Not Just Becaue It’s There

From: Vivian Lewis
Global Investing Expert

Yesterday I got a lot of attention, being quoted first on Seeking Alpha.com, which picked up my overall blog with the note by Dr. Max Golt on how currency trading is becoming more restricted, and my quoting Michael Kurtz on China inflation sectoral predictions. I was also interviewed on his hedgefund radio program by John Thomas, of  themadhedgefundtrader.com

I was thinking a bit about the latter chat today. As old-time readers know, I share a birthday with a Burmese “twin” Aung San Suu Kyi AKA The Lady. She was released from house arrest over the weekend. The question is whether there is any way to invest in Myanmar to celebrate with The Lady. The answer is: no. The SLORC, or whatever the military junta call themselves now, do not allow businesses, except Army businesses (like timber cutting, rubies, and oil exploration) they run for their own corrupt profit.

Every market in the world is not necessarily worth investing in. Vietnam is another. About 18 years ago Mark Mobius of the Templeton Group launched a closed-end Vietnam Fund which I and my readers bought. But Mark, an old Asia hand (his first job after getting his PhD from MIT was selling Tiger Milk in northern Thailand) could not find ‘Nam companies to invest in. So fund holders were given their money back or a chance (which I took) to buy into the Templeton open-end Emerging Markets Fund without paying the 8.25% fee then charged.

Just because Mount Everest is there, you don’t have to climb it, unlike Sir Edmund Hillary. And just because a frontier economy is appearing on the radar screen, you don’t have to venture to invest in it.

Meanwhile perfectly respectable stocks from westerncountries deep in disaster, like Greece, Portugal, Ireland, and Japan are doing well for our subscribers. In serious economies with problems, often investment vehicles can override the problems. More on this for paid subscribers below.

Our Copyright

From: Vivian Lewis
International Investing Expert

I try to keep my stock picking ideas cool and objective. I generate stock picks, of course, but I prefer to keep myself out of the portfolio side of this newsletter. First, my readers want stock advice, not chatter about me, because the advice gives them a chance to make money. That is what they subscribe for.

Moreover, as journalism, global stocks are more interesting than I am.

Finally, while I founded Global Investing, I am today only part of it. My ideas are often triggered by readers or my reporting the team. Putting my name on articles I write seems like a mild form of narcissism. So when I have written something myself it is not signed in the copy posted or emailed, but only on the bottom of the newsletter along with the copyright protection.

Jason the marketing guy says we need to “put a face” on the company. I’m hard pressed to understand why anyone would want to see my face, or why showing it is good business, but never argue with marketing.

Anyway, I am relieved that we have our banner headline and my signature and the copyright notice back after a tech migration problem.

Which brings me to another vexed matter. Paid subscribers do not have any right to violate copyright by re-sending e-mailed issue to buddies or relatives. This is against the law. Paying a subscription fee gives a subscription to a single household, via a single e-mail address. (Sometimes we collect a second e-mail address for the same person because of delivery problems, but it goes to the same one person.)

When we discover that emailed issues are being illegally passed on, we require that subscriber to log on to our website, www.global-investing.com, to read the issues and the convenience of e-mails stops. Log-ons are tracked so we can be sure that the person has paid and logs on a reasonable number ot times.

There is nothing unfair about this. Ours is a business, whose purpose is to make money. The fact that we now distribute via the Internet does not change anything. When we run articles from a reporter in Japan, as we did yesterday, we pay him for them. There is no free lunch, no free yakitori, no free miso soup.

I let Chris Loew talk about growing up in the woods of the Pacific northwest before moving to Japan, because that is part of what he is paid to write about. And it makes Jason happy. The whole thing is copyrighted. It is ours. It is not distributable.

As I try to deal with the emotional havoc of restoring this business I am relieved that our subscriber numbers are going up steadily, and that I have been able to extract my capital invested in the restart and the Rightside bankruptcy three years ago.

And I am shattered that another letter I respect, www.Thaistocks.com, is being shuttered by its creator, Paul Renaud of Phuket who is fed up with the grubby business of soliciting subscriptions, and wants to become a money manager. I sympathize.

And when long time subscribers who have sent me thank you letters for my work turn out to be sharing subscriptions with grandpa or uncle in the Bahamas or Berkeley I am tempted to do a Paul Renaud myself.

I’ve known Virginie Maisonneuve who heads Global Equities at Schroder Investment Mgm North America for decades. So I am delighted that the French-born China-hand is now buying into X, listed in Toronto, only traded in Canada, a long-time GI pick. Her firm now belongs to Vanguard; when I first met her she worked for Wellington, also part of Vanguard.

Another stock she favors is Y which can be bought by copycat investors if I put it in a Covestor account. X trades only in Canada. The Covestor system only allows me to pick shares whose capitalization is over $50 mn and whose USA trading exceeds $10,000/day. A stock from the True North, Y does not trade that much in this country. I am considering creating a buy and hold Covestor portfolio but compliance issues discourage me.

In any event, there will be no blog Wednesday morning since I am meeting with the Covestor compliance lawyers.

What follows below is for paid subscribers only, and not their children living away from home, their second cousins, poker pals, grandparents, uncles and aunts, ex-wives, etc. We report from the oil patch, on financial service companies and banks, on tech, on environmental stocks, and of course on chemicals and drugs. With a big find!

Back to the Barbarous Relic?

From: Vivian Lewis
International Investing Expert

Back to the barbarous relic?

In an op-end article in today’s Financial Times, the president of the World Bank, Robert Zoellick, calls for a new package of global trade and structural reform. Mr. Zoellick, an American, causes nowaves with his call for international cooperation to spur growth and avoid intervening in currency markets, and to help the poor and support private secotr development.

But then he lands a shocker, with an addition to his call for a new monetary system involving the dollar, the euro, the yen, the pound and a more international renminbi, in these words:

“The system should also consider employing gold as an international reference point of market expectations about inflation, deflation and future currency values.”

His Betton Woods II would revolutionalize economic exchanges by bringing gold back. He further writes “Although textbooks may view gold as the old money, markets are using gold as an alternative monetary asset today.”

If you look at the price of gold right this minute, it is going up because it is Diwali in India. While usually gold moves the other way to “fiat currencies” in times of high demand both gold and the US dollar can move upward together.

In fact gold is a pretty poor anchor for stability. Its price jumps all over the place. Chris Dillow writes about the yellow metal in today’s on-line Investors Chronicle:

“Since January 2000, the standard deviation of its weekly price moves has been almost twice that of the yen/$ or euro/$ rates at 19% annualized vs 10.5%. What’s more, major foreign exchange markets seem to be more informationally efficient than gold. Whereas these seem close to a random walk, gold prices are vulnerable to momentum effects. The notion that gold is a stable store of value – which is a desirable feature of a true monetary asset – is inconsistent with with facts.

“Linking exchange rate expectations to gold would – if it does anything at all – tend to introduce more volatility into exchange rates. I don’t see the point of this.”

Furthermore, Mr. Zoellick appears to to suffer under a delusion that the current global crisis and recession can be blamed on floating exchange rates unanchored to gold. On the contrary. The measures being taken by the Fed and other central banks would be impossible if the world still was being run under a gold standard. That was what went wrong in the 1930s, the last time there was a world financial crisis, when the need to support their currencies led central banks to deepen their domestic deflation, unemployment, and depression.

If you have a gold standard, you cannot have quantitative easing and you might not even be able to have deficit spending on the scale needed.

Curiously, Mr. Zoellick seems to think that his gold-link would not prevent another step he proposes, that “the US and China could agree on specific mutually reinforcing steps to boost growht [and} also agree on a course for renminbi appreciation.”

Seeking Shelter

From Vivian Lewis
International Investing Expert

I am seeking shelter.Whither the dollar? Whither the markets?

The election results and the second huge round of Quantitative Easing by the Federal Reserve require that we ponder the trends. Dollar futures are continuing to fall, and momentum is still bearish. Stocks are still rising not just here in the USA but worldwide. Commodities are still hopping, except for gold which has a scizzors relationship to our currency. The Dow Theory confirmed a bullish trend when both the industrials and the transports closed over their 25-mo highs.

But when everyone is saying the same thing about where markets are heading and more and more folks are jumping on board the speeding train, a good conductor worries about her brakes. I am putting on my contrarian hat today.

Lightening Strikes Thrice

From: Vivian Lewis
International Investing Expert

Today is a hiatus between the election and the next round of quantitative easing, so I wanted to fill you in on some great news. Lightening has just strike a third time for our small caps, as you can read below.

But here is something else.

“First class for all.” The Portuguese vacation charter airline White tested offering all passengers first-class meals in a Lisbon-Cancun flight earlier this autumn. Chef Olivier (not the British one) prepared meals served on board for all 214 flyers using products from Lidl, a German-owned discount discount supermarket which operates also in Portugal. He was on the plane to accept their compliments. Ad agency Leo Burnett thought the idea up to stress that Lidl can offer top quality food at low prices by selling out of cartons on the floor and shelves, and offering only a limited line. The happy passengers are shown in a clip that is running on Portuguese TV but which also has gone viral.

What a change from Ryanair which is charging for bottled water and plans a fee for using the toilet.

Goldman Sachs put out a doorstopper 100-page report with its 2011 forecasts for China mainly stressing that growth will be 10% (higher than consensus) and that the RMB will be allowed to rise 6% in the year. More on what that means for our portfolio below.

Other news from China, Israel, France, Switzerland, Britain, and Canada (francophone only) follows for paid subscribers.

Gold Peak? And a Sell

From: Vivian Lewis
International Investing Expert

Investors poured more than $13 bn into U.S. ETFs last month, lifting assets to over $940 bn, up14% year to date. The three most popular funds in October were all emerging markets ETFs(IndexUniverse.com data): Vanguard MSCI Emerging Markets ETF (VWO), which gathered $3.22 bn; iShares MSCI Emerging Markets Index Fund (EEM), $1.57 bn; and iShares MSCI Brazil Index Fund (EWZ), $1.18 bn. Dilma be good!

Australia’s CB raised interest rates another quarter point to 4.75%, in anticipation of which we bailed out of Westpac, worrying about the impact on the booming housing market down under. WBK.

Looking for something to do after losing his bid for the CT Republican Senatorial nomination, stockbroker Peter Schiff writes of his launch of Euro Pacific Precious Metals, LLC. A cynic might say this may indicate a market top for gold.

“This new company, of which I am [CEO], offers physical delivery of gold and silver coins and bullion at fair and competitive prices based on my reputation for integrity, straight talk, and fair dealing. It does not deal in numismatic coins, commemoratives, proof sets, etc., which I do not believe are suitable for investors.

He also launched a new monthly newsletter, Peter Schiff’s Gold Report which will feature feature articles by Schiff plus regular columns by the gold expert Aden Sisters and resource specialist Doug Casey’s firm, Casey Research. Peter adds:

“I have always advocated that investors hold at least 5 to 10% of their portfolio in gold and silver bullion and coins. Tangible wealth, not subject to confiscation, registration, or unwarranted intrusion by government, should be a core component of any well-balanced portfolio.

“I believe physical precious metals are the ultimate insurance policy in today’s perilous world. No other investment offers the same level of financial privacy, while eliminating counterparty risk. Physical precious metals do not depend on a court, a bank, or a stock exchange — their value is intrinsic.

“I expect gold and silver prices to move much higher. Pressure is building in all parts of the world for solutions to the debt crisis that many nations face. The classic way for governments to deal with excessive debt is by debasing the currency, i.e. inflation. This has already started, with the U.S. Federal Reserve printing trillions of new dollars since 2008. Many observers think the world’s only superpower is heading toward bankruptcy. And there is no one big enough to bail us out. This means inflation of historic proportions. Potentially sending gold prices higher than most hard money investor would ever dream.

“Over the years, many clients of my brokerage firm followed my advice and purchased coins and bullion from coin dealers. Too often, however, I heard that clients needlessly overpaid for their gold. In some instances, they were ‘sold’ on coins that were really not suitable for them. So I decided to go into the business directly. The goal is to provide a trustworthy source to find top-quality gold and silver products at competitive prices.

“Euro Pacific Precious Metals features the most widely known and liquid gold and silver coins, such as American Eagles, Canadian Maple Leafs, Australian Kangaroos, South African Krugerrands, and Austrian Philharmonics. I strongly believe you should avoid buying ‘exotic’ or ‘numismatic’ coins for investment purposes. Commissions on such products are very high, and liquidity often is very limited.”

Schiff forgets that Franklin Roosevelt’s Administration confiscated American holdings of gold in the 1930s. When your editor got married, an elderly neighbor originally from Santa Barbara gave me one of her then illegal $5 gold pieces, part of a horde she kept in a safe deposit box. As ordered, I wore it in my shoe as I walked down the aisle, to ensure a prosperous marriage. Pres. Nixon ended the ban on Americans owning physical gold, but presumably a precedent for seizure by Washington exists.

Peter Schiff would never shop his clients to the Feds, but I am not sure they are safe from hackers and phishers.

More for paid subscribers with lots of news from our companies and a sell today, from Israel, China, Tennessee (!), Britain, The Netherlands, Brazil, Canada, and Denmark.

VAMPIRETTES

Since two of you asked for more information about my granddaughter’s Hallowe’en persona, be informed that, at age 7, she was kitted out as a “Vampirette”, a new word for me, in party dress topped by a black cape with face-painted fangs, a combo of princess and threat. She will probably grow up to be a grizzly mom or a soccer mom (she plays soccer already with the 2^nd graders at her school).

Today I want to talk about two vampirettes. Dilma Rousseff has broken the sex barrier in Brazil. Too bad she is supposed to be a bigger believer in state power and nationalization than Lula da Silva, whom she will succeed. That may be the bad news from Latin America, but nobody really knew what Lula would do before he took office, and I suspect Dilma has not confided in stock market analysts either.

The apparent good news is that some observers believe that Penguin Vampirette Cristina Fernandez, who kind of looks the part, widow of her predecessor Nestor Kirschner, will be more centrist now that he has died, leaving her free to find her own advisors, make peace with the IMF, Clarins, and the Argentine Oligarchs. Again this is not based on any serious info. Historically, Peronist women in power have been far more economically illiterate and dangerous than their husbands.

My Toshiba external hard drive is kaputt (or whatever they say in Japanese) and I therefore could not do my tables over the weekend. My excuses for the delay. The toll-free numbers I am given do not work. After the blog has been posted I will try again. The level of Toshiba customer service has sunk to levels reflecting poorly on Japan.

Full Global Investing Archive Coming Soon

…

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.

More from China, Spain, Britain, Research Triangle, Germany, Australia, India, and Israel for our paid subscribers follows. Join them. Your portfolio will be grateful.

To become a paid subscriber, click here now for more details…

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.

Lewis Turning Point…

It would be nice to have stock market gains in triple digits and Fahrenheit temperatures in double ones rather than the reverse. My computer gave trouble all weekend and this morning a technician replaced the modem and things are running smoothly again. We still await the new air conditioner unit for the (yech hot) master bedroom.

If there is no such thing as beta, as reported yesterday in an EDHEC study from France, then there is probably no such thing as alpha either. That’s a shame because today I got a Seeking Alpha article headlined “Lewis Turning Point in PRC.”

It was not about me. It was about William Arthur Lewis, the Nobel Prize economist who posited that at some point an emerging market will run out of cheap labor. The Seeking Alpha article was by Aoyu Bai, a Canadian. Lewis was from Saint Lucia and no relative of my husband’s family more of which is reported for paid subscribers below.

Hon Hai, the Taiwanese company first hit by a wave of suicides in Shenzhen, employs 400,000 workers in that city alone.

Here is the latest from Adam Carr of ICAP, the brokers in Australia whose overnight ponderings are often timely and precise:

The key take out of price action last night, more than anything, is that markets are confused. Following a very strong lead out of Europe (major indices up 2.2-2.9%) US equities were bid up shortly after the open. Gains were slashed in subsequent trading and the index fell 2.3%. The last hour was remarkable. The index bounced in and out of positive territory quite sharply. In the end, the S&P500 was up 0.5%, but it could just as easily have finished lower. Confusion. The bizarre thing is that analysts are apparently raising earnings forecasts at the fastest pace since 2004. A survey of 8000 analysts suggests earnings will rise 34% in 2010 compared to estimates of 27% in March.

The problem comes from the interpretation, or rather the misinterpretation of recent data. Much of this stems from the tendency bears have to use the words ‘slowing’ and ‘double dip’ interchangeably. Consequently they view the slowing in the ISM surveys as proof that the US economy is going to roll over. This is blatantly incorrect. Data is volatile, it bounces around and seeing the non-manufacturing ISM fall to 53.8 in June from 55.4 is consistent with usual patterns of volatility– especially for an economy that only recently has come out of a recession.

Note how rapidly the bearish focus is changing. Recent financial market turmoil began with concerns over sovereign debt in Europe.

The US was a safe haven. Fast forward a few weeks and that issue seems to have died down. In the end, Greece didn’t default and countries like Spain are having no trouble raising money. Indeed they tapped the market for an additional €6bn last night and received €13bn in bids (in addition to strong interest from non-residents). So now we’ve seen concerns over European debt morph into fear of a US double dip. As a result, the Dollar no longer seems to be enjoying safe-haven status and Greenbacks have been sold off. There was a time that was viewed as a bullish signal.

The economic landscape just doesn’t change that rapidly. Only sentiment does. So the trick for investors is to determine the true underlying economic trend – the trend behind these violent swings in sentiment. Unfortunately, given these extreme swings in pricing and sentiment, markets aren’t providing much of a guide now.

I was credited by John Thomas of The Mad Hedge Fund Trader with tipping Thailand and Poland on its pages. Merci. I also warned that gold was going to retreat. TMHFT is great fun and free but its portfolio advice is tough to act on. I also misspelled the name of the new Polish president yesterday. I corrected on the site but the email was wrong. Apologies to all the Polonian-Americans out there. (The term was invented by my old boss, Sen. Clifford P. Case, R.-NJ after he got into trouble for using the Shakespearean word from Hamlet, Pollacks.)

Red Rooster Falters

We’ve had (according to Barry Ritholz) what technicials call a death cross. This tech specialists think means more trouble. There was not much here or in Europe to justify the fall. Sure the bank reform bill is in trouble. And consumer confidence is lagging.

But China had the real bad news. Shanghai fell on revised numbers for GNP growth from the Conference Board . That body corrected a leading index of Chinese growth of 1.7% calculated in April right down to a mere 0.3% now.

But in fact the Chinese market had slumping before this. The bears then escaped all over Asia, and hurriedly released their fellows in Europe and later in the US, where there was nothing particularly awful happening.

But if the Red Rooster is not a strong enough locomotive to pull the world economy out of its malaise, we are in trouble. Instead of watching the stock market sink I attended an alternative energy conference.

A new fund that may be of interest came out from Bank of New York-Mellon’s Dreyfun Corp. whose chief economist I have been quoting lately. Dreyfus Global Real Return Fund will invest globally in pursuit of absolute return. It will be managed by Newton Capital Mgm Ltd, a London boutique which already manages similar multi-asset absolute return funds for non-US investors. Newton is known for its thematic investment approach seeking total return (both capital appreciation and income) using a multi-asset strategy to get real returns with less volatility. The aim is to work over a market cycle (typically 5 years.) It does not use benchmarks or indexes and the goal is to get returns that do not depend on the movement of markets (or beta.) . Jeams Harries is the primary portfolio manager at Newton.

Meanwhile investors in Invesco Powershares ETFs discovered today that its managers have shifted indexes for their funds which keep the same ticker symbols. You no longer own what you thought you bought with this ETF family.

A trio of global funds are affected. Power Shares Autonomic Growth (PTO) will track Ibbotson Alternative Completion IndexTM in place of a New Frontier index; PowerShares Autonomic Balanced Growth (PAO) will drop New Frontier for RiverFront Tactical Balanced Growth Portfolio, and PowerShares Growth and Income (PCA) will drop New Frontier for a different RiverFront Index. Also affected are two Power Shars US portfolios linked to Value Line Timeliness and Rotation which are being linked to Morningstar indexes instead.

The renewable conference lobbied for the US to extend or replace cleaner energy programs which were part of the stimulus bills. They are slated to sink into the sunset by the end of 2010 unless what one delegate called “the Pearl Harbor” impact of the BP Deepwater Horizon gets Washington to change tack.

The American Council On Renewable Energy and the US Partnership for Renewable Energy Finance worried about potential deceleration and loss of jobs as green for green runs out. To say nothing of money for their members. In a joint press conference they called for extension of 1603 Renewable Energy Treasury Grants (AKA Grants in Lieu of Investment Tax Credit) to run out at the end of this year at a time of continued financial crisis and capital scarcity. Conferees, many of them lawyers and financial pros, clamoured for the1603 cash grants program to be renewed and for other loan guarantees and manufacturing incentives. Continued uncertainty and disorder in the US tax equity and credit markets are constraining financing for solar, wind, and other renewables, they say.

If BP is the best argument for money, the worst was the presence of so many foreign investors coming to feed at the trough: engineers, banks, utes, manufcturers of solar and wind equipment, pernsion plans. Even a Spanish Caixa turned up, from Madrid, presumably not in distress and about to be merged into the super-Caixa.

Antonio Garcia Mendez, CFA, of Santander Investment Securities (a US firm), cited the zeal shown by Europe’s “government-intervened banks” for more environmental deals. I had assumed European renewables would find funding hard to get now but he claims “inactive banks are active again” in Europe, and that liquidity, down in 2009, is on the rise along with “a higher risk appetite.” Against that, he noted that despite a strong pipeline of deals, “there are regulatory uncertainties in Spain and Italy.” To say nothing of the US.

Another European, the British-educated German, Gisela Kroess (of UniCredit, an Italian bank) warned that European banks face higher funding costs because of what she called “the Greek crisis” and the resulting lower euro. She thinks the time has come for longer-tenure financing involving mixes of loans, grants and equity. She wants to see a standardized system of funding and protection (maybe called collaterized debt obligations?)

She noted that so far this year there have been 10 US deals with a total funding of $3.4 bn in the USA vs 20 deals with a total funding of only $4.3 bn last year. (Of course this may only be because the funding will soon run out.)

Your editor was interested in how other countries encourage renewables without direct grants. Canada and many Euro countries make local utilities contract long-term to buy green energy and fold it into electricity sold, at a fixed price higher than non-renewables get. Sometimes utes finance the green plant. According to Daniel Soper, CFO of Carbonfree Technology (of Toronto) such pass-through pricing has less impact for example on German retail electricity prices than the bill for upgrading transmission sytems. So it can slip into your electric bill without your noticing.

But he warned that a weak economy makes it harder to contract for passthrough rate payment for renewables because politicians fear supporting it. A tax is a tax when it is contracted for even if it later is hidden.

The industry is frustrated mainly by lack of volume. Canada for example produces zero mW of solar vs 400mW or so in the USA, said Soper. The price of clean rooms and solar panels and cells has fallen sharply as the silicon industry finally woke up to new opportunities from solar. But solar prices are still too high for unaided investment.

Another thought: Consumers could cut their household electricity use by 2-12% and save up to $35 bn over the next 20 years if U.S.utes use smart meters and a range of energy-use feedback tools to educate us to use less energy.This according the nonprofit American Council for an Energy-Efficient Economy .We need at-home or on-line displays to inform and motivate us to cut down on juice consumptiom. ACEEE likes enhanced billing daily or weekly feedback,on- or off-line. But these programs are rare with no US ute providing the full gamut. Most have barely learned about smart meters.

Matters of subsidy and taxation are complicated in the main thing to take away from the above. Simplistic rants against government programs or taxes make no sense. In a period of shrinking investment somebody has to take the initative and right now the designated driver is government.

Stay the course. This is buy time not sell time.

Meeting the Challenge

From Adam Carr of ICAP, the Australian brokerage, some views on where monetary policy is going:

“The Bank of International Settlements always seems to know what’s what. While the G20 meeting may have yielded a flimsy ‘do as you wish’, there was no confusion from the BIS. The Bank is worried about a new crisis developing, but the rhetoric is far from what we’ve become used to. In contrast, the BIS are more worried about heading to the exit too late, which as regular readers know, is my concern also.

“The BIS acknowledged the difficulty policy makers had, especially as the banking system was fragile in some cases. ‘But the longer that policy rates in the major advanced economies remain low, the larger will be the distortions they create, both domestically and internationally.’ The BIS argued that extremely low real rates altered investment decisions, postponed the recognition of losses, increased risk-taking in the search for yield and encouraged high levels of borrowing. There was also the problem that central bankers would underestimate inflation risks given the crisis may have lowered potential growth rates.

“The UK illustrates this view perfectly. Rates are historically low, the economy is recovering, the land registry is reporting house price growth of 8.2%y/y to May (consistent with other house price measures) and inflation is well above target. All the while the governor of the Bank of England insists there is no problem.”
The US is not in the same situation on inflation and house prices. Challenged by a reader on what I would want to see from the Obama Administration now I made a little list, which he called “Porkulus Spending”. TM thinsk any measures would increase the size and reach of governmetn and add new bureaucrats and new regulations which would hamper future economic growth.

This is a challenge, But the US is not in the same boat over inflation and housing prices as Britain. Challenged by a reader to tell what I want the Obama Administration to do, I created a list, which TM thinks is nothing but “porkulus spending. Any measures he fears will add to the size and reach of governments and add new bureaucracy and regulations that hamper future economic growth prospects. But I do not agree.

I think our country is in a crisis because of a lack of liquidity and a lack of what Lord Keynes called “animal spirits” leading to extremely risk-averse investment in no-yielt Treasury bills and keeping corporate cash undewr the mattress rather than investing it. Because there is no way for the consumer to take up the cudgels and invest in this climate, because of American household’s probems with underwater housing mortgages and unemployment, I want the government to act, preferably in ways that stimulate employment, and require the private sector to join in.

The cheap funds are there. I did not create the lack of animal spirits in the bond market or the unwillingness of corporate America to spend the money it has rather than hiding it under a mattress. household oversaving is the likeliest to stop when my proposals are in place but they will also encourage capex by gun-shy corporate America.

Just for the heck of it, here is my list which I think will put people to work and pay them.

We can borrow to invest in the future of America. for my 5 grandkids without burdening them with debt. Here’s how:

We extend unemployment insurance payouts so people can continue to eat while they look for work.We get businesses to come on board with training programs and internships or apprenticeships.

We figure out a way to refinance home loans. I am far too stupid to know how but I do not like families living on the street.

We improve education by cutting down the vacations and extending the school day. Teachers then can continue to get the high pay they collect regardless and produce something in return.

We don’t stop healthcare reform with the first incomplete round and try to avoid taxing elderly Medicare folks at the highest incremental tax rate in the USA.

We invest the borrowed money to replace bridges which are falling down and build toll roads. These will pay for themselves with tolls but meanwhile will put unemployed Las Vegas condo construction workers to work building them. WPA for today.

We beam everyone up to the internet. We reopen closed libraries and offer web access and e-books..I hear America learning.

We build a high-speed railway running from LA to San Francisco (and maybe further north to TM’s area). Another line down the Florida coast to Key West. Maybe even one from NYC to Boston or Washington DC or both. Again we charge fares to repay. And meanwhile people get jobs doing useful things for th country.

We restore breakfasts in school for hungry children so they can learn without their grumbling stomachs getting all their attention. Corporate America can help.

We resume bus service to take people from poor neighborhoods to their jobs, get kids to school without mama-chauffeurs, and get old codgers out of the house. The auto industry can build the buses.

We build nuclear power plants and wind and solar plants. Maybe even hydroelectric dams.

We finish the job in Afghanistan.

We finance the SEC and the new bank lending overseers properly.

We start out by doing a real investigation of the Flash Crash to figure out what happened, what the role of arbitrageurs and electronic was. (That’s the one for us.)

The government is no bigger today than under Ronald Reagan as a part of GNP. US debt is falling without any need for rigorous cutbacks in spending.

The goal is not to grow the government or its reach. the goal is to gorw the economy. Rright now relying on private spending is not working. the cost of borrowing money for even sound and stable companies is way too high. firms which have cash are not spending it out of funk and fear. We have to let the government act as the counter-cyclical force because there ain’t no other. It would be better if there was capex and a functioning bond market. There isn’t one. so I am crying uncle (or Uncle Sam) .

The cheap funds are there. I did not create the lack of animal spirits in the bond market or the unwillingness of corporate America to spend the money it has rather than hiding it under a mattress. household oversaving is the likeliest to stop when my proposals are in place but they will also encourage capex by gun-shy corporate America.

Into Africa…

Only paid subscribers will be able to understand my headline. They will also get a stuffed issue with lots of commentary and on sale.

Yesterday there was no blog. I attended two conferences, one by Old Mutual on outlook for markets, and the other by the Qwafafew quantitative analyst drinking club about data mining.

At the first conference Jerome Heppelmann CFA, the star manager of the Old Mutual large cap core fund, warned of mounting French credit stress and predicted “a long and difficult summer”. His concentrated portfolio is focused on large caps because of “visibility”.

At the Quants’ club, the word was GIGO, garbage in garbage out. Bad and often restated data produces misleading back-testing results according to Charter Oak Investment Systems’ Marcus Bogue, PhD. But it also can pay off it you can figure out how to clean up the data to predict the future biases and behavior of major instiutional players, according to Dirk Resnick, who runs StarMine for Thomson Reuters.

One fascinating insight he provided is that because of fund and index rebalancing rules, managers in subsequent quarterswill sell their largest positions after they have risen (thanks to good performance).

Resnick also works to identify valuation shorters of stocks doing this for fundamental resons, to remove the impact of 130/30 long short hedge funds and that of arbitragers (for example over convertible bonds or stock.)

A new mid cap Brazil Exchange Traded Fund is coming. The Brazil Mid-Cap Exchange Traded Fund will start NYSE trading Tuesday. Global X Management Co. is the asset manager. The ETF will invest in Brazilian firms with $2 bn to $10 bn in market cap like Natura Cosmeticos SA, its biggest cosmetics maker, and Cyrela Brazil Realty, itss largest homebuilder. Trading as BRAZ, it will track the Solactive Brazil Mid Cap Index. I haven’t decided yet if it is a buy.

The “bubble” in China’s property market is going to burst very quickly, with prices likely to fall by 20% in the next 12 to 18 months, Sun Mingchun, a Hong Kong-based economist at Nomura told Bloomberg. China’s banking regulator warned of growing mortgage credit risks and warned of increasing non-performing loans.

Real estate spending rose 38% in the 2010 to end-May, according to the Chinese National Statistics Bureau.Prices jumpt 12.4% in May alone. To try to cool things down China increased down payment requirements and mortgage interest, and restricted lending for buyers of second and more homes.

So here are the round-eye responses, also from Bloomberg.

The property boom in China isn’t a bubble because it’s supported by “solid” demand for residential housing, according to Stephen Roach, chairman of Morgan Stanley Asia.While portions of the real-estate market such as high-end apartments are overheating, demand for residential homes will remain robust as rural Chinese migrate to bigger cities, Roach said in a Hong Kong radio interview ith Tom Keene (Bloomberg). “Each year since 2000, between 15 and 20 million people migrate to Beijing, Shanghai, and second- and third-tier cities in mainland China. That’s two and a half New York Cities created annually,” Roach said. “This underpins a huge demand for residential property. This property has not overheated and the demand for this property is very, very solid.”

Another round-eye view:

Jeremy Grantham, chief strategist of Grantham Mayo Van Otterloo said China may manage to avoid a housing collapse like ours, according to what he told Chinese media yesterday. He described Beijing’s approach to tacking rapidly rising real-estate prices as “experimental,” crediting the Chinese government with being “adventurous in trying new things.” “They’re really quite aware of potential dangers,” he told China Daily as quoted by Bloomberg. China’s situation is also less serious than the one seen before the U.S. housing crash, since fewer Chinese own luxury homes and most had to make larger down payments than their U.S. counterparts.

Meanwhile the highest priced real estate on earth, in Hong Kong’s mid-peak Henderson Tower, is not selling and the top floor penthouse buyer has cancelled the purchase. What this means for our portfolio will be spelled out below for paid subscribers

Sincerely, Vivian Lewis Global Investing

P.S. I’m sorry but new membership in the Global Investing service is currently closed, if you’d like to be notified when new membership opens click here and enter your primary email address in the required field. And I’ll guarantee you receive first notification if and when new memberships are being accepted.

The Old Special Relationship

BP drilling engineer Brian Morel complained about cost-cutting shortcuts that put the operation of the in an e-mail on April 14. He said the errors created a potential “nightmare well” 6 days before an explosion destroyed the Deepwater Horizon offshore drilling rig, killing 11 crew, and creating an environmental disaster. The e-mail and other documents were released by the U.S. House of Representatives Energy and Commerce Committee, which said the British oil giant took shortcuts and made mistakes in the Gulf of Mexico.

My article yesterday about the rift in the special relationship was about economic policy and football, but the only response I got was over BP, from DH, a reader in Spain, who is British. He wrote:

Thanks as always for what is a very entertaining letter. Some comments on the BP debacle:

President Obama — thought to be strong on foreign policy — is showing himself up as an amateur, with his cowardly ‘blame the Brits’ rhetoric. Nationalism in any country is never pretty, but when its fervour is directed at your long-time allies it’s particularly distasteful. The Brits have gone to war with [sic] the Americans again and again; Britain and America are likewise two allies who have not endured massive rifts even when they have ideologically opposed governments in place. Why Obama would wish to endanger that long-standing relationship with his schoolboy politics beats most of the British.

It’s still unclear whether this was BP’s fault, or someone else’s. There’s been no conclusion of any investigation, and hence such vitriol is misdirected. British people feel compassionately for the Americans who are suffering this disaster. And we are sorry that it happened. Sometimes, that’s the best you can say. If, as you suggest, the hypothetical American Petroleum spilled lots of oil on a British coastline, there probably would be a bit of backlash too. But one thing is for certain: the Americans would never ever allow one of their nation’s largest companies to go under because Downing Street held them to ransom and refused to act in a civilized and fair manner.

I replied:

I think you are wrong. I do not consider myself an amateur in international relations. I do however think that Tony Hayward is an amateur. Every time he opened his mouth he put his foot into it.

That is part of the basis for the Obama ire at BP. Morevoer the journalistic investigations by the Wall Street Journal (ok Murdoch is not merely a British press baron but also an Australian) and other official investigations show BP tried to save money by cutting corners on the well capping, causing the blowup.

We are not running a vendetta against Britain here. We are not tearing up our copies of Shakespeare and Dickens or ending our infatuation with Virginia Woolf. This is a perfectly civilized set of moves against a company which deserves it.

That British pension plans own so much BP is not going to save the company or its top brass and geologists from falling on their swords. Hayward first. Lord Browne being gay was much more careful when he opened his mouth. Of course he also lied which is why Hayward took over. But I think Browne would have handled it better.

As for British stalwart support of US war aims, what we learn it in the USA is that we went over and fought to get your country off the hook in World War I and then again in World War II. And now Benedict Arnold Britain is planning to pull out from Afghanistan where they failed miserably in the 19th century.

FYI our longest-term ally is France which fought on the US side in our Revolution against Britain. When the GI’s landed in France in 1917 they said ‘Lafayette, here we are.” They did not say ‘George III, here we are.’

Obama is not holding BP up to ransom. He is requiring that BP defer its dividend if required to create an escrow account, as exists under the laws of both our countries, to cover the eventual costs of the US cleanup and the rest of the disastrous consequences of BP’s missteps. If BP is proven innocent by investigations and court cases to come, the money will be returned to the company. This is sad for the pensioners who may not be around by then. but it is merely another argument for global investing. Diversifying helps.

Nobody said that British pensions should be invested only in countries with British as their first name, but even so there are plenty of other options.

To which DH replied:

Like most of my countrymen, I do revel in a good debate! I note your arguments, but however I slice this, I cannot bring myself to agree with you at all..

The attitude of President Obama (who, in his own words, is “looking for some ass to kick”) has been anything but civilized. A civilized and genuine way of dealing with this means focusing on the problem before the culprit, the solution before the disaster. Obama has done nothing at all but join in the whining of the underclass, and it is deeply unbecoming.

Obama ought to have left Hillary Clinton to deal with any and all international aspects of this crisis, and focused his energy purely on the southern states which have been affected by the oil spill. Instead, we are presented with yet another (damaging) example of Obama micro-managing.

I do of course agree with you regarding America’s traditionally special relationship with France.

Obama is holding BP to ransom, all for the sake of white southern votes (those he most needs right now). The man who claimed he didn’t care about being an effective one-term President is now selling out yet another chunk of US goodwill to get his additional 4 years in office. Trouble is, he’s chipping away at the strength of the country by doing so.

To which I replied:

Now you are simply criticizing the US politician to defend the UK company. It reminds me of Oscar Wilde’s remark about foxhunting, the unspeakable pursuing the inedible. Politicians globally attack companies from their own country or other countries. There isn’t anything uncivilized about kicking ass. It’s how pols behave, especially when there is an oil leak into the Gulf of Mexico 4 miles down and only BP can possible figure out how to cap it. Hillary Clinton would not be able to help.

There will be no blog Wednesday because I am attending conferences all day. More available for paid subscribers…

Sincerely, Vivian Lewis Global Investing

Kissinger’s Victory

Here are some comments from across the Irish Sea about BP’s woes, from Paddy Power, which collects bets made with Irish bookies:

Troubled oil giant BP have today been cut from 10-1 to 4-1 to file for bankruptcy before the end of the year according to leading bookmaker Paddy Power.

The cost of the ongoing disaster in the Gulf of Mexico is growing daily and recent demands by the US government for BP to set aside billions to service potential claims could hasten its path towards potential bankruptcy.

Tony Hayward remains odds-on to step down as BP CEO before the end of the year but has eased slightly in the betting from 1-2 to 8-11 on the back of some large bets, including one of £10,000, favouring the Englishman to weather the storm.

Paddy Power are also quoting odds of 10-1 for Hayward to serve any jail time as a result of the oil spill.

Henry Kissinger won. Saturday was a great day for all first generation Americans (including me) whose daddies played and cheered for hands-free European football (soccer) rather than the USA version of the game. The US team at the World’s Cup tied in its opening game against England. We play Slovenia next, on Friday.

Kissinger in the 1980s advocated that our country prepare to compete in soccer, a game I suspect the Secretary of State had learned during his boyhood in Fuerth, Germany, as my father had learned it in Bad Hersfeld.

Thanks to his sharp eyes and quick reaction, my father was a goalie, and more successful playing against the Greek team in Inwood than the poor English goalie who fumbled a let the USA score. (For some reason England, which is not a country, has a team along with Scotland and Wales; other teams represent countries.)

The soccer victory is another dreadful comeuppance for the Brits, along with the mess caused by former British Petroleum, now BP, in the Gulf of Mexico. The Mayor of London, Boris Johnson, deplores “anti-British rhetoric” by Americans over the oil disaster spewing out as much as 40,000 barrels per day onto our fragile coastline. If the ultra-jingo Brits were confronted by a similar horror perpetrated by an outfit called American Petroleum off their shores, I suspect the rhetoric would be much nastier.

There is however a serious mid-Atlantic split in our alignment with Britain over budget deficits. The new British Prime Minister, David Cameron (like Boris Johnson, a Conservative and Old Etonian) is calling for austerity and budget cuts to reduce the deficit. Meanwhile, US policy calls for delaying counter-cyclical budget balancing moves because the recovery is still fragile. This is not the right time to imperil economic growth by reducing deficit spending, our USA economists are saying (of course they are quoting a British theorist, John Maynard Keynes.)

But the White House-Treasury line is being opposed by our own native-grown Congressioanl Republican pre-Keynsians who want to cut spending and stimulus measures now. The new austerity advocates here are ignoring the fact that unemployment is still excessive. They are preaching here as in Britain in favor of a virtuous cycle, whereby cutting spending and taxes revives confidence. I have to confess that I do not see how this can happen.

Injecting money into the economy, cutting interest rates, buying government debt stopped the 2007-9 economic collapse from turning into a repeat of 1929. This was the policy not just of the Democrats, not just of Labour in Britain, but of both parties.

Tax-cutting has become a knee-jerk reaction to every problem in the eUS conomy for some. But in the present situation, cutting taxes also means cutting benefits for people and programs funded by Washington (even if administered by states). This salve-the-rich Old Etonian rhetoric ignores real suffering, real need, among some less privileged lower-class Americans who are not paying taxes because they are out of work.

The one thing we should not bring over from Britain is its devisive class divisions.

More for paid subscribers from Singapore, Britain, Brazil, Greece, Canada, Panama, Israel, China follows.

Sincerely, Vivian Lewis Global Investing

P.S. I’m sorry but new membership in the Global Investing service is currently closed, if you’d like to be notified when new membership opens click here and enter your primary email address in the required field. And I’ll guarantee you receive first notification if and when new memberships are being accepted.