Hedges and Havens

Mon, 2015/06/29 - 1:40pm | Your editor

Our advertiser, Adrian Ash, writes from London today about the sinking euro and stock sell-offs in Europe in the wake of the Greek walkout, referendum, and bank holiday. I will spare your the details of the fast-moving markets but here is his conclusion:

     “If you're going to panic as your local banking and financial system tips towards failure, there are no prizes for waiting. Patriotism...morality...social responsibility...whatever the politicians appeal to, it will be penalized by the cold, hard fact of capital controls when your meagre savings are locked away for the 'common good'.

   “Self-interest, on the other hand, might actually enable you to help re-build your local economy...giving people work and providing liquidity to the banks after catastrophe strikes...if you act early and often to protect a little of your own money while it is still yours to control.”


Adrian writes a daily note for www.bullionvault.com which enables investors to buy and hold gold legally and relatively cheaply. A gold holding is one way to prepare for stock, bond, and currency crises. Another is hedges.


While it is not part of our advisory, I took profits of ~21% today on my UXVY hedge which tracks volatility, and which spiked today. I moved the money into XIV which is inverse using a proxy (put and call options on the S&P index) to track the VIX volatility index. XIV fell ~10.5%. Both are exchange-traded funds, and useful for patient people wanting to protect against macro market trends. GLD or bullionvault, both sponsored by the World Gold Council are easier ways to achieve that target.


China is now firmly in correction territory despite the weekend rush by the CB to lower interest rates by 0.25% and also increase market liquidity.


More for paid subscribers from Britain, South Africa, China, Hong Kong, France, Finland, Spain, India, Israel, Ireland (a trifecta!), Dubai, The Netherlands, and Brazil including one annual report.


I am writing a special report aimed at retirees overseas (initially in Portugal and in euros) telling them how to use a global investing portfolio to avoid the risks of limitations on how much money they can hold in their local currency under US FATCA rules. The idea is to use a US on-line brokerage account to keep funds for any emergencies which might violate the $50,000 limit on how much you may hold in a foreign bank account at year end, and the $75,000 limit on how much you may hold at any time during the year. The fact that exchange rates move means this can hit suddenly and having a brokerage account to which you can quickly transfer funds can help you avoid hitting the ceilings.

There are no bigger reporting requirements for a brokerage dollar check account or a link to a foreign bank account under IRS FATCA rules, which are not really aimed at small investors—but at fatcats.

There will be no blog July 2 as I will be traveling to London overnight. There will probably be a blog on Friday July 3 although US markets will be closed for Independence Day.


I will publish this special report once I have written it and it will be free to current subscribers but cost $49 for non-subscribers.

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Tables Posted

Sun, 2015/06/28 - 12:43pm | Your editor

Today I posted our tables for subscribers and pre-subscribers at www.global-investing.com

To view the spreadsheets, use the printer friendly button on your computer or mobile phone. Pre-subscribers may only view the closed positions table, but current subscribers get to see the whole 9 yards: stocks, and bonds, and closed-end and exchange traded funds.

The big news is first that Barron's has almost resumed publishing tables showing net-asset values for closed-end funds, with a few gaps still. The other big news is that my account  which was supposed to be moved on Friday to Interactive Brokers remains firmly lock up in E-trade Financial which will cease all non-US trading on July 9. I am now in week 9 of trying to move my account and the brokerage seems to be deliberately blocking the transfer by coming up with new excuses, the most recent saying that my margin account was in deficit. I do not have a margin account. The deficits incurred laterly totalling about $750 so far were the result of e-trade charging me "reorganization" fees for transferring many foreign holdings into pink sheet ADRs. Some however, remain stubbornly offshore because they have no ADRs, which means it will take longer than July 7 to move the whole account.

There is a general plot against retail investors buying anything except exchange-traded funds at work here, with the financial press conspiring with stock market intermediaries like brokerages.

As I am heading for Europe July 1 this is a menace to my wealth. I am hitting London because I want to breathe fresh air, and my building here in NYC is sheathed with scaffolding for the interminable brickwork. And then I am going to talk about Global Investing at an irresistably located conference, in the Algarve, the beach zone of southern Portugal. Somebody has to do this.

The brickwork has taken longer but even moving my brokerage account is something like the labors of Sisyphus or the negotiation of an Iranian nuclear deal--or perhaps just the talks about debt at the country where Sisyphus was invented, Greece. It is all supposed to be fully automated, and therein lies the rub. The last time I transferred accounts it took 72 hours. Now it is the 9th week with no end in sight.

There are two sales (actually takeovers) this week. One is at a modest discount of 18% from what we bought at, not too awful for a speculative stock in Ethiopian potash. It is Canadian, Allana Potash.The other is a disaster of the first order from of all places, Portugal, the very country whose beaches I will hit between lecturing next month. Or to quote our son the certified financial analyst, "Portugal is Africa's last colony in Europe."

What happened here to an NYSE-listed American Depositary Receipt is beyond belief. Our Lusitanian (the Roman name for Portugal) was sunk. The share was simply looted by all comers, starting with management which shipped its spare cash of about $1 bn to buy short-term commercial paper from a Luxembourg sub of the bank which underwrote Portugal Telecom's privatization, Banco Espirito Santo. The transfer was arranged by a member of the board representing the bank without the CEO knowing about it. The CEO, by the way, was himself African expat, born in Mozambique, Zainal Mohammed Bava, not exactly a member of the Portuguese ruling caste.

Six weeks later the BES sub in Luxembourg could not repay and filed for "protection against its creditors". The Portugese BES parent was nationalized in distress to save depositors and the central bank from the impact of this, which would have been worse that what now faces Greece.

Failing to realize this was a set-up, I tallied the valuation of BES's Luxembourg holdings which include hotels, agricultural land, a travel agency, a futbol stadium, newspapers and websites, a chain of hospitals, and lots of other stuff which was put on the market in Portugal and Brazil. I figured we might get the proceeds. Big mistake. The proceeds went to the Portuguese oligarchs. Nobody made an attempt to repay the telephone company. Nobody went to jail. Nobody had to give up his mansion or private jet.

Instead, another Luxembourg entity bought the phone company via an outfit with ticker OIBR in Brazil to which PT owed money it no longer had. Patrick Drahi's Altice paid Oi  well below the book value of the remaining Portuguese assets, ~$8 bn when last reported. Drahi is a Moroccan-born French expatriate citizen, another African. Oi refused to consider a counter-bid from the richest woman in Africa, Isabel dos Santos, daughter of the probably corrupt President of Angola, where PT had assets that were supposedly worth something.

Once Drahi got the deal PT had a name change, to Pharol. This opened the way to more Lusitanian looting, this time by the US brokerage and depositary community. A reorganization charge was imposed for the name change and another for the NYSE de-listing. Finally another charge was imposed to cash out the poor former holders of PT ADRs. The result was to cut the payout per share to below half the amount Mr. Drahi had paid for the assets, eaten up in fees to the depositary (Deutsche Bank) and the DTC, and of course E-trade which collected every time any of this crossed "Go."

Ironically enough, the hotel where my Portuguese conference will be held, the Tivoli Almansor in Carvoeiro, was one of the assets sold by the BES sub in Luxembourg, and the proceeds also disappeared. The buyer was one Ellwood Heinecke of Thailand's Minor Group, another expat, this time from the USA. His father was CIA station chief in Bangkok and young Ellwood learned enough Thai to apply for Thai citizenship and escape US taxes. However he now is looking for a better bolthole, in Portugal. The Almansor is not the top Tivoli in Mr. Heinecke's new portfolio: that is the one at the Edward VII Square in Lisbon where I have stayed in the past.

I did advise selling 25% of our stake in what was then still PT at a loss in January of this year, after I could not rouse a class-action lawyer to take on the Oi sale terms either here or in Lisbon. ADR owners were kept from voting by the depositary (Deutsche Bank) by the simple trick of not sending out the proxies until after the special shareholder meeting had already taken place. It's too bad Germans no longer understand Yiddish, because the fees hitting us on the remainder of our stakes are an example of outrageous chutzpah.

Other news. Deutsche Bank has form in charging fees for restructuring. I still own Infosys, the Indian IT firm, although it was sold from th model portfolio. INFY has an ADR on Nasdaq which just split its shares. But our dear German depositary charged the ADR owners for issuing the new shares under the split.

A final note. No I am not overstating our gains on Galapagos and Bavarian Nordic. We sold half but we doubled up on these biotech earlier so they are fully weighted in both the sold positions table and the current one.

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Black Friday

Fri, 2015/06/26 - 1:31pm | Your editor

Today is a Black Friday despite some good news, and it being the twenty-sixth and not the thirteenth, as most events are ghastly.

It has been a tough morning. First I had to battle hackers into my email accounts, admitted by a subscriber who didn't take seriously his responsibility for dealing with what he unleashed. Mostly when I spot hack attacks my readers listen to me.

Then we learned owners of property in my building (like us) won a court ruling against our larcenous board, which stole the recent election, now overturned by a judge. I fear they may have stolen more than that. But at least we won round 1.

Moreover, today is when my brokerage account is supposed to move from e-trade to Interactive Brokers. One result is that my access to corporate news via my e-trade account has been cut, perhaps for fear that I might trade something in the course of being moved.

With all this going on the barrage of news was overwhelming. First of all the Supremes ruled that gay marriage is a constitutional right, great for my daughter and partner who will now be able to file a single state tax return and inherit as spouses from each other.

Then there may have been a break in the talks between Greece and the creditor troika (the European Central Bank, the Commission, and the International Monetary Fund.)


But any optimism was ended by the deadliest Ramadan in modern times (which already killed thousands in Karachi during a heat wave) featuring murderous jihadi attacks on an American-owned plant in Lyons, France; a tourist beach hotel in Sousse in Tunisia; and a Shia mosque in Kuwait. Details are appalling.

An ISIS attack on the Kurdish border town of Kobani, in Syria, probably was even more lethal as it killed hundreds of innocent civilians, most of them Sunni Muslims like their murderers.

Pres. Obama spoke at the burial of the Rev Clementa Pinckney in Charleston, one black over-achiever mourning another.

And the long-anticipated crash of the Shanghai stock market hit. The benchmark plummeted another 7.4% taking the drop to 12% this week. Newbie Chinese investors using margin panicked as most stocks trading in Shanghai, 2000 of the 2,800 listed there, reached their down limit and trading was suspended under the stock exchange rules. That counts as Black Friday for stock markets.


News today from Canada, South Africa, China, Denmark Russia, Switzerland, Israel, Mexico, Britain, and the Bailiwick of Guernsey. I have decided against joining in the frenzy to buy AIRBN as it does its IPO as we have a better entryway into Cuba. Lots of fund news too.

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Caveat Emptor

Thu, 2015/06/25 - 12:15pm | Your editor

When I was a kid we used to go to a butcher behind a counter who always gave me a free slice of salami. This did not stop me acting as watchdog for my mother, making sure Mr. Koesterich (the butcher) kept his thumb off the scale. Caveat emptor, I learned.

I was reminded of pre-supermarket meat shopping by news that 89% of Whole Foods Market prepackaged veggies, cut-up chickens, baked goods, dairy, and other foods were underweight, according to the NYC Department of Consumer Affairs. DCA commissioner Julie Menin said her inspectors said this was “the worst case of mislabeling they have seen in their careers.”

Since Whole Foods lures shoppers with nostalgia for the olden days when they knew who was selling to them and where the foods were processed and originated, it is not wholly surprising that some old-fashioned weight shortfalls were part of the experience.

But modern mislabeling of prepackaged food is harder to spot than a throwback to thumbs on the scale. Whole Foods earlier was fined for short-weight packaging in Canada and California. It lives up to its moniker of “Whole Paycheck Market” yet again.

Meanwhile the Giant Foods supermarket we used in Washington, owned by Royal Ahold, is taking over the Belgian Delhaize chain we shopped at in Brussels. Like British supermarkets (notably Tesco, which we exited, and Walmart-owned ASDA) they face competition from cheapo German chains like Lidl (pronounced “little”) and Aldi which are only starting to hit the USA. Whole Foods recently opened in the London suburb of Windsor, where the Queen (who does not do her own grocery shopping) has a castle. Supermarkets are a global business.

Obamacare federal healthcare insurance subsidies were ruled legal by the US Supremes keeping 6.4 million Americans in the program. A cross-aisles coalition gave Pres. Obama the right to negotiate a trans-Pacific free trade agreement. Still to come (I hope) is a renewal of the Export-Import Bank which finances US exports, a New Deal program which has been copied by countries around the world.


More for paid subscribers from Israel, Australia, Britain, Israel, Spain, Cyprus, Jordan, Egypt, South Korea, Canada, Switzerland, and Sweden.

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Benitec Special Report Update

Wed, 2015/06/24 - 4:17pm | Your editor

Our Benitec Special Report and the June 24 2015 update are only for paid subscribers. Join them to help your portfolio grow.

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Hals und Beinbrock!

Wed, 2015/06/24 - 1:10pm | Your editor

Today's blog is late and short because of good news. My account is going to be hand-transferred from E-trade to Interactive Brokers on Friday. This will be done in Zurich, Switzerland by a Mexican transfer specialist sent there from the US Midwest to handle the voluminous outflows from E-trade to IB. It turns out that Crédit Suisse did the global trading for the discount firm (as well as providing research.) It was an end to that relationship which led to the cancellation of e-trade global trading.

Hals und Beinbrock!” is the German variant on the old show-biz adage, “Break a leg!”

On my way to taking the oral exams for my Master's Degree in Berkeley, I was met on Telegraph Avenue by my father's cousin, a professor there, who had hung around waiting to wish me “Hals und Beinbrock.” Uncle Walter, formally Prof. Walter Fischel, taught Islamic Philosophy at Berkeley and was an expert on Ibn Kaldun, one of the Arab inventors of political science. (Since my uncle was Jewish, he is no longer cited often nowadays.)

So to Ms. Xochitl in Zurich, Hals und Beinbrock! Let lots of bad things happen as long as you get the main job done, in this case the transfer.

What I did today was to create a secure password, arrange for a security token to be sent, and link my future brokerage account to my bank account. This is all barely explained on the IB website and I required hand-holding from three specialists, which took over 90 minutes on the phone (their dime).


More for paid subscribers follows from Brazil, Canada, Britain, Australia, Switzerland, the Bailiwick of Guernsey, Hong Kong, South Africa, and Denmark.

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Gassing On On Gas

Tue, 2015/06/23 - 1:22pm | Your editor

The best performing US sector YTD has been biotech and pharma, with the stark rise in share prices for the sector creating a high overlap of risks for hedge funds which have piled into many of these stocks.

Today Nasdaq announced that ProShares will list two new exchange-traded funds (ETFs), UltraPro Nasdaq Biotechnology ETF (UBIO-Q) and UltraPro Short Nasdaq Biotechnology ETF (ZBIO-Q), which will both begin trading today. Both funds track the Nasdaq Biotechnology Index.

UBIO seeks to provide 3x and ZBIO seeks to provide minus 3x the daily performance of the Nasdaq Biotechnology Index, before fees and expenses. The Nasdaq Biotechnology Index is a modified capitalization-weighted index of companies listed on it which are either the biotechnology or pharmaceutical industries.

ProShares is the world's largest provider of geared or leveraged ETFs. Geared ETFs allow investors to easily go long or short based on their views, whether it's hedging against downturns with inverse ETFs or using leverage ETF to magnify exposure to a benchmark.

A few addenda to my note yesterday about how there are likely investors in the USA from countries where companies have more cash to spare than even the M&A hungry US contingent. Today I read about Canadian forestry companies pouring into the US southeastern states to buy timber. They seek to escape a beetle infestation of British Columbia forests, ultimately blamed on global warming climate changes.

Our former chemical play from Germany, BASF, sold because its feedstock in Europe is too expensive for it to compete with American chemical producers, has reacted. BASF plans to build the largest single-plant on the US Gulf coast to take advantage of low natural gas prices here vs what it pays in Ludwigshafen in Germany which will cost euros 4 bn ($4.48 bn today) this year alone. It will finance the project by selling assets and borrowing.

Today we have news from Australia, China, Canada, Germany, Finland, Switzerland, India, Pakistan, Africa,  and Britain.

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Relief Rally

Mon, 2015/06/22 - 1:43pm | Your editor

I played hookey last weekend and did not do tables. The main reason was that for the second week in a row, Barron's failed to provide updates on net asset value of closed-end funds investing in foreign bonds or stocks. This creates problems for those without Bloomberg machines (like me) and opportunities for those with them. I assume Rupert Murdoch can afford to keep a Bloomberg at hand, but maybe his sons are demanding higher salaries. The firm is letting journalists go, including several I know and respect and further reducing its coverage of foreign stocks.

This would not matter except for the fact that my brokerage account is now in quarantine for transfer to Interactive Brokers from e-trade which will halt all tracking and trading on foreign markets—even Canada!--next month. So I have lost another major source of information.

So instead of producing tables, I spent my weekend at a beach resort in Connecticut, celebrating my daughter-in-law's cousin's high school graduation and then Father's Day.


Pictures of Narendra Modi doing yoga appear to have helped the Bombay Stock Exchange rise today.


Today we are also having a relief rally in the euro, stocks from the common currency, and neighboring countries. The focus is on telcos because there is another mega-deal on the table in the highly competitive French cellular-cum-Internet-cum TV “quadruple play” industry. While there is a lot of spiteful anti-French chatter across the water, some of it justified by the country electing a Socialist as president, our chattering classes ignore that several French sectors are more competitive than their counterparts in the Land of the Free and the Home of the Brave.

Another place where telco is highly competitive is south of the border – not in Mexico, but in Brazil.

Our long and murky history of breaking up AT&T for anti-trust reasons orked less well than the French or Brazilian decision to open up to what amounts to a free-for-all.

Voilà. The result is that the cheese-eating surrender monkeys beat us in quadruple. Their internet is faster and more widespread and cheaper than ours. And what's worse, so is Brazil's! Que chatice.

One cannot generalize about the bankruptcy of Hypo Group Alpe Adria, the bank used by Austrian neo-fascist Jeorge Haider which went bankrupt. And one cannot generalize about French capitalism either.

Our French plays include sectors where there is no real US alternative except on the Monopoly board, like waterworks. We also shifted funds into lands using the Euro this year, now gaining from the boost in the currency. Some of this will help our own faltering economy.

Fearing Greek default and exit, European companies hoarded cash, now an average of about 4.5% in the balance sheet of large companies across the pond. Meanwhile US multinational companies have run their cash down to 2% despite low interest rates and a declining dollar. MNCs needed it as the high dollar hurt their quarterly results, to keep up dividend payments and buybacks.

Some European cash will be deployed in takeovers on our side of the pond either by US companies which piled it up offshore to avoid taxes, or by legitimate European MNCs. I discuss sectors for this below.

One is telcos where I own a potential US target, Frontier Communication. Amazingly, it is down today. The battle for wireline assets to be combined with wireless has only begun. FTR is a buyer and eventual target for a European champ, while also gaining from US govt subsidies and low priced assets sales by the majors to boost our supposedly free-market competitive system. FTR also pays a huge 8.4% dividend, why it is in my IRA and should be in yours. I also own less-undervalued Comcast.

Another sector in play is power, where I own PPL, which just spun off Talen Energy (TLN), a likely takeover candidate for a European or British power firm.

Meanwhile, based on my happy experience with US Williams Cos, now under offer from Energy Transfer Equity, we reiterate our taste for pipelines in foreign lands selected by Martin Ferara. I expect today's takeover news will rebound with our foreign pipeline outfits.

Be aware that the upgrades in share ratings and target prices coming out this morning were all prepared last week, before the European rally this morning.

More for paid subscribers follows from Britain, Germany, Switzerland, Canada, Spain, Portugal, Australia, Hong Kong, Pakistan, Spain, France, Guinea, Angola, and Hong Kong. Plus a trading alert and 2 hot tips.

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Birthday Gifts

Fri, 2015/06/19 - 12:22pm | Your editor

Today being my birthday I will not give out a free blog, as a present to myself. As we will be at a family graduation-cum-Father's Day celebration there will also be no tables this weekend.

However there is news for paid subscribers about two of my birthday presents and other important developments in our portfolio of stocks, funds, and bonds. We have news from Portugal to Pakistan, from Canada to Greece, from Switzerland to Spain plus points in between.

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Ben Franklin and Pope Francis

Thu, 2015/06/18 - 1:27pm | Your editor

A factoid for today: British author Andrea Wulf, in her book Founding Gardeners, reveals that Ben Franklin was responsible for exporting Scottish seeds so kale could be grown in America. Not just Poor Richard's Almanac, the lightening rod and the Franklin stove, but also kale! The Environmental Protection Agency is under frequent attack by a publisher of something called Poor Richard's.

Actually, Ben Franklin would have like the Pope's environmental encyclical of today against climate change, since the Franklin stove burns wood very efficiently and helps prevent global warming. We have to save God's creation for our children and their children, said the (I think) childless Holy Father who worked as a chemist before becoming a priest.

Pope Francis's global warming encyclical says “the earth, our home, is beginning to look more and more like an immense pile of filth.”

To overcome that, he added: “Nobody is suggesting a return to the Stone Age, bu we do need to slow down and look at reality in a different way, to appropriate the positive and sustainable progress which has been made, but also to recover the values and the great goals swept away by our unrestrained delusions of grandeur.”

Despite having been raised by a consummate diplomat, George H. W. Bush, Jeb Bush, the most prominent Catholic convert in the Republican field, has just put his foot in his mouth, telling Pope Francis to focus on ethics and leave the politicking to pols.


The European Community will hold a meeting of 11 countries to try to determine which transactions will be taxed by which entities to bring on a Financial Transaction Tax, AKA a Tobin tax. The cat comes back.

This is one of the key measures up with which Britain will not put if it is to remain in the European Union.


My newsletter was approached to place an ad for bitgold, which uses gold to make payments, a sort of yellow-metal paypal alternative to bitcoin. I opted not to sign up, despite the charm of the concept, mainly because we already have a gold-linked advertiser, www.bullionvault.com, and I don't want to become type cast as a gold bug. Bitgold's soaring stock trades in Vancouver as V-XAU, another reason I hesitated, as they proposed to pay me in Bitgold if any of you signed up to buy gold or pay my subscription fees in precious metal. It is promoted by Stockhouse which is another factor.


Today we have news from Finland, Holland, Taiwan, Hong Kong, Israel, China, Brazil, Colombia, Britain, Belgium, Australia, Germany, and a few other places.

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