The No-Mo and Bill Show

Tue, 2009/06/02 - 2:00pm | Your editor

     Is it over yet? Two views. The first is from Asia Pulse:
     Software major Infosys today said the economy will recover by the end of the year or early next year going by clients' feedback suggesting that the worst is behind them. "When we talk to clients, they say that it looked like the worst for them is behind and they might have hit the bottom," Infosys Technologies CEO Kris Gopalakrishnan told reporters here today on the sidelines of a function here. That’s the upbeat view.
     Bill Gross, co-chief investment officer of bond mutual-fund giant Pimco, is more downbeat on the market outlook, forecasting lower returns, decreased U.S. growth, and our dollar’s losing its status as the world’s reserve currency.
     Some of this came last week at the Morningstar Investment Conference, Gross outlined what his Pimco colleague Mohamed El-Erian called the “New Normal.” Read more »

Straphanger Memories

Mon, 2009/06/01 - 3:09pm | Your editor

 An early memory. When I was a little New York City girl, just after World War II, I rode in the streetcar with my mother up Broadway. The streetcar tracks were removed around 1950 to make room for more cars. As Manhattanites, we did not have a car; my parents only got motorized in the 1970s when I was no longer at home. I only passed my driving test at the ripe age of 28.

 In 1953, appointed by Pres. Eisenhower as Secretary of Defense, Charlie Wilson, former head of General Motors, denied there would be any conflict of interest: "what's good for General Motors is good for the country, and visa versa."

 By 1973, during the first oil price crunch, that was no longer true. My then-boss, Sen. Clifford P. Case, minority leader of the Senate Foreign Relations Committee, while not a NYC straphanger, was close. (Before becoming a legislator he had commuted to the city by rail from New Jersey.) He said the only solution to the energy crisis was to raise taxes on gasoline to European levels and (because he was a liberal Republican, a now extinct species), to subsidize those for whom high priced gas was a necessity. Read more »

Pentecost Question

Thu, 2009/05/28 - 4:34pm | Your editor


     It was over 30 years ago that I was part of a herd of Paris journalists who interviewed the Ayatollah Khomeini, a Shia theologian, in Neuflé-le-Château. Like all my female colleagues I wore a scarf over my head. The exiled Iranian spoke softly in Persian for about 10 minutes. What did he say?

      “He is in favor of Jeffersonian democracy” we were told by his spokesman, Zadegh Ghotbzadegh. And we all duly wrote this down in our notebooks. A few months later, the Shah fell and the Ayatollah returned home to Iran in triumph.

      And then they put Zadegh against a wall and shot him. Maybe it wasn't Jeffersonian democracy the Ayatollah preached after all.

      I have always had problems with Islam. I do not understand the theology, the ethics, the rules, the history. So today I have a question for my readers like Pam and Carol and anyone else who has studied the religion closely. Read more »

RMB: Reserve or Reservation Currency?

Wed, 2009/05/27 - 6:21pm | Your editor

     For paid subscribers I wrote yesterday about a sale by one of our recommended shares of $1.019 bn in assets to Petrochina. And I noted that PTR is buying supply security and not interested in profits. At reader request I am following up.

      PTR parent China National Petroleum Co. has a 14% rate of return on capital, compared to 36% for Exxon, XON. Its mission is gathering crude for China. Thus it operates in many rogue states. Last month PTR bought a Kazahkstan oilfield, also paying over the odds.

      I concluded: I would rather sell to Petrochina than own it. One reason is that I do not want to own stock in companies which pump oil in outlaw states like Sudan and Myanmar (Burma). But my main reason is not ethics but economics. 

      Chinese big corporations have a mission only tangentially linked to earning profits. It is to serve the regime. The deformed banking system allocates money to large-cap state and supposedly private companies to achieve Beijing’s goals.  Read more »

Eats Shoots and Leaves

Tue, 2009/05/26 - 3:19pm | Your editor

       Eats, shoots and leaves. Before the North Korean nuclear test shots which spooked the market, we got the following from Stephen Taub of BondsonLine

       *Credit Suisse Securities points to five pieces of good economic news: the degree of inventory build-up; China is recovering, with 8% GDP growth this year achievable; US housing is clearly cheap; bank lending conditions are improving; the economic surprise index is at its highest level for seven months; and the best lead indicators in the US are consistent with only a 1% fall in GDP year-over-year. It is maintaining its year-end target of 920 on the S&P 500.

       *Citi Global Markets recently told clients it remains buyers of small/mid cap (SMID) stocks on weakness despite the swine flu scare as it believes that the mid-recession stock market bottom was likely found in early March 2009, and that the recovery trade should resume. Read more »

Canada News

Fri, 2009/05/22 - 3:14pm | Your editor

      As I tried to say yesterday, I am only filing for paid subscribers today because of the early market closing and some business over marketing and datafeeds. Before a holiday when the bells ring, like Memorial Day, some markets close early in the U.S (as in France.). Monday is a holiday. I also will be off next Friday for Shevuout, the Jewish version of Pentecost.

       But I cut my own copy by mistake yesterday confusing the whole issue of when I will not file I also left out two esential "nots" in my copy yesterday and the day before. To fend off Alzheimer's I think I have to take up bridge. I always avoided learning that game so I could be dummy and read while my mother and her friends played fierce matches.. Read more »


Thu, 2009/05/21 - 3:23pm | Your editor

      Bloomberg interviewed Colombo central bank governor Nivard Cabraal. I interviewed my bank relationship manager who is married to a Sri Lankan. Jim Rogers addressed a Far East economic conference. The three of us were thinking about the benefit to Sri Lanka of the end of its 26-yr civil war.

      Gov. Cabraal forecast that the rate of GDP growth of his country's economy would be near double earlier forecasts of 2.5% growth this year. The new level is 4-5% he said in an interview with Bloomberg Television. The size of the economy is $32 bn, Bloomberg reported, and it grew 4.3% in the final quarter of 2008.

      “We do see a new momentum for our economy and at the same time we have created sufficient space to take a little more liberal view with the monetary policy,” Cabraal said. Inflation is under control and “we are on the threshold of a new era” with war being “a thing of the past”. Read more »

We need the SEC

Wed, 2009/05/20 - 2:20pm | Your editor

      Canadian reader SA commented on Mohammed El-Erian: "talent like that you mention at Harvard is worth multi-millions per year. Of course a chimp could earn big dollars per year if you gave her a billion to play with… especially if the game was take big risks and heads you win, tails the fund loses and you win again with a severance…"

      One reason the PIMCO CEO is in my sights is that Frida Ghitis wrote a paean of praise to El-erian when reviewing his book in this newsletter. The book was promoted based on the unquantifiable performance of the Harvard Endowment during his tenure there.

      Speaking of Harvard, my classmate Elizabeth Warren, now a professor at the Law School and in charge of supervising the administration of TARP money, according to Bloomberg is a supporter of moving Securities and Exchange supervision of major financial institutions over to the Federal Reserve. Read more »

Mo El-Erian and Suu Kyi

Tue, 2009/05/19 - 1:32pm | Your editor

      I'm an old codger who berates the spoiled youths who insist on taking a schoolbus instead of walking through all weather. When I was at Radcliffe, in the 1960s, women were housed on the Radcliffe Quad, and we made our way back there from the library at night by bicycle or on foot. (We were not admitted to Lamont Library in the Harvard Yard because of our sex.)

      Now the Quadlings are co-ed like the rest of Harvard, and so is Lamont. With all the depredations to Harvard's endowment, zapped by unquantifiable "alternative" investments like property, options, commodities, etc. under Mohammed El-Erian, Harvard ended the shuttle bus service to the Radcliffe Quad after the libaries used by students close. Lamont is the one furthest from the Quad. Read more »

I Hear India Singhing

Mon, 2009/05/18 - 12:50pm | Your editor

      On Mondays, for paid subscribers, I sum up the changes in analyst forecasts on our holdings during the prior week. Maybe I should stop bothering. Today's Financial Times reports on an academic study showing that invstors pay no attention to analyst "buy" and "sell" advice.

      After looking at over 44,000 changes in recommendation in the 1997-2003 period, the researchers found that the effect of a forecast change was minimal, about 0.03% either way. Authors were Pya Altinkillic of the University of Pittsburgh and Robern Hansen of Tulane. Their study showed that 80% of analyst changes in recommendations came after corporate events (earnings releases for example) which had already triggered investors to buy or sell their shares.

      So maybe we can stop paying directly or indirectly for research on shorter term stock trading. It does not add much value. That does not mean we do not want to continue to see in-depth research on companies. I mention some problems with smaller companies not well covered by analysts below. Read more »