Catholic Theology and Splits

Thu, 2017/09/14 - 12:32pm | Your editor

I have to stop writing about is Catholic theology, according to a VA reader who studied it seriously. Apparently the secrecy of the confessional is needed in order to push sinners to stop doing whatever wicked things they get up to, and they are assigned a penance to push them to reform. The assumption is that they want to stop sinning, why their crimes are not reported to the cops.

This leaves a logical gap however: by the 2nd or 3rd or 4th confession of the same crime of sexually molesting children the carrot has proven to be useless and (being a real Old Testament type) I think a stick needs to be used.

My education in Catholic theology is spotty. When I was a kid, a friend of my father's who had gone to St John's to study law under the GI Bill used to teach it to me as a joke. His famous query was: “how many angels can stand on the head of a pin?” The answer is however many you want as angels are “immaterial”.

Speaking of religion, the Jewish year 5778 begins at Sundown on Sept. 20 and there will be no blog on the 21 but, because I am reform, I will write on Friday the 22. The holiday is held over two days because of uncertainty about when the new moon will appear. The Muslim calendar, also based on when the new moon appears, this year used the same date as the Jewish calendar in Indonesia and Malaysia, while the rest of the Muslim world in the Middle East, Europe, and the Americas will start the new year on Thursday at nightfall and on Friday. Shias mourn the new year working up to the death of Hussain Ali at Karbala on Day 10 while Sunnis are mostly feasting and feting the Prophet Mohammed's flight from Mecca to Medina to propagandize his new religion. They believe the 10th or Ashura is when Noah's ark landed and when Moses led the Hebrew children out of Egypt.


In addition to problems with telephones today I am locked out of my primary brokerage account. It doesn't accept the middle name of my daughter which I know for sure in order to change passwords and it doesn't recognize my voice on the cellphone as opposed to the landline.


More for paid subscribers follows from Brazil, Britain, Canada, China, Colombia, Germany, Israel, Mexico, Russia, Sweden, and The Netherlands Antilles. The big news concerns a split about which the market is getting very excited.

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Saint John Nepomucene and Warning Flags

Wed, 2017/09/13 - 1:07pm | Your editor

Since I first ran into him in a course in Eastern European history, my favorite Catholic martyr was St. John Nepomucene who in the 15th century was thrown off the Charles Bridge in Prague and drowned for refusing to divulge to the Emperor what his wife had said in her confession. Now I am reconsidering after it turned out that the secrecy of the confessional was cited by Australian Cardinal George Pell over priests who confessed to having sexually molested children.

An Empress having an affaire is a sin but not a crime or a violation of law (including canon law) whereas a prelate preying on children is a criminal. I am not sure if back in the 15th century this was spelled out by the Czech saint before he was dropped into the Vistula. So now I am backing Baltimore Archbishop William Lori who tonight will celebrate Mass for local “dreamers”, children who were illegally brought to the USA who have grown up and attempted to get proper papers.

One reason is that I ran into a demo over the weekend on behalf of the DAPA law that nobody in the party in power is backing, and got a lovely multi-lingual poster reading “welcome” in a dozen languages (French, Spanish, and what I assume is Arabic among them.) It was given to me by a pair of very tradional-looking nuns, wearing wimpels and carrying yard-long rosaries, presumably to increase their credibility if not their comfort level. I have no problem with propaganda for policies I back.


*The Frankfurther Allgemeine Zeitung today headlines” “A Financial Crisis Coming? The situation recalls 2006.” Then the paper quotes London-based analyst Ariel Bezalel of Jupiter Funds, who says “the biggest risks I see today are in the USA where consumer and corporate debt are too high... which also creates risk for the rest of the world.” Mr Bezalel managed the Jupiter Dynamic Bonds Fund which in 2012-2016 produced a 34.6% return compared to a mere 21.7% rise for other bond funds in Britain. He also worries about how easy it is for no-income companies like tesla or Netflix to raise money on the bond markets. The analyst also has a Jewish name which reporter Gerald Braunberger may not have spotted.


Bearish too is the European Securities and Market Authority which issued a warning that current market and credit risks are exceptionally high. This could cause a bubble and widespread volatility. It blamed low interest rates and political uncertainty over Brexit. Brexit talks are now being suspended until PM Theresa May delivers what is supposed to be “an important intervention.”


More for paid subscribers follows from Brazil, Britain, Canada, Chile, Denmark, Germany, Ireland, Israel, Italy, Korea, Portugal, South Korea, Spain, and The Netherlands. We have a new stock pick.

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Election Day

Tue, 2017/09/12 - 1:03pm | Your editor

The phone man came and tested the lines and then went away again. He will let me know by cell what is going on with our lines which are copper running through the sewers.

Today is Election Day for the party primaries in New York City and I will vote after I blog. The last time I voted was last November when the poll site, a local public school, was invaded by Donald and Melania Trump with cops, secret service men, TV cameras, and lots of press in tow. This time it should be more sedate as the vote for my half of Sutton Place will only be between the incumbent on the City Council and his two challengers. The other half of Sutton Place is in a differeant electroral zone and there are 10 candidates for the Democratic nomination and only one, unchallenged, for the Republican one. We also get to vote for the mayorality candidate but De Blasio allegedly has it sewn up mainly because he raised far more cash than the challenger from my fair city's real estate moguls, not of course including The Donald.


More for paid subscribers follows from Argentina, Brazil, Britain, Canada, Chile, Germany, Ireland, Israel, Mexico, Paraguay, Sweden, and Uruguay, including a company half yearly report. We start with funds for a change.

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An Anniversary

Mon, 2017/09/11 - 2:24pm | Your editor

A speculative stock gamble we advised taking last week has paid off already, and what to do now about this share is discussed below.

Before moving on to the big good news today, we need to remember what happened here 16 years ago and to think about how to help the people of Houston and the Caribbean areas and part of Florida hit by Hurricane Irma, now reduced in horribleness to a mere tropical storm but still deadly.

Having watched the impact of new price cuts on my local Whole Foods market I was not surprised that supermarket analysts found that the post-Amazon shopping at the US branches of the chain rose 25% after is stopped being “the whole paycheck”. The world of supermarkets will never be the same. When I was a child in Manhattan, the local general grocery stores were wiped out by Great A&P, now bust, while specialists selling delicatessen goodies, real bakeries, fishmongers, and Kosher butchers survived. I expect that in areas with dense foot traffic will see the same pattern, but whether it will work nationwide is not clear.

More from Australia, Bermuda, Brazil, Britain, Canada, Chile Denmark, Germany, Hong Kong, Portugal, South Africa, Spain, Sweden, Switzerland, and the USA.

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Sunday Tables Posted

Sun, 2017/09/10 - 3:02pm | Your editor

To all my readers in Houston and around Florida my thoughts and prayers are with you. My only problems are that a sewer fire took down our telephone lines--but we still have cellphones.

I just posted the Sunday tables at which may be viewed on our site. Everyone gets to see the closed-positions table but only current subscribers may view our current holdings of stocks and bonds, closed-end and exchange-traded funds, and our current advice. The internet was also verrryy slloow.

There is need for a footnote for the public table, which only shows part of the proceeds from the sale of Stada Artzneimittel paid by Cinven of Britain and Bain Capital of the US so far. Because of a hold-up by Elliott Mgm.' Paul Singer, our buyer funds had to pay 8 euros 40 cents more per share to get control of the company, and under German law we have to get that sum as well along with a promised final dividend from STADF. I have a confirmation from my broker that this is coming, but not yet how much it will be in US$s on the day it hits.

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Midtown Manhattan Out of the Loop

Fri, 2017/09/08 - 1:49pm | Your editor

The phone outage turns out to be general in the East Midtown area even including Trump Tower, where luckily the President's family no longer resides. The rot is also affecting Queens reached by a bridge near my office. They promise service will resume by Sept. 18. I am not sure I can manage that long with only a cellphone.


Meanwhile the dollar has hit a 32-month low against the euro despite the Trump deal with the Democrats to kick a debt ceiling vote down the road. It may just be hurricanes but my theory is that money men fear Pres. Trump no longer expects to deliver the tax cuts they are waiting for and are placing their bets on the European Central Bank rather than the Fed to next raise rates or at least cut stimulus. The Portuguese 10 year bond is up 7 basis points because the market expects other yields to rise, but not Lisbon's where the bank bailout fund is again being tapped.


Given the phone situation, I am again filing very little. I cannot phone up to reach sources as I need to keep the cell line open for emergencies and the telephone company. My internet is also affected, possibly because of the huge leak reported by Equifax where we have some accounts. I feel like I am visiting Third World countries like China and Egypt. It sure feels like then end of civilization as we know it in Manhattan.


The data breach affects about 45% of the US population whose social security numbers and driver's license data has been hacked. Equifax knew about this in July but waited to tell the world apparently so its top brass could seel shares.


The environment isn't helping any. Apart from Irma, we have had a huge earthquake offshore southern Mexico, mudslides in the Swiss Alps, and fatal flooding in India, Bangladesh, Pakistan, and Myanmar. More today from Mexico, the Dutch Antilles, Britain, Israel, Spain, Finland, Ireland, Denmark, Switzerland, Colombia, Brazil, and South Korea.

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No Ding Dong

Thu, 2017/09/07 - 1:58pm | Your editor

I had an aunt named Irma. I had a childhood friend named Harvey. I have a cousin named Sandy. I think all these hurricanes have something to do with my relatives. But luckily I have no relative named Katrina.

I reflect on these connections because both our telephone lines are down today, which has never happened before. Given the constraints I am putting out an emergency blog today with a limited amount of news, as I cannot confirm anything coming in on the Internet with a phone call. I have to leave my cellphone available to get the telephone company repairman in. It reminds me of nothing so much as France in the 1960s. We managed to garner news from Canada, Chile, Argentina, India, Australia, Britain, Brazil, Russia, France, Sweden, Finland, Germany, Bermuda, Denmark, and the USA, despite the phone service being cut off.



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Europe Plans Internet Crackdown

Wed, 2017/09/06 - 12:34pm | Your editor

Just as Amazon announced that it would build its first fulfillment center within the New York City borders (in Staten Island, a part of my city), other internet giants faced new tax demands across the pond. Reuters reports from Tallinn that European Union finance ministers next week will discuss rule changes aimed at increasing taxes on digital multinationals such as Google and Amazon. The on-line giants face pressure in Europe to pay more taxes. It is hard for a single EU country to boost its taxes because existing rules limit the taxation rights to the countries where companies are physically present, giving digital firms an edge against physical vendors.

The informal meeting of finance ministers will be held in the Estonian capital on Sept 15-16. The paper which was seen by Reuters' correspondent proposes a reform of international tax rules to change the concept of "permanent establishment" so that digital multinationals can be taxed where they create value, and not only in countries where they have established their tax residence. It comes after several EU countries began negotiating with large digital companies for the payment of back taxes. They face legal hurdles in collecting payments. This summer a French court said Google did not have to pay euros 1.1 bn ($1.3 bn) in back taxes demanded by French authorities because it had no "permanent establishment" in France as Alphabet ran its French operations from Ireland.

Under the Estonian proposal, even without physical presence, large digital businesses would be liable to the corporate tax of the countries where they make profits. A "virtual" permanent establishment would be enough to justify taxation. It goes further than existing tax principles agreed at international level by members of the Organisation for Economic Cooperation and Development, which includes EU states, the USA, Japan and other rich countries. It is also more ambitious than proposals currently discussed at EU level to tackle multinationals' low tax bills, such as a common corporate tax base.

Any single one of the 28 EU countries has a veto on tax matters and several have blocked crackdowns in the past. To avoid a quick backlash, the Estonian presidency is proposing to discuss the issue in the coming months to reach a common position before the end of the year.

Canada today raised interest rates to a whole number, 1%, meaning deposits earn 0.75% while loans cost 1.25%. And the most international member of the US Federal Reserve board, Stanley Fischer, who formerly headed the Israeli CB, is resigning for personal reason next month, which will give Pres. Trump a chance to change the makeup of the Fed.

Thanks to the spate of hurricanes, the US debt ceiling was raised today by Pres Trump and Congressional leaders, until Dec. 15, so gold is down and the US$ is up, hurting all our non-dollar positions.

More follows for paid subscribers from Israel, Canada, India, Brazil, Denmark, Kenya, South Africa, Spain, Britain, Ireland, and Ethiopia.

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Reacting to a Norwegian Warning

Tue, 2017/09/05 - 1:57pm | Your editor

Here is something to worry about besides the risks of a confrontation with nuclear weapons between Kim and Trump. The Norwegian wealth fund has decided that it will only buy corporate bonds denominated in dollars, sterling, or euros, and for a term of no more than 10 years under its new performance benchmark published yesterday. So the managers of the oil wealth investments are forced to avoid bonds denominated in other currencies, even the Norwegian one, as they place some of Norway's $990 bn portfolio. Behind this Viking move, is the realization that the gains from broad international diversification are not worth the risk for bonds and fixed income investment. It is not the same as for equities, where diversification cuts risks.

“For an investor with 70% in an internationally diversified portfolio, there is little reduction in risk to be obtained by diversifying his bond holdings across a large number of currencies,” the fund wrote in its letter yesterday to the Oslo Minister of Finance, published in today's Financial Times. What works for stocks does not work for fixed income, writes another mentor yesterday:

“In most major markets, credit growth and property prices, which often tend to be destabilising, have been reasonably well-behaved relative to nominal GDP growth. The situation in smaller advanced economies, such as Canada and Australia, and a number of EMs [emerging markets] is different. They have experienced more intense expansionary financing phases. There is evidence tha the EM credit cycle is in a state of excess and thant some EM economies, including China, are now at high risk of financial crisis.

“The vulnerability of the EMs is deepened by large overseas holdings of their debt and their extensive issuance of FX-denominated securities. Some 25% of EM debt is foreign-owned, while EM external FX-debt stood at around 12% of GDP in 2016, up from 10% in 2007, although lower than the peak of [over] 18% before the 1997 Asian Crisis. Dollar debt in the past played a big role in EM crises, either as a trigger of a sudden capital flow 'stop' or as an amplifier. The combination of depreciation [vs] the US dollar and higher US dollar interest rates has proved a poisonous cocktail.

“That said, it could be argued that the EMs are better protected against 'sudden stops' in capital inflows than in the past. Flexible exchange rates are more common, and current account deficits have fallen in a number of economies, partly because of cyclical reasons. The shortfalls in Argentina, South Africa, Turkey, and Egypt remain [a] concern.

“Countries have accumulated sizeable FX war chests, although these have recently begun to fall. Oil exporters' FX reserves have dropped to a 10 year low.

“The threat of EM trauma is increasingly pertinent from a global perspectives. The EMs today account for almost 60% of global GDP, 36% of world exports, and 86% of the global population. Since the [global financial crisis] their contribution to global growth has been [about] 80%.

“Financial globalisation has made asset markets increasingly inter-dependent. About 70-80% of equity and foreign exchange returns in both advanced and emerging market economies are attributiona to international factors. Financial spill-overs are the norm, not the exception. The is evidence of [more] spill-overs from EMs equity and foreign exchange markets. Between 30% and 40% of the variation in advanced and EMs economies stock returns and exchange rate fluctuations can now be explained by EMs financial markets.”

So writes Russell Jones today in a note on financial fragility and excess, published by from London. Given that we have just recommended buying a fund invested in high-risk emerging markets and other below-prime debt, I am quoting Mr Jones to explain my logic. We are exposed to this paper even if we are not investing to get its high yields. So with a well-managed closed and fund trading (as they do) at a discount from net-asset value, at least we are getting some of the yield from the global exposure to high-risk paper. More for paid subscribers from Germany, Australia, Brazil, Canada, Britain, Mexico, the Dutch Antilles, Israel,  India, and two items from Colombia.

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A New Fund

Sun, 2017/09/03 - 4:56pm | Your editor


 I had hoped to wait until Tuesday to write up my latest fund pick, but my paid subscribers are clamoring for more information Sunday. So here goes. I have picked a very free-ranging fund with experienced managers and a good track record for higher yields--which even in this case do involve higher risk than more sedate funds with narrower mandates. Read more »