A Barrel of Oil

Fri, 2016/09/30 - 12:59pm | Your editor

David Fuller of fullertreacymoney.com wrote from London yesterday:

“Saudi Arabia was never likely to achieve more than a Pyrrhic victory in its attempt to bankrupt the US shale oil industry. In fact, the Saudis have been the biggest losers, burning through their once-enviable “financial reserves.

“The Saudis were looking for a replay of the 1970s when they did damage US domestic oil production with the same tactic of competitive oversupply.

What the Saudis did not fully understand two years ago was the extent to which technology was changing the global energy industry. Fracking can now tap vast quantities of oil and gas found in shale formations, and not just in the USA.

Moreover the combination of previously high oil prices and concerns over global warming have led to development of renewable energy, becoming increasingly competitive.”

Taking a different position, analyst Rory Johnston of Scotiabank said the deal amounts to “relatively small cuts with the potential that further aditions from 'exempted members' will overwhel reductions made elsewhere in the cartel.” All the same “any reduction in OPEC's expected production puts upward pressure on our current WTI price forecast. Any near-term upward price adjsutwill will bolster tha non-OPEC producers and the US shale patch.”

Also Jay Hatfield, the prexy of Infrastructure Capital Advisors (who manages its InfraCap portfolio, an exchange-traded fund invested in master limited partnerships) argued at the ETF conference I attended yesterday that oil demand will continue to rise starting in 2017—whatever Saudi Arabia does, and despite fracking.

He said: “I am bullish. Next year will see a 1 mn barrel oil deficit. Automobiles are not going away. Barring some massive recession, the population is growing and the population able to afford cars is growing too.”

He also says “the price level of oil over the past two years was the most irrational I have ever seen” citing the need to invest 5 years in advance to produce oil from “higher cost deepwater sources.” This will also lead to “a price upside.”


Spain and Germany eked out 16-month high levels of inflation in Sept.--which their central banks desperately want to forestall a deflationary death-spiral—thanks to higher oil prices. Mexico's CB yesterday increased its interest rate benchmark by 0.5% to 4.75% to “counter inflationary pressures.” Actually the purpose was to boost the peso which fell to over 20 to the US$ earlier this month. This suggests that central banks need to better coordinate policy. Another Plaza Conference please?


More for paid subscribers from the Channel Islands, the Cayman Islands, Canada, New Jersey, Britain, Japan, Germany, India, Spain, Brazil, Argentina, Sweden, Chile, Colombia, and the Dutch Antilles. There will be no blog Monday as it is the Jewish New Year, but there will be one Tuesday as Reform Jews like me believe they can be sure of the date of the festival.

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Markets and Elections

Thu, 2016/09/29 - 12:42pm | Your editor

Traditional British phlegm has not been on show since the referendum results on leaving the European Union came in. Right after the vote, the reaction to “Brexit” was “shoot first and ask questions later.” There was a massive sell-off in sectors like housing and construction, banks, other financials, and small-caps assumed to be too domestic. Some open-end real estate funds banned redemptions to avoid having to add to the selling pressures, and it looked like a real panic.

So the central bank acted. The Bank of England galloped to the rescue and halved the rate of interest to 0.25%. Moreover, the new Theresa May government talked about more quantitative easing during the autumn. It also abandoned the Tory Party's plan to balance the budget by 2020.

Some more hopeful looking numbers appeared. Stores reported excellent sales during the summer, but not many people (except me) pointed out that the excess shopping was mostly by foreign visitors gaining from the lower pound sterling.

But the fact of the matter is that Brexit will be slow and complicated, producing high risks that nobody has any experience dealing with, both in Britain, and in the EU. Whatever the short-term data show, the impact of Brexit will be negative for the British economy, the largest recipient of foreign investment in Europe, and now not exactly part of Europe any longer. It will take at least two years of negotiations to figure out the terms of the exit, but foreign investors are already cutting back on commitments to the UK which no longer will be a gateway to Europe.

While some consumer areas will survive the blow—because pharmaceuticals or whiskey are global products for which European demand is relatively marginal, for example—the financial services sector is clearly facing major challenges. Autos made by multinational companies in Britain and the EU depend on parts imported from the other side of the future tariff border, and their sales do too.

Another imponderable is how inflationary the falling pound will prove to be for British consumers. It will not be negligible. Groceries will no longer be able offer a range of EU produce and wines brought to their shelves without duty being charged. The hugely improved modern British diet which has taken hold over the past 50 years from the stodgy stringy overcooked options of the 1960s will be at risk from higher prices—and this in turn will impact Britons' health.

Another area likely to suffer from the break is household appliances, all those Bosch kitchens. I think the UK government may have to adopt incentives to get more homes built because there is still a serious shortage of housing. Today the government sharply cut the percentage of the value of a home being purchased which can be covered by a mortgage, to reduce risk.New homes now will not have German top of the line refrigerators or cheap Italian washing machines once the EU exit has been taken.

The impact on employment is hard to quantify. The main generator of Brexit votes was British objections to foreign labor and immigration. But the anticipated bounce-back in UK employment is no more certain than more US manufacturing jobs if a Trump wall is built on the Mexican border. And if the new jobs don't come, the consumer spending the new hires are expected to engage in also will not come. Making Britain great again is not just a matter of slamming the gates on foreign workers and imports in the 21st century.

Moreover technology which currently respects no borders within Europe will also become pricier in Britain, a big user of cellphones and tablets, software and internet. British firms are cutting their spending on everything from robots to websites as they await greater clarity about their future links with the 28 EU countries according to Reuters. Investing now is back to 2010 levels, according to BoE surveys.

And the reverse flows of British innovation in technology back into the rest of Europe will also become more complicated. There will not longer be a single market once article 50 of the Rome Treaty is invoked—perhaps as soon as the start of next year. So I am not complacent about the risks.


*ETF Securities comments about what happens when a US presidential incumbent is not seeking a new term: “In an open election, markets dislike uncertainty.”

“Keep an eye on stocks between July 31 and October 31. In 82% of the times when markets have climbed during August through October, the incumbent party has won the election. In 86% of the times when the market has been down, the replacement party ahs won the election.


More for paid subscribers from Argentina, Britain, Australia, India, Denmark, Canada, the Dutch Antilles, Chile, Australia, Colombia, Israel, China, Finland, Germany, and Belgium, plus a few other countries.

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Trading Alert

Wed, 2016/09/28 - 3:54pm | Your editor

Trading alerts are only for paid subscribers. Join them to make money by subscribing to our full newsletters at www.global-investing.com

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Killer Politicians

Wed, 2016/09/28 - 1:38pm | Your editor

Today's murderous bombing by Russian planes and Syrian troops of two hospitals in the rebel-held part of Aleppo kills doctors and patients.Today Pope Francis said those killing innocent civilians “must one day answer to God.”

Both Bashar al-Assad and Vladimir Putin have engaged in barbaric war crimes against civilians. Assad, a medical doctor, was held responsible for two recent uses of illegal chemical weapons against civilians in Aleppo in the last 5 weeks. Five died, two of them small children, from poison gas dropped from Syrian helicopters.

Putin's government provided the deadly surface-to-air missile which shot down a Malaysia Airlines plane over Ukraine two years ago, killing all 298 on board. The Buk SA-11 missile was trucked in from Russia at the request of Russian-backed separatists, fired at the plane, and returned to Russia that same night, according to a summary of the Dutch-led investigation of the flight from Amsterdam to Malaysia on June 17, 2014.

The Kremlin tried to argue that the CIA had filled a drone airline with bodies and crashed it to discredit Russia or that the missile had been fired by Ukrainian supporting the government in Kiev.

However, the Dutch investigation found that the weapon used to bring down the plane (most of whose passengers were Dutch nationals) had been brought over the border to support Russian separatists. The Dutch confirmed that it had been sought by the separatists using intercepted telephone conversations. It also traced the route the convoy bringing the missile had followed from the Russian border to the place where it was fired on the airplane. It found the site of the Buk launch which was about 8 miles from where the plane crashed.

It also traced the route used to take the missile system back over the Russian border that same night, as part of the cover-up when the plane went down.

According to The New York Times, the investigation  headed by Dutch chief public prosecutor Fred Westerbeke did not say if Russia had any role in giving the order to fire the supersonic Buk against Malaysian Airlines flight 17. Presumably Putin thought it was going to be used against the Ukrainian Air Force which lost 16 combat and transport planes and helicopters to the pro-Russian rebels during the crisis. As almost all of them were Russian made, the rebels could identify them. Their profile was not the same as that of a large Boeing 777 passenger plane.

After probable Putin involvement in hacking Democratic National Committee websites, US policy discord over Syria and Russia's ally Iran, and indications that Russians have tried to enter two US state voting websites, remember that Putin is a former KGB operative. KGB spies are not nice people even if they say nice things about Donald Trump.


More for paid subscribers follows from Belgium, Britain, Brazil, Denmark, Germany, India, Ireland,Japan,  Luxembourg, The Netherlands, South Africa, and the USA. Tomorrow there will be a shorter blog as I am attending a closed-end and exchange-traded fund conference.

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Post Debate Trends

Tue, 2016/09/27 - 1:56pm | Your editor

An indicator of who won last night's US presidential debate came south of the border, where the Mexican peso gained 2% against the US dollar. While Mexican pesos are normally used as a proxy for Latin American currencies which are much harder to trade and less liquid, our sources in Mexico attribute the rise in the peso entirely to Donald Trump's poor performance last night.

In fact today has been full of surprising foreign exchange moves.

The optimistic interpretation of the impact on Britain of the referendum vote to leave the European Union was undermined when the September CBI retail sales survey showed a substantial 8% drop,whereas analysts had expected an 8% rise. This marks of a lack of consumer confidence. Prior retail data seemed to show that people were spending more at the store, but the figures may have been distorted by many tourists heading to stay (and shop) in Britain after the post-vote fall in sterling. The pound fell further today, to under $1.30 again. Initially this boosted London shares (along with the debate results) but then the index dropped over renewed oil price drops.

The Japanese yen also dropped but then recovered.

Also in the doghouse is the loony, at a 6-month low, also over a drop in consumer confidence indicators. During the Asian market day, it took C$1.3275 to buy a greenback, but in European trading the Canadian currency recovered somewhat. US retail sales data are due this afternoon and may add to the gloom.

We invest globally and normally do not hedge currencies, although some of the funds we use for diversification may hedge, particularly if they are fixed-income ones. I only use currency hedges when I am sure which way the world movement is going, and at present I have no such insights.

When their currencies fall, foreign large exporter companies can sell more which creates a “natural hedge” against moderate exchange rate moves, of the sort which we are seeing now in the industrial world. They can reflect complex strategies in the foreign exchange markets over negative rates in Europe and Japan which boost demand for US dollars.

Then too under-zero rates create problems for banks in general, or now, Deutsche Bank in particular.

I did a round robin visit to British, German, French, and Spanish newspaper websites this morning, and they almost unanimously ranked Hillary Clinton as the winner of the last night's debate. But of course international journalists (including me) are naturally more likely to support free trade, an unhampered Fed, immigration, fairer taxes, and controls on healthcare cost.

More for paid subscribers follows from Germany, The Netherlands, India, Britain, Colombia, Mexico, Bolivia, Chile, and Ecuador.

Your editor is examining another global trading specialist website run for the Zacks group of Chicago by Interactive Brokers to see if it will work for trading foreign stocks on foreign markets--with pricing information denied those who sign up directly with IB. I will let you know how it goes.

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Not Enough Gold!

Mon, 2016/09/26 - 12:38pm | Your editor

My NYC apartment building co-op board cleverly called a meeting about controversial changes to the terms of our leases for tonight knowing that everyone will be rushing home to watch the Clinton-Trump debate. So the chances of the apartment owners challenging the board's self-serving increase in charges it can impose is less.

The result is that I am one of the few people I know who can predict in advance something important that will result from the expected confrontation.

I can recall the first TV debate, which took place well before I was qualified to vote, between John F. Kennedy and Richard Nixon. It set the superficiality standard which has applied ever since, as Nixon was penalized by the public for a 5 o'clock shadow and sweating under the TV lights, while Kennedy looked cool. Read more »

Selichot and Stocks

Sun, 2016/09/25 - 10:26am | Your editor

Today's tables have been posted on www.global-investing.com where you can view the ones your status permits. Everyone can see the closed-positions table but only current subscribers get to see our advice on stocks, bonds, closed-end and exchange-traded funds.Use the printer-friendly button to better view the spreadsheets. Read more »

Losses and Bankruptcy

Fri, 2016/09/23 - 12:50pm | Your editor

Give to Harvard, give to Harvard, with your blood and your sweat.

She needs more, billions more.

Give to Harvard, give to Harvard, with your blood and your sweat.

She needs all she can get.

In its worst performance since the global financial crisis of 2009, The Harvard Management Co., which runs the now $35.7 bn endowment, managed to lose 2% on its investments in the year to June 30th. The internally-promoted manager resigned in May “for health reasons” after a high turnover on the equities and natural resources investing side. Stock and resources investments had a negative 10.2% return in the last year, according to the New York Times. Chances are the endowment will move to placing part of its wealth with outside managers or “use a hybrid approach”, the newspaper wrote.

I'm not volunteering to run a global investing portfolio for my alma mater, mainly because I don't like Harvard's plans to colonize Allston, across the River Charles (well beyond the area around the Biz School and the football stadium which are already there.) My Boston aunt and uncle owned a shop and an apartment in Allston during my college years, when it was an affordable middle-class neighborhood. Harvard doesn't need to expand its campus as distance learning technology can replace classrooms and dorms.

Said interim CEO Robert Ettl, “with a backdrop of slowing growth and rich valuation, endowment returns could be muted for some time to come.” So they will seek more donations from alumni. I donate to my high school, but not the Harvard, among other things because I attended its female arm, Radcliffe, and suffered sexist discrimination during my college years, for example not being allowed to use Lamont library for course-required reading. This discrimination was only eliminated after Radcliffe merged itself into Harvard.


The EU countries are aiming to move closer to monetary union with an initiative to harmonize different national rules on bankruptcy and insolvency. Britain had opposed the move as part of its anti-centralization position. In theory the new regs will encourage smaller businesses (which are likelier to go bust) and second-chances for serial startup entrepreneurs. Moreover, the idea is to boost the protection of equity investors who now are unlikely to get much when a business fails, since most of the assets are used to bail out lenders and bond-holders. More on bankruptcy below.

More for paid subscribers from Canada, India, Britain, Pakistan, South Africa, South Korea, Cameroon, Uganda, Zambia (all three new investment sites), starting today with focus on military deals and reports on losses and bankruptcies.

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SWIFT Not Swift

Thu, 2016/09/22 - 12:10pm | Your editor

SWIFT, the member-owned global cooperative for financial messages and transactions,which has been run from Brussels for over 40 years, was penetrated by a February heist of over $1 million from New York Fed reserves held for the central bank of Bangladesh, which the country can ill-afford. This was part of a $951 mn attempt, most of which was spotted in time to block the transfer.

The stolen money then went via Filipino casinos (which offer anonymity to gamblers) into accounts unknown. Earlier thieves had attempted to hack SWIFT accounts of banks in Vietnam and Ecuador

This shows how vulnerable the decades-old SWIFT transfer system is to hacking via defects in the security systems of member banks and central banks.

Now SWIFT is investigating using standardized distributed ledger (block-chain) technology and smart contracts to enhance security for the financial transfer system. The standards would cover formatting shared data, business processes, and which different players are responsible for what security measures to enable SWIFT to use new automation systems.

However, the first reports on the study appear to show that a new initiative will face many obstacles. "The promise of DLT is the synchronisation of financial data between multiple organizations, while smart contracts can further provide self-executing efficiencies on the ledger," admitted Stephen Lindsay, SWIFT Head of Standards. "This paper addresses questions about how DLT/SC automation can run smoothly in a multi-party network environment and highlights the importance of avoiding 'reinventing the wheel' when it comes to business definitions that facilitate interoperability”. He pointed out the risks of “fragmentation of global standard” if the SWIFT members fail to “coordinate efforts over common messaging and data standards.”

Mr Lindsay concluded: “the paper recognizes that full-scale standardization of DLT/SC use is premature.” while adding that “SWIFT stands ready to work with the community to conduct further studies.” Besides leakage, SWIFT also suffers from double-billing of fees on bank transfers it makes, in my personal experience.


More from Israel, Britain, Australia, Argentina, Canada, Chile, China, Colombia, Brazil, Denmark, Finland, Hong Kong, Switzerland, Germany and a few other places today. We start with good news and funds.

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Not So Random Walk

Wed, 2016/09/21 - 1:20pm | Your editor

U.S. large-capitalization stock funds are a commonly cited example of how difficult it is for actively-managed funds to outperform their indexes. Fidelity, a fund manager, examined Burton Malkiel's “Random Walk” theory, that markets are efficient so current stock prices reflect all that is known. Malkiel famously wrote that “a blindfolded monkey throwing darts at a newspaper's financial p;ages could select a portfolio that would do as well as one carefully selected by experts.”

Malkiel's book came out first in 1973 and argued that index-tracking passive funds do better than active ones. He later toned down his assertion but it still is used to justify investing in index funds because they allegedly perform better than managers. However Fidelity found exceptions with its examination of active fund performance.

When corrected for fund size and how low the fees are, over decades active rather than passive index funds do better. The edge from index funds, it appears, comes from lower fees rather than using indexes.

Fidelity found even more out-performance with active funds doing global investing. Because apart from the category of U.S. large cap, the average active funds out-performed regardless of their size or fee structure! Fidelity's research has shown that in the other largest equity fund categories besides U.S. large cap, international large cap and U.S. small ca), active managers outperformed their benchmarks consistently, even when all funds were considered regardless of size or fees. This means their return is not random.


The Harvard Republican Club has published its reasons for not backing the official candidate: “Donald Trump holds views that are antithetical to our values not only as Republicans, but as Americans.” There is no room for hate and bigotry in this tent” the campus group said when Trump refused to disavow support from the Ku Klux Klan.

We have news from Australia, Brazil, Britain, Canada, China, Hong Kong, Israel, South Korea, and Spain. Today's blog is late because the latest upgrade from windows 10 managed to delete what I was writing. Twice. I do not write in Windows programs.

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