daily gold fixing (which sets the benchmark price for the yellow metal) is now under scrutiny from the UK Financial Conduct Authority. The suspicion is that the fixing is fixed. The rate is gathered via telephone to 5 banks, one of which we own shares in. While they are being polled on the phone for up to one hour each time, the banks also are trading gold, which clearly involves a conflict of interest.
The probe follows revelations of banking shenanigans in fixing the London Interbank Offer Rate (LIBOR) and other interest rates, and in figuring out major foreign exchange cross-rates.
More for paid subscribers follows from around the world before I go over to gobble up the gobbler. News from Israel, Scotland, Belgium, Denmark, Britain, Canada, and South Africa, plus a few other places where Thanksgiving doesn't count.
From Across the Pond
Chris Dillow from Investors Chronicle (from London, across the pond) writes:
"US share prices have recently hit record highs. What's more remarkable is that US shares are also very high relative to UK ones. According to figures from MSCI, the ratio of the two markets, in local currency terms, is now at its highest since February 1977.
"You might think this means the UK is cheap relative to the US. It doesn't. The correlation between the UK-US price ratio and subsequent annual changes in the All-Share index since 1969 has been zero. The fact that the UK is low relative to the US tells us nothing about the chances of the UK market rising or not. That the US-UK price ratio has risen for most of the last 20 years tells us that the ratio doesn't mean-revert very much.
"Instead, the ratio tells us something else: the UK is a defensive market relative to the US. When markets rise, the US tends to outperform the UK. And when they fall, the UK tends to outperform.
"Since 1990, each percentage point annual change in the S&P 500 has been associated on average with a change of 0.75 percentage points in the All-Share index. The UK's rare periods of out-performance in the last 20 years have come in bear markets such as the tech crash of the early 2000's and the financial crisis of 2008-09.
"This means we'd expect to see the US market at a high relative to the UK after stock markets generally have risen.
"An oddity: around the world, defensive shares do better than they should. But not defensive markets - at least, not if we compare the UK with the US. Even controlling for moves in the US market, UK shares have fallen by an average of 0.8%/year since 1990. The UK has a negative alpha with respect to the US.
"One reason for this could be that UK companies have delivered slightly disappointing performance [vs] their US counterparts. Another possibility is that US equities carry more systematic risk than UK ones on top of ordinary market risk. If this is the case, we'd expect the UK to have a negative alpha for the same reason that insurance policies cost us money on average; it's the price we pay for reducing risk. The fact that the UK's rare period of positive alpha came during the financial crisis is consistent with this.
"Whatever the reason for UK long-run under-performance, a high ratio of US share prices to UK ones is no reason to expect the UK to do well. The best hope is that the US continues to rise, and that this will drag up the UK."
More for paid subscribers from Thailand, Sweden, Canada (from brokerage reports sent by my readers) plus Ireland, Singapore, Israel, South Africa, Denmark, and Mongolia, much about funds. And of course Britain. Plus a company reporting.
Over this icy New York weekend, diplomacy came into its own with a possible breakthrough over Iranian nuclear enrichment and a glimmer of hope that talks will engage the warring Syrians. Already the triumph of hope over experience has resulted in a fall in the price of oil and gold and tentatively higher stock markets today.
Still to come is a solution for Asian confrontations, ranging from who controls the Sino-Japanese offshore mini-islands to the vexed matter of whether Thailand's premier can amnesty her brother, the exiled Thaksin Shinawatra.
We have conflicting sources in Thailand, my cousins Simon and Mai who are firmly anti-Thaksin anti-Yingluck yellow-shirts (like the ones occupying the Thai Finance Ministry) and Paul Renaud who preaches patience.
I am not sure whether the UN will be much use in resolving these issues. Apart from the prospective Syrian talks, the UN is singularly uninvolved in the diplomacy over current conflicts. But here is a heart-warming story of how the UN is still important. A Saudi woman eloped to Yemen with her Yemeni lover who had been working in Saudi Arabia after her parents banned their marriage. She has been given protection by the UN High Commission on Refugees while both are separately confined at a Sanaa immigration center. The young woman, Huda al-Niran, 22, and her lover, Arafat Mohammed Tahar, 25, met while her case for illegal entry is heard. She is suing to be given refugee status represented by a lawyer provided by a Yemeni non-government organization.
The case is being ballyhooed as an Arab version of the Romeo and Juliet story. Actually there already is an Arab folktale about doomed lovers, Qays (aka Majnun, or the madman) and Layla. The first written version by a Persian poet is dated to the late 13th century, well before Shakespeare, but the folktale dates back to the 7th century in what is now Saudi Arabia.
More folklore or folclorico. At reader request, here is how to Marta Hernandez and her Mar Salá band singing Los Quatro Muleros, the Brooklyn version of an Andalucian folksong: http://www.reverbnation.com/marsala/song/17304957-los-4-muleros/ If you like it of course you can buy a CD on the site.
More for paid subscribers from Britain, Israel, Canada, Mongolia, Brazil, Finland, France, Ireland, Sweden, Taiwan, and The Netherlands, plus frontier markets like Thailand, Myanmar, Guinea, and Mongolia.
Model Portfolios Updated
After a busy week of trading to monetize capital losses for 2013, mainly for tax reasons, I have just posted the model portfolios. There will be no such posting next weekend, because I will be away for Thanksgiving. Moreover, to celebrate having done this chore, I am being treated to a concert and CD-signing tonight by Marta Hernandez, our buddy from Seville, featuring her brilliant take on "Los Quadro Muleros", an Andalusian folksong collected by Federico Garcia Lorca, in the style of Brooklyn (scat) by Marta and her gang.
We will have only 3 blogs this week, with Wednesday's being truncated so we can travel for Thanksgiving and Chanukah, although to be honest we don't normally travel for Chanukah. This year is special. We will also be away for Black Friday, when the retail sector is supposed to go into the black (although they are increasingly starting Friday before the first round of turkey-eating has ended.) Friday will have a short stock market session. Then Saturday is St. Andrew's Day, important because our webmaster is an Andrew. And Sunday is my middle grandson's birthday. He turns 9. He tried to add some more presents to his wish list this morning on the telephone but was firmly turned off.
We want to make a special effort because my late mother, a December child, and the youngest of 5 sisters, complained even when she was in her 80s that her birthday was not celebrated with enough goodies because it was in the middle of Chanukah. But my husband says discussing presents with your grandma is not "done" and we are not going to add to the pile.
I have been chatting with my corporate counsel about violations of copyright and learned something astonishing from this Orthodox Jewish lawyer. It seems that some ultra-holy Jews have decided that, because it is not mentioned in the Bible, the turkey is not kosher and may not be eaten by Heredim. While the ancient Middle East knew nothing of this large fowl, which didn't come from Turkey but from America, presumably the creator of the universe knew they existed even before Jews got to America.
More for paid subscribers follows.
Unskilled Labor and Bubbles
More time spent with our corporate lawyer about pursuing copyright violaters has delayed today's blog, this time by beforeitsnews.com. Readers should be aware that they do not have the right to forward our e-mail stock advice to others. We cancel cancel any subscription which was used for such illegal purposes and have done so twice so far this year.
General Edward Rowny, 96, told an interviewer, Hubertus von Hoffman,: "My grandmother had a saying that 'the thing wrong with a self-made man is that he is often the product of unskilled labor.'"
Several readers wrote to ask me if the stock market is in a "bubble" that will "deflate"? Since the two most recent winners of the Economics "Nobel Prize" disagree about whether bubbles can be predicted or popped, I can hardly claim to know the answer.
But here is a slice of reality. The Fed and other Central Banks have made money cheaper to extract the world from the persistent sequels of the global economic crisis. Quantitate easing and low interest rates are intended to stimulate hiring, housing starts, corporate capital spending, infrastructure improvements, shopping. But in practice the main impact of cheap money has been to boost stock markets, despite meh quarterly results and macro-economic or political risks.
From my non-Nobel unskilled vista, as long as cheap money is on offer, it will pull up shares in a variant of the old Greenspan put. Headwinds may hamper excess in developed and even emerging markets where there are with real companies with earnings the markets can react to.
But there are huge areas of the world where bubbles can grow.
More for paid subscribers follows from Finland, Israel, Spain, Ireland, Britain, Canada, The Netherlands, Myanmar, Dubai, Mongolia, and Thailand with more about lawyers follows for paid subscribers.
Respect Our Copyright!
My note yesterday about bicycling generated huge e-mail commentary, mostly from people who sound like they prefer peddling bikes to picking stocks. It was reprinted without permission by two online sites in violation of our copyright and apparently e-mailed around at Cornell University. GRRR. Stop this!
Today China published the official flash purchasing managers index, a prediction of future growth. While positive, it was below the level reported during preceeding months. This hurt China stocks which also fell on the prospect that the new government will boost taxation on real estate ownership. Our China stocks (no longer including housing shares) are up.
Having long been skeptical about gold bugs' claims that there is a 'fix' in the pricing of precious metals, I am astonished that the UK Financial Conduct Authority is now informally investigating the 2x/day London gold price fixing. This is an outgrowth of the formal investigation of how the London Interbank Offer Rate (Libor) was fiddled by dealers and brokers. Libor is a major part of interest-rate setting for bonds and derivaties, under scrutiny in a half dozen countries.
But the gold fixing determines the spot price of the yellow metal, and also has tremendous market impact. Bloomberg reported this. While not a gold maven myself I feel that the stuff is a useful ballast in a stock and bond portfolio, in case inflation ever raises its ugly head again.
A right royal mess is the UK brokers' view of recently privatized Royal Mail. It was rated neutral with a GBP 4.66 target price by Barclays; rated sell with a TP of GBP 4.5 by UBS; and rated neutral by Investec with a TP of GBP 5.44.
One of our stocks was in the news in China. More for paid subscribers from Switzerland, China, Israel, Jordan, Dubai, Britain, Spain, France, Norway, Canada, Finland, Sweden, Thailand, Ireland, Brazil, Panama, and maybe a few other places. Lots of tidbits again and it will be worse next week in the run-up to Thanksgiving. But there are stock sales.
Bicycles in Three Cities
Civility is a function of traffic congestion. Here in NYC, the new Bloomberg Citibike lease racks and lanes have achieved a higher level of users than in the much older Boris bike system in London. Launched 5 months ago, the NYC Citi bikes each did about 6 trips per day, more than London's Barclays Cycle Hire.
However, 13 London cyclists have been killed so far this year (mostly by what the British call lorries and we call trucks); the death risk is apparently higher than for British troops in Afganistan.
But famously anti-social New York drivers have so far failed to kill any bike-riders. I think it may be a function of the sprawl of London, which means cyclists are going much further on every journey. New York is more like Paris where the bike-hire idea was originated, compact.
Also we don't have to compete with trucks on far away roads; so far any road share protects bicycle riders with their own designated lane.
With the NYC cycle system's first winter coming, bikes may have to be removed for snow clearance or to keep riders from icy roads.
More tidbits for paid subscribers from Switzerland, Belgium, Canada, Israel, Norway, France, Ireland, Britain, South Africa, Singapore, Sweden, and Mexico.