Faire le Pont
Summer is icumin in and stock markets are suffering from low volumes and indecisiveness. It’s not the bulls or the bears these days; it’s the sloths. France, which celebrated its national holiday yesterday, is still recovering from the firehouse balls and nothing will happen until next week.
From Institutional Investor, which I used to write for in Paris, I got this:
In the article titled “Al Gore’s Fund Suffers and Green Investors are Seeing Red,” which appeared on our web site on July 13 and 14, we wrongly stated that the Generation Global Equity Fund was, according to its Securities and Exchange Commission filings, worth only $2.4 bn at the end of March 2010, having originally been worth $5.3 bn when it was closed to new investments in 2008.
We accept that these figures are wholly incorrect. The Fund’s SEC filings state the value of the Fund’s U.S. investments only (which at the end of March 2010 were approximately $2.6 bn), and not the value of the whole Fund. We understand that the value of the Fund at that date was $5.6 bn, and that the Fund has therefore grown in value since 2008. We apologize unreserverdly to Generation.
There’s more but you get the drift. II managed to set off legal pursuits by the veep’s employer without even mentioning Gore’s curious sex life, his embonpoint, or his split from Tipper.
More about writing English, correct statistcs, and other corrections follows for paid subscribers. News from Spain, Portugal, the Netherlands, Britain, South Africa, Israel, China, India and Panama.
Allocation and Taxation
Vivian’s planned Portuguese paperwork procedures took less time than anticipated so you are getting a blog after all today…
First a message from the anti-Vivian, Leila Heckman. Vivian does bottom up and Heckman is the pioneer of top down country allocation research and an expert in quantitative analysis, macro economics, stock selection, and portfolio optimization with expertise in developed, emerging and frontier markets. She asks:
Over the past month, investments in Europe have increased 7-8%. Have investors’ worries about investing in the European market and contagion dissipated, or have they just quieted for the moment? Is Europe poised to bounce back?
According to Heckman, now Senior Director of Mesirow Financial, people are quick to forget crises, including those in the financial markets. She thinks while Europe’s bailout will likely take place over an extended period of time, there are several positive market drivers indicating that there are good investment opportunities now.
Currently, Heckman believes the most attractive European markets include: Turkey, the Netherlands, Spain, and Norway.
Heckman has over 20 years of experience specializing in country allocation modeling and international equity investing. Previously, she was the senior managing director and head of international equity for Bear Stearns; founder and CEO of Heckman Global Advisors; and head of global asset allocation for Salomon Smith Barney. Her Interactive model is built on a scoring mechanism. Each month it compares the markets under coverage on the basis of quantitative investment factors that have been shown to convey information about future equity returns in research by academics and practitioners, including ourselves. These indicators include valuations, growth indicators, macroeconomic indicators, and measures of momentum. The factors and the weights we put on each one are shown below. Each month statistical scores are computed for each factor, and a total score is computed for each country as the weighted average of the individual factor scores. The weights on each factor are determined by the strength and reliability of each factor in back tests. Each country then gets an allocation relative to the benchmark roughly in proportion to its total score, with restrictions on the maximum allocation to avoid unrealistically large exposures. Each month performance of the hypothetical portfolio is compared with the benchmark.
Here is another important note from Information Line, a hard money newsletter, of interest to all US investors, by Vernon Jacobs CPA. He writes that the Foreign Bank Account Report form used by the Dept of the Treasury for many years to collect information about American banking and investment accounts overseas, which have to be reported if they total more than $10,000, is about to be supplanted by new rules. Mr. Jacobs writes about the Housing Act to Restore Employment (HIRE):
“Questions about what must be disclosed on the FBAR form may soon become a moot issue. The recent HIRE act incluedes a new requirement to report foreign financial assets – which is much broader than foreign financial accounts. This new form is to be effective for tax years beginning after the effective date of the HIRE act which was March 18, 2010.
“For most individuals, that means it will be necessary to discolose any foreign financial assets with their 2010 income tax return – but only if the total of those assets exceeds $50,000 at any time during the year.
“Unlike the FBAR form, the new and expanded report of financial assets is to be included with the income-tax return of the ‘person’ that has foreign financial assets that must be reported. The law specifically mentions that the report should include information about foreign securities, financial instrucments or contracts and any ownership interest in a foreign entity. The law also gives very broad authority to the IRS to develop regulations to implement the law and to exclude assets that are being disclosed in other reports.
“Even so, it seems likely that there will be a duplication of reporting in the new HIRE act asset report and the FBAR form. One of them goes to a part of the Treasury Department that is separate from the IRS and is not part of an income-tax return. The new asset report will be required as part of a tax return.”
For his readership, Mr. Jacobs then worries about how holdings of gold bullion or silver will be dealt with under the new rules, which probably is irrelevent to most of us. Mr. Jackobs has written a half dozn books on international taxes and writes the twice-monthly International Wealth Protection Monitor newsletter. He is producing a new edition of his Guide to Reporting Foreign Financial Accounts. www.vernonjacobs.com Information Line is published by info@assetstrategies.com
Double Dip or Not
Reader PL asked if there will be a double dip. I do not know. But here is what Stephen Taub of BondsonLine learned from brokerages:
-Barclays is skeptical that we are in for another economic decline. So, it recently advised clients to continue accumulating stocks on corrections, favoring sectors with a strong demand base across the major economies.
-Credit Suisse Securities recently told clients we are in an environment of healthy corporate balance sheets and a fair amount of excess cash, but a decidedly un-exciting medium-term growth outlook for the average US corporation. As a result, it expects U.S. corporations will increasingly focus cash flows on increasing dividend payments and share repurchases.
-Bank of America Merrill Lynch reminds clients the strong role dividends have played over the years. “If dividend tax rates stay aligned with capital gains rates, we think companies will raise dividend payout ratios significantly over time.”
Note that there are two meanings for double dip, one for the economy as a whole, and another, quite different, for the stock market. The two do not move in phase.
Here is a bullish take from Steve Chun of Miller/Howard Investment research:
“There are some interesting features in the current landscape that may auger well for equity investment–which 2009 amply demonstrated is not all that closely correlated to the larger economy in the intermediate term. Corporate cash and noncorporate funds available for investment (even excluding funds that might be switched from bond positions) have never been higher, measuring in the multitrillions. The rate of improvement in corporate operating margins has grown faster than any period for which we have data.
Astonishingly, some sectors such as Technology and Consumer Discretionary show margins that are off the charts on the upside, higher than ever! Corporations are as lean as they have ever been, and they have more cash than they’ve ever had. This is a nice prescription for an era of mergers and capital expansion if necessary (though capacity is fairly ample). The former would shrink the overall capitalization in the market, a market that is already rather small compared to the funds that could be available for equity investment, as we’ve pointed out on a number of occasions, if those funds were of a mind to get to work.
“Cash available, rapid margin improvement, moderately negative investor sentiment, and the help that might come from still-growing economies to the south and east of us could make for a potent brew boosting stock prices—a configuration that tends to get lost in the constant news flow about sovereign debt troubles, tax increases, and an overall ‘Age of Austerity.’” Miller/Howard is at (845)679-9166.
Moody’s today downrated Portugal by 2 notches to A1 while citing weak growth and mounting debt. It said the reform measures will take time to kick in.
The euro today did not collapse against the greenback on the news. It may be that panic about the single currency has played out. Or it may be that poor US May trade figures (showing a mounting $42.3 bn trade deficit, mostly with China) kept the dollar down. More about China for paid subscribers below thanks to a special survey shared with us.
Chartists are carefully watching gold. The precious metal has apparently hit its trend line 5 times according to Dutch analyst Charles Nenner, which may signal a reversal. But he is sititng on the sidelines all the same.
Your editor will be doing a tour of the River Duoro highlands east of Porto next month, her contribution to Portuguese recovery, thanks to a 30% senior price break in the government-sponsored network of Paradors, and the offer of an air-conditioned mini-car at the same price as a hot one. Paradors are hostelries built in old castles and convents to encourage tourism in remote regions. They were built under Salazar in Portugal, imitating the Pousadas built by Franco’s Spain. Even without the discount most of them are great bargains. Your credit card only gets swiped when you sign out, so I am hoping for a weaker Euro.
Switzerland struck a blow for liberty by freeing French-born film director Roman Polanski rather than shipping him off to the USA for a trial on very old statuatory rape charges. Having given way over secret Swiss bank accounts I guess they had to find another way to show their independent spirit.
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The Dutch Octopus
Wednesday is Bastille Day in France and there will be no newsletter that day, because I have personal business to attend to.
Today our pro-Dutch reporter is preparing an octopus stew by chopping up lots of garlic while her buddies blow vuvuzelas. A German octopus correctly forecast every single winner in the World Cup which ended yesterday. with Spain the champion. Meanwhile an economist panel, having rightly predicted Spain would win its first-ever Mundial in a first poll, then revised its figures to produce a muddled message
It reminds me of Harry Truman who said: “what I need is a one-handed economist.” But an 8-handed creature, despite another octopus’s brilliant foresight (or perhaps because of it), is being sacrificed in Amsterdam.
Your editor thinks the best team won. Dutch fouls and far kicks tried to stop the Spanish who advanced with brilliant handovers and clockwork passes. The best moment was the arrival of 91-year Nelson Mandela, dressed for the South African winter in fur coat and hat.
The French are in soccer disgrace after their team lost its only match because les bleus turned on their manager and refused to practice. French chefs still make very good octopus stew being creative and self-indulgent, insubordinate and egotistical. This works better in cooking than in football.
The low point of the World Cup was the murder of 64 Ugandans watching the final game at two different sites. They were attacked by terrorists with a grievance not related to the game, reportedly from Somalia. As heightened security makes it harder to murder Israelis, Americans or Europeans, the Al-Queda terror machine is turning on softer targets like African sports fans.
In the market today, bad news is good news, for example that BP is trying a Notre Dame pass to try to stop the oil spewing into the Gulf of Mexico, and also may cede shares to a Chinese takeover bid. It will sell its Alaska crown jewels to Apache Corp.
And good news is bad news. Banco Santander is being penalized for plans to further expand in South America and for its purchase today of the German branch network of Skandinavska Enskila Bank. These are marks of its management’s confidence in the STD balance sheet.
Your editor however is still frightened of the Spanish banking sector, however enamored of Spain’s football prowess.
So today paid subscribers are going to be told about a German specialty chemical stock to buy. It will have to be bought with a specialzed brokerage for international trading, like HSBC (my bank); Euro-Pacific Capital (Peter Schiff’s firm), or Lassalle St., a specialized brokerage whose principals are subscribers to this newsletter (tel: 407 539 1004). I could not do the trade with E-trade and my trying to do so is why this blog is late. We also have news from France, Britain, China, and Israel.
World Cup & Rosy Glitter
Okay sports fans. You get your wish. Frida Ghitis reports on the Dutch reaction to being finalists in the World Cup. Colombian-born Frida’s first language was Spanish, so I am surprised she is not supporting Spain. She writes:
Americans may pay scant attention to the World Cup but my friends in the Netherlands are nothing short of euphoric. The Oranje team will play in the finals against Spain on Sunday and the Dutch, in keeping with their focus on economics and global trade, are counting their Guilders (ok, euros) in advance of what 77% of them are sure will be a Dutch victory.
Economics reporters in the Netherlands, having surveyed the matter, conclude that winning the World Cup will boost Dutch economic growth by 0.1 to 0.5%. This, they explain, is because a euphoric country experiences a surge of economic confidence, which in turn spurs spending, which can boost GDP.
It’s hard to imagine the cautious Dutch going on a national shopping binge. On the other hand, beer sales are already visibly – and audibly — up. (Drinking beer is a requirement under FIFA rules.)
Houseboat owners plan to build barricades to keep revellers off their boat tops during Tuesday’s victory parade, to happen whether the Dutch win or lose. When the Dutch team won the European Cup in 1988, houseboats sank in the party. Maybe that was good for the houseboat salvage industry.
Your editor last night went to a dinner hosted by Marta from Sevilha and Chris from Munich who are married to each other. Luckily Germany is out of the World Cup race, or there might have been an Andalucian-style Blood Wedding in Brooklyn. Your USA editor and her English husband observed scrupulous neutrality.
AutoNavi Holdings Ltd , a Chinese developer of photogrammetry (digital maps, and navigation and location software), last week became the 145th Chinese co. to list on Nasdaq with an ipo of 10 mn ADRs are $12.50/sh. AMAP is the 22nd new Chinese listing and the 8th on Q in 2010.
There are two drivers of gains on the stock market. One is corporate earnings and results. The other is liquidity. With newly-listed Chinese stocks, liquidity is in short supply despite the general and Asian market boomlets. Shanghai peaked on Oct. 16, 2007. While I know nothing about AMAP I am sure that the huge AgBank capital raising exercise occurred on Beijing’s orders, to forestall the need for govt. money.
With a weekend looming and stocks up sharply over the past three days, Wall Street can fall today. There will be profit-taking. Maybe it will be offset by money coming in from the sidelines helping support prices. There is a lot of liquidity in the hands of investors still shell-shocked out of stocks.
According to EPFR of Cambridge Mass, which tracks fund flows reported on last week’s moves which seem to have reversed:
Going into the second week of July global equity markets were staging a modest recovery as investors shrugged off fears of a double-dip recession and went bargain hunting. But flow data for EPFR Global-tracked funds reflected the uncertainty of the preceding weeks, with Money Market and US Bond Funds seeing big inflows as most equity fund groups struggled to attract significant amounts of fresh money.
Greece’s Socialist government voted to cut government pension rights and overall job protection to try to force down government debt despite tradition and a general strike yesterday. The strikes were moderate and peaceful after an earlier round left three bank employees dead.
The tradition means that many of the measures to be struck down (details still to come) were put in place by earlier Papandreou family governments, current Premier George P.’s grandfather with the same name, and his father Andreas P. The first time I visited Athens, as a student, I recall demonstrators against the Colonels shouting “eena, eena, tessera” after the article in the Greek Constitution violated by their coup against George I. Andreas went into exile and spent some years as an American academic. The younger George was born in the USA.
Learn from these Euro-American Greeks. A suggestion. How about US states running deficits (often illegal) doing like the Greeks. We should be prepared to cut abusively manipulted state pension rights too. US manipulation typically involves older workers piling up overtime to boost their pensions which are based on take-home pay rather than formal wages.
South Korea has raised its interest rates 25 basis points to 2.25% to control inflationary tendencies. It joins Norway, Australia, Israel, and India in this elite group of fast-growing countires.
Nudged by your editor, reader PS managed to get the interest rate on his margin account with TD Ameritrade cut to a still-high 3.5%. Bargain with your broker in the current low-interest rate environment. We can save you money with fees and commissions to help cover the cost of a fully paid subscription.
Taking to the Hills
Just as some Elliott or Kondratieff wave theorists predicted the Dow would fall to 1000 and we should to take to the hills with gold coins and machine guns, the bearish gloom-mongers were caught by good news.
The International Monetary Fund late yesterday increased its 2010 world growth outlook to 4.6% reflecting a stronger-than-expected H1. Its earler estimate was for 4.2% growth, made in April. That would be the biggest rise in 3 years. Growth in 2011 is projected to be 4.3%, the same as the April forecast.
Then today the U.S. Dept. of Labor data showed that 21,000 fewer Americans applied for jobless benefits last week (to July 3). That is still 454,000 unemployed people.
European banks are up on an assumption they will pass their not-very-demanding “stress” tests. And perhaps because shareholders are happy that new rules will cut instant bonuses by 70-80%, alligning executives’ interests more closely with theirs. Even the embattled euro is up, to $1.27.
German figures showed that imports had risen by a whopping 14.8% sequentially in May, while exports only grew 9.2%. The German trade surpluse narrowed to a mere 10.6 bn euros for the month, well below forecasts.
And as for gold, it now turns out that rather than being a beneficiacy from the printing press at central banks, the yellow metal also was a support for their profligacy. CB swaps with the central banks’ central bank, the Basel-based Bank for International Settlements (reported in its latest annual report to end Mar.) helped them monetarise their gold hoards. The BIS acted as a pawnshop, although so far there have been no revelations that it actually sold any of the 346 metric tonnes of gold placed with it.