Woes of Wu

Fri, 2018/02/23 - 4:28pm | Your editor

Today we have a news-laden Friday so I will temper my commentary on gun control, NAFTA, the US Embassy to Israel, and Unilever moving its global HQ to Rotterdam. But I cannot resist reporting one bit of Trumpian awfulness in China.

Beijing has taken control for a year of Anbang Insurance Group which had RMB 2 trillion ($315 bn) in assets under management the last time it reported. China also will try its chief, Wu Xiaohui for fraud. The insurance company sold policies to Chinese whose high yields attracted customers, but the money was then used by Wu for unregulated acquisitions. These included the purchase 4 years ago of the Waldorf Astoria Hotel here in New York, which forced the State Department to move the US Embassy to the United Nations for fear of Chinese hacking. But it may well be that Wu was not doing China's bidding.

About a year ago Wu opened talks with Jared Kushner, the First Son-in-law, to invest in more real estate. This is the largest ever nationalization of a private company in China. What it means for our portfolio will be discussed below along with lots more corporate results from our portfolio. Our headline is Woes of Wu.

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Wait for it

Fri, 2018/02/23 - 4:15pm | Your editor

Today's action-packed newsletter could not go out before the market closed because there is just too much in the way of company reports to deal with.

Please be patient and dedicate a few hours over the weekend to reading my work at www.global-investing.com

We're Back!

Thu, 2018/02/22 - 3:22pm | Your editor

 

Köszönöm. That's my message to our former webmaster, now employed full-time as the IT for the university in his home town, for having got our site up and running again. It means thank you in Hungarian, and he is of Magyar heritage. Read more »

We're Back!

Thu, 2018/02/22 - 3:19pm | Your editor

 

Köszönöm. That's my message to our former webmaster, now employed full-time as the IT for the university in his home town, for having got our site up and running again. It means thank you in Hungarian, and he is of Magyar heritage. Read more »

Arab Israelis Deal

Tue, 2018/02/20 - 3:42pm | Your editor

 

*From yesterday's Financial Times, the unsurprising news that mixed gender British fund managerrs atracted 6% more inflows over the past 3 years than funds managed only by men or only by women. The mixed sex funds also performed better which may be all you need to know. But paid subscribers can learn more.

Today is a double day for news because of the holiday yesterday. I just want to congratulate Pres. Trump for at least opening the debate on what to do about controlling the unbridled American access to guns in reaction to the Lakeland school shooting. Most stocks are down and I focused mostly on the exceptions. We havde new from Germany, Hong Kong, Israel, Egypt, Colombia, Ireland, Britain, Canada, Argentina, Japan, Mexico, Brazil, Jordan, India, Chile, Sweden, China and Russia.

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Tables Plus Biotech Battle

Sun, 2018/02/18 - 6:19pm | Your editor

 

My Sunday job is to post our tables at www.global-investing.com and I just did despite tomorrow being a holiday: President's Day in the US; New Year in China, Hong Kong, Taiwan and many other Asian centers; and Families Day in Canada.

 

I got my Barron's issue yesterday at my home address and was pleased to see that Mary Childs, a new by-line, has written about how male-dominated and macho Wall Street remains in the era of “me-too”. Women at funds and brokerages are under-hired, underpaid, and under-promoted according to statistics and anecdotal evidence.

 

My Barron's issue came with a glossy 34 page catalogue from UK haberdashers Charles Tyrwitt showing menswear only. It had an advertising insert about options trading which featured only male experts. It ran its list of local stock advisors around the country and ads about promotions from brokerages with only a handful of women's names.

 

Ms Child's headline read: “A Failure to Supervise?” specifically about the misdeeds of Steve Cohen who is being sued by a lady whose career was blocked by the hadge fund manager under supervision for insider trading and other bad behavior, and therefore should be required, we both think, to end discrimination in promotion and pay.

 

But Barron's itself, despite naming a woman as editor-in-chief this year, is still acting as if the stock market is only for guys. Who is supervising its ad salespeople—or are they all salesmen?

 

More for paid subscribers follows, over disputes on the stock we tipped Friday in an article by Canada-based Martin Ferera about a local biotech firm Vancouver. The article was published with a critique by Patti the Biotech Maven, but she has more to say. I bought the stock and I do not regret this. But I think readers should hear more from Patti and, probably in a rebuttal, more also from Martin.

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Cassandra Is Silent

Fri, 2018/02/16 - 2:40pm | Your editor

Another day of seemingly irrepressible stock gains despite the risks of a holiday weekend, with US markets to close Monday for President's Day. It doesn't pay to predict trouble. But please do note that the almighty dollar is down again against foreign currencies.

In early trading US Treasuries again fell in price over housing starts rising, a possible herald of inflation. Lower T-Bill prices mean interest rates (which move inverse to the price) rose again. But now the bond market has moved the other way, and the yield spike dropped.

Today, the lockstep move of bond and stock price broke down and stock prices rose solo. So maybe the stock selloff earlier this month is over.

 

Or not. I don't want to suffer the curse of Cassandra whose warnings were always correct, but were never believed. Gold is again on the up because it moves inversely to the US$ in which it is priced. My paid subscribers were told when I bought more gold

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Zurbaran and Short Sellers

Thu, 2018/02/15 - 2:19pm | Your editor

 

Francisco Zurbaran grew up in Seville, the city which administered Spanish colonies in the 17th century and the main port shipping goods and treasure to and fro. The son of a draper, he became a painter with a naturalistic style, heavy shadows and chiaroscuro, and usually a Catholic religious subject. He nonetheless managed to beat Marc Chagall in depicting Jacob and his dozen sons, in paint rather than stained glass.

Yesterday we went to the Frick Gallery here to see the Jewish family portraits, which are huge and brilliant and rarely seen. Jacob and his eldest 11 sons normally hang in Auckland Castle in the north of England, and Benjamin, bought by a rival of the Durham Bishop when it was auctioned, in a different castle.
   A mystery is why after the Inquisition and during the peak of the counter-reformation the paintings were commissioned at all. One theory is that the Spaniards believed that their subjects in America were descended from the 10 lost tribes of Israel, and wanted to ease their way to converting them to Catholicism with the paintings, to be hung in a church. In the end the paintings stayed in Europe. One of the brothers, Zebulon, wears a pair of striped short trousers which recall costumes of Latin American Indians. As a draper's son, Zurbaran was a brilliant painter of clothing and cloth.

Because the Auckland castle is being restored, its pictures were allowed to be moved to be shown here and the Frick persuaded the owner of Benjamin to let her picture join the Durham ones. It is a wonderful show.

 

Yesterday funds had to file their last 13-F report on major holdings changes to the SEC. The main impact of the news is on one of our favorite long-time holdings. But there is gold in other reports as well. The Greenwich, CT-based Bridgewater Capital hedge fund sold short euros 14 bn in stocks in the Dec. quarter, expected a share crash. At least one of our stocks was affected as it was third on the sell list.
Details below for paid subscribers.

If I am right and Bridgewater now has to buy back the stocks it shorted, our share will rise. My information came from a report in the Frankfurter Allgemeine Zeitung which today covered only the major German stock shorts.

 

With the dollar expected to sink in part because the US Administration likes that, and with higher interest rates and inflation threatening, I think shorting euro stocks is madness. Currency factors will boost their share prices and dividends when converted into US$s. The only thing to watch out for is companies which do too much selling in the USA.

 

In the most recent quarter, the eurozone economy grew 0.6% in the quarter, and 2.7% from the prior Q4, ahead of the US 2.3% for the year but behind the 2.5% in Q4. This is not a clarion call for shorting Europe.

 

Today we have report a quarterly report out of Canada and news from Germany, Britain, Panama, Spain, Mexico, India, Ireland, Israel, Finland, Hong Kong, South Africa, Brazil, Colombia, and Japan.

 

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The Valentine Day Problem

Wed, 2018/02/14 - 1:40pm | Your editor

 

Inflation is baaack but not necessarily where we want it, like in Japan. The US consumer price index overshot forecasts and hit a new 12 month high after rising a half percent in January, much higher than the Bloomberg forecasts of 0.3%. The core rate, which leaves out food and energy price moves, hit 0.3% vs forecasts of 0.2% The year-over-year price increase came to 2.1% confirming the level for December.

Immediately bond yields rose with the 2-year US Treasury note hitting 2.15%, but likely to rise further because bond buyers want to make more than the rate of inflation on their holdings. The higher yield pushed down the price of bonds because that's how bonds work. The 10-yr note gained 4 basis points to 2.87% and the 30-yr 2 bp to 3.13%. And the US dollar rose because more foreigners are expected to buy bonds.

The combination of a a profligate Administration building up debt which will cost more and the rising dollar spells trouble for stocks. Costlier borrowing makes it harder for companies and consumers to spend money. Exports go down if the dollar rises against foreign currency. So stocks fell.

 

A media darling has to work hard to retain his supporters, why fatcats dealing with the Israeli Premier apparently bribed him with millions of shekels to help improve his coverage on TV, in the press, and the free papers.

The local cops called for an indictment which would probably end Bibi Netanyahu's tenure and political carreer. He is likely to face charges of corruption.

Surprisingly a small bribe came also from James Packer of Australia, whom I had no idea was Jewish or active in Israel.

The Israeli shekel is naturally down today impacted by both the prospect of higher interest rates here and the prospect of political uncertainty there. This will take down the ADR prices of any Israeli stock although stock traders are slower than currency traders.I will tell you all when to buy.

 

We have three reporting companies today and more, so here is news from Canada, Ireland, Israel, Britain, Brazil, and more.

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A Day Early

Tue, 2018/02/13 - 1:45pm | Your editor

The bloom is off the rose even before Valentine's Day when I predicted there would be a drop in stock prices. Bears have come out of hibernation a day early.

Today the experts indicate that despite eight quarters in a row of economic growth, Japanese inflation is still well below the target of 2%--and only at 1% under the most generous estimate. In early April, Haruhiko Kuroda's first term as central bank Governor at the Bank of Japan, will come to an end, after all his unorthdox moves to boost assets and push up yields failed to trigger higher prices or even the expectation of higher prices.

According to Russell Jones at LlewelynConsulting in London, Mr Kuroda had better be kept in office despite Japan's slowness to adopt inflation, because there are now “belated hints of success in meeting the inflation target”--despite recent BoJ “stealth tapering” of the purchase of government paper and exchange-traded funds. One trick would be to reduce the target to 1% instead of 2% and claim victory—blaming the gap on labor shortages. But there is also a risk that central bank actions will rebound with security sales in the private market and cause (for Japan) “positive inflation surprises”, meaning higher interst rates.

Without this reaction, which Mr Jones carefully hedges, the BoJ will have to again resort to “helicopter money” (mis-attributed to former US Fed head Ben Bernanke) to try returning to normal monetary policy.

The US currently looks more normal than Japan because our CB has committed to raising interest rates this year, what is terrifying the US bond and stock markets. Higher interest rates would be needed if the spare labor capacity of the US dries up and wage inflation risks arrive.Higher interest rates make older bonds cost less, and nip economic growth because companies and people have to better control their spending if they cannot borrow cheaply.

Fiscal policy in the US is now recklessly expansionist in a growth period when it is not normal to run deficits. So it is up to the Fed to take away the punch-bowl just when the party was really warming up. This is a quote from Democrat William McChesney Martin jr., who ran the Fed after being named as governor by Harry Truman.

'Truman expected Martin would let the White House run things. For 20 years he did the opposite under Presidents Eisenhower, Kennedy, Johnson, and Nixon. While Pres. Trump has little patience for precedents he is unlikely to try to bully the Fed.

UK inflation meanwhile is the highest in 6 years and boosted both the pound and the London FTSE index.

(The Japan material is from www.llewellyn-consulting.com in London, run by the former deputy chief economist of the OECD whom I know from Paris.)

 

Fidelity brokerage has blocked its clients from opening new purchases of reverse volatitily exchange-traded funds and notes and slapped a high margin on the whole volatility ETF and ETN group. You still can sell them. Because Fido is a private company it did not inform the market of its moves which took place on Feb. 6, but only confirmed it to Bloomberg last Friday. Another volatility vehicle, the LJM Preservation & Growth Fund, est. in 2006 with $800 mn under management, cashed out all its open positions. But the fund itself did not liquidate and asked its clients to be “patient.” Managers Anish Parvataneni and Anthony Caine claim LJM investz in “long and short options on the S&P 500 index that seek to profit, primarily, from the volatility premium' fell 82% in 2018 before it went into all-cash on Feb. 9.

 

More for paid subscribers from Israel (again because 3 companies there made news), Jordan, Russia, Ireland, Canada, Switzerland, Norway, Mexico, South Africa, Spain, Italy, Hong Kong, the Netherlands, Australia, Argentina, Chile and Finland.

We also explain why large well-known liquid American Depositary Receipt stocks do less well than smaller cap shares when markets are in the bear mood.

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