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Real estate realism

     Your editor made a mistake in her blog last week about the rash of new unsponsored OTC American Depositary Receipts which are being created by banks. Under the terms of a new Securities and Exchange Commission ruling, companies reporting to a foreign regulator in according with International Accounting Standards no longer have to re-calculate their accounts into U.S. Generally Accepted Accounting Principles (GAAP).

     As a result, listed companies from respectable markets around the world now have new ADRs. But there are not only 200 of them, as reported last week. I am still inputting the data from the various depositary banks, a truly boring job, but the number of new ADRs is well over 290 as of this writing. And the trend will pick up.

      With unsponsored ADRs, the banks can charge fees when they hand you your dividend. They can charge fees when they calculate your taxes to the foreign country where the stock has its primary listing. They can charge fees when there is a corporate action like a stock split or rights issue or takeover. So they utterly love unsponsored ADRs.

      But since this gives us more opportunities to diversify our investments, we love them too. Subscribers who have access to our website can view the newly arrived ADRs on our ADRGuide site. I am about halfway through the process of inputting the data.

      I retain a fondness for real estate investing, in part because of a mistaken belief that it does not correlate with stock markets. Since our London pied-a-terre is near the new financial center at Canary Wharf, it certainly has not escaped unscathed by the crisis. Nor has the fallback of sterling against the dollar made our investment very lucrative.

     But I comfort myself that in developing countries, sound property investments should do better. So were have two plays on emerging Asian property in our portfolio, for China and India, the subject of our subscriber letter today.
 
     *Start with beaten down Xinyuan, NYSE-XIN, a property developer in China. The combination of two recent bubbles bursting is enough to explain why the stock is down, but it did not help that XIN warned that there would be a falloff in sales in H2 this year.
 
     Moreover, there is plenty of news and pseudo-analysis about on how Chinese real estate is proving to be a bubble, the most recent a report from Citigroup. They wrote up areas near where their China team is based in easy reach of Hong Kong like Shenzhen and Guangzhou. The Pearl River Delta, home of the export industries feeding into the WalMarts of the world, is indeed feeling the pinch.
 

     However, my mood is less gloomy looking at the XIN portfolio of sites and existing gated complexes. XIN, a Cayman Islands company, yesterday announced that it was buying back its shares, another reason for optimism.

     XIN operates in second-tier inland cities most of us have never heard of or visited. Even your intrepid editor only managed to visit two of them in her 3 weeks in China earlier this year, Suzhou, on the bullet train between Shanghai and Wuxi; and Chengdu in Sechuan Province on the Yangtze River.  

     Both are interior industrial cities drawing in new residents from the surrounding countryside. Suzhou is a traditional silk clothing center, and very beautiful with canals; Chengdu is a river transport center attracting farmers and workers displaced by the Three Gorges Dam (and the later earthquakes). It is very hot. They have higher than average per capita incomes because they are not overwhelmed with unskilled workers producing cheap goods for foreign markets like the Pearl River Delta.
 
     And in fact, the four other cities where XIN is building its compounds also are major trading hubs. Jinan, in Shandong Province, inland but between Shanghai and Beijing waterfront cities, is famous for its springs and railroad junction; down the tracks a few miles is the famous Qingdao (Tsingtao), whence China’s best-known beer. Another XIN development city is Zhengzhou, in Henan Province, surprise, surpsie, a railroad hub.
 
     The canny family controlling Xinyuan are making their buyback now because of market malaise. Presumably they think the new Chinese interest rate cuts and preograms to build up the domestic economy will result in disposable cash in the hands of potential buyers of XIN apartments. I tend to agree.
  
     *Our other Asian real estate pick is a different play. Ascendas (ACNDF.PK, AiTrust, or AINT.SI) is a Singapore-listed real estate investment trust building and operating office and industrial properties in India. It mostly builds office towers but does a small amount of commercial property as well, like shopping malls for the people working in the towers.
 
     Again it helps to know where they are at. Currently the sites are in Bangalore, India’s IT capital, Hyderabad, and Chennai (formerly Madras). It is moving into Coimbatore, Pune (formerly Poona), and Gurgaon. Again these are famous old rail centers, because investment follows the train.
 
     Do not imagine that Ascendas’ tenants are merely the Indian IT companies. To be sure, it did a sale-leaseback deal for Tata Consulting Services this summer which we reported on, freeing up cash for the Indian IT firm to help it survive the crisis. Unlike Tata, ACNDF was able to fund the building at 70 basis points over the swap offer rate, so that its lease will produce excellent profits.
 
      Some 63% of the REIT’s lets are to IT companies mainly because that is where the money is in India. But most of its tenants are global companies: GM, Pfizer, Merrill Lynch, Applied Materials, Cognizant. The top 10 lets account for only 29% of total area leased by Ascendas, and non accounts for more than 4% of the total. That spreads the risk even though I worry about GM.
 
     Because its investors are in Singapore, Ascendas has hedged its repatriation flows from rupees to Singapore dollars through to the hend of H1 2009 (a year from now more or less). It produced an income per unit of S1.82 cents. That was up 23% from last year’s Q2, and up sequentially by 10%. At end Sept., NAV was S$750 mn or 99 cents (Singapore)/sh.
 
     Based on its H1 distribution, it pays off to the tune of 16.2% as of the price at which it entered the model portfolio. So the obvious question to ask is can they keep it up?
 
     Having been rude about Citi's Asia hands, I must admit they are right about Ascendas which they call a buy with an attractive 15.9% yield (they wrote their piece after we had already bought in. We paid 28 cents U.S. per share and they are writing with the share 33 U.S. cents.) Citi wrote:
 
     “In current volatile times, we see aiTrust as a defensive Indian property play. While stock is down 42%, it's outperformed Indian property stocks by 52% over last 3 months. Its attractive yield of 15.9% for FY09E is ahead of peers and good support. We reiterate Buy (1M).”
 
     (1M means best buy, moderate risk. Citi lowered its target price to S$0.79 citing currencyy risks despite the hedging we reported above. This may be because Citi thinks the costs of hedging beyond Sept. 2009 will go up.)
 
     For Q2, Citi analysts noted “a one-time income of S$2.7m from extra power supply. Net property income was up 2% largely due to higher operating, and utility costs given a larger portfolio” It added: “we expect [a] stronger 2H” from higher areas available for lets.
 
     Citi cited some risks: like a depreciating rupee in S$ (and US$) and any global slowdown in IT demand feeding into closing offices or bankruptcies. I think this is pretty remote. But obviously, if GM goes bust, this will have an impact.

 

      Note: Results and DPU for Q1 and Q2 FY 2007-8 were reported together after the listing of Ascendas, at S$ 2.95 cents. Had the DPU been equal and hence 1.475 Singapore cents for each quarter, 2Q FY 08/09 would have been 23% higher.

      *DryShips reported in excellent Q3 for the first time consolidating its Ocean Rig Ultra-deep-water drilling rigs with its dry bulk carrier fleet. DRYS.Q net profits came in at $180 mn vs $105 mn a year ago, or $4.21/sh vs $2.97. Note that these figures are after extraordinary gains and losses from ship sales and from swaps of +$1.54 and -0.86/share respectively.

      This was impressive given the mess in the Baltic Dry Index which sets the price for dry bulk ship charters. Yet DRYS did not beat analyst estimates. To quote CEO George Economou in his Q & A with analysts, "it is not easy to prepare for the atom bomb."

      Having begun to diversify away from day charters and away from bulk carriers altogether, the financial crisis intervened and Mr. Economou could nto complete the task. Yet he managed to get 55% by volume of the ship fleet (25 of its 39 vessels) to long-term contracts, for an average of 5 years to avoid the wipe-out in day rates. CRYS is taking in $50,000/day/vessel in today's market (on average) according to the company.

       And unlike the situation in the fleet, oil dirlling rigs able to handle the briny deep where wells are now being drilled are in short supply, and command a premium rate. DRYS signed a rental deal with Tullow Oil for one of its two existin rigs at $637,000 per day, which is comforting.

      Mr. Economou made another remark which resonated with me and with the market, which saw a 20% rise in DRYS.Q stock price today. He said: "the balance sheet is in good shape, at a level we are very comfortable with. Here is why: firm EBITDA levels for 2009 to 2011 from actual contracts signed in millions of dollars:

                          2009       2010      2011

Ocean Rig                 $235        281       264

fixed dry bulk charters    419        443       694

         source: Dry Ships

      Also reassuring were the balance sheet data on cash at $456 mn. The company has debt of $2.899 bn of which $1.224 bn has not been drawn down. While we wait for the iron ore business between Brazil and China to resume (they are in tough negotiation now), while we wait for the blocked letters of credit financing the export trade to become liquid again, we are prepared to put up with a certain amount of self-dealing and insiderism from Mr. Economou. These factors keep the price of DRYS down and produce a nice yield and a P/E ratio insingle digits.

     At some point, the oversupply of bulk carriers will be resolved. Either China will stop growing, which is unlikely, or the ships on order will never be built and the pace of scrapping of old ships will pick up. While we wait we get to cash our dividend checks.

     The spinoff of Ocean Rig UDW Inc. is scheduled for late this year or early next. The latest scoop from Mr. Economou (when questioned by Natasha Boyden of Cantor Fitzgerald) is that some of the DRYS debt may be attributed to the new entity. We will let you know when we know more.

      *Last week your editor met with John Coustas, CEO of Danaos (DAC); Ted Petrone, president of Navios (NM); and Harry Kosmatos, senrior manager of Tsakos Energy Navigation (TNP). But I decided that I like George Economou's strategic thinking best. It would help if he was more trustworthy with his shareholders but then his stock would be pricier. 

      *Western Asset Emerging Markets Floating Rate Fund now has a new ticker symbol, EMD (in place of EFL). The proposed merger with another Legg Mason closed-end fund investing in emerging market bonds, Western assets Emergin Markets Debt Fund, has been put on hold because the share price of our EMD is so high compared to that of the merger partner. (This is mainly because floating rate debt commands a nifty premium to net asset value in today';s troubled markets.) The managers are monitoring the situation. The merger would enable our fund to cut its relatively high per share expenses.
Deregulation is often positive

        As we swing into an election which is sometimes being fought against deregulation, I feel impelled to inform you all that sometimes deregulation is A Good Thing. Moreover, speculation is an old habit of the human race.

     Let's start with the latter:

     "New houses were built in every direction, and an illusory prosperity shown over the land, and so dazzled the eyes of the whole nation, that none could see the dark cloud on the horizon announcing the storm that was too rapidly approaching."

       That is not a report on the sub-prime debacle. It is from Charles Mackay's Extraordinary Popular Delusions and the Madness of Crowds, published in 1841. His subject was the early 18th century bubble in Louis XV's Paris over John Law's Cie. du Mississippi.

        Bubbles and speculation are traits of the human race. Even getting excited about a faraway place with assets you know nothing about (Mississippi in the 18th century, for example) is what people do. 

        Now about the benefits of removing regulations. Over the past couple of days we have seen the arrival of more than 200 new American Depositary Receipts to U.S. trading. The depositary banks are rushing to offer Americans the opportunity of trading stocks regularly listed on foreign exchanges through new ADRs, mainly because these unsponsored ADRs can generate nice fees for the banks.

        And as we know, banks are hard up. They get fees when the foreign stock pays a dividend or begins a corporate action which involves shareholders.

        The new offerings, which boost the size of the U.S. ADR market by more than 10% in one fell swoop, result from the Securities and Exchange Commission removing the requirement that foreign ADR companies produce reports in U.S. Generally Accepted Accounting Principles terms, converting from whatever they do in their homeland. Now all they have to do is translate the text into English.

      *While I said I was not going to blog more than weekly, I cannot resist quoting a new report from Canada's Peters & Co.'s Dan Grager. He lowered his target for Niko Resources, the Canadian firm producing oil and gas in the Indian subcontinent from C$120 to C$115. This I can stand.

       He forecasts that NKO.Toronto will begin to produce 500 barrels of oil daily in D6 MA soon and eventually bring production to 40,000 bpd by Feb. 2009. Natural gas from the same field will begin in Jan. and hit 280 mn cubic ft/day by midsummer.

       Mr. Grager cut his target based on his new reading of the Net Asset Value based on risks linked to the brokerage's calculation of risk premiums over the national bond rate in places like India, Kurdistand, Pakistan, and Bangladesh where Niko operates. Great stuff but ultimately the price commanded for the oil and gas will be set by the world market, I think.

      *Charles Carlson of www.DRIPInvestor.Com tips the common stock of Barclays PLC, which he thinks did well out of the Lehman bankruptcy. He calls it "a tremendous deal" with the LEH NY real estate alone worth a billion bucks. He thinks boldness can pay. Carlson's newsletter costs $109 for 12 issues/year. You can start a BCS DRIP with $250 and reinvest dividends which are currently about 14%.
It's white magic

      Since your editor decided to cut down of daily stock tracking to stress our focus on longer-term developments and get away from the panicky reactivism we have seen on stock markets, the situation has improved a bit.

      Today, for example, the Dow Jones managed to hold its gain (ultimately about 889 points) and close over 9000 again. The waves of close-of-day selling failed to shatter the rise today.

      Moreover, oil closed below $63 a barrel. And Iceland, desperate to get back the day trader Koko Watanabe, raised its interest rate to 18%. By now, Koko has had the good sense to stop borrowing in her local currency, the Yne, to get yields in funny money currencies.

      Koko-San and I are united in our decision to stop reacting to every little bit of news, and to think about things which really matter. 

         *OH reader JB wrote:

      “Hi Vivian. What a market!  I'm a long-time subscriber and want to know whether you think any of the oldies in your portfolio are screaming , outrageous deals right now, for example, SBS and RIO?, DRYS, IBN, RBS, BCS, VWDRY, ARVCF, PBR? OR ANY OTHERS?

     “I also would like to know if you think we'll stay in a deflationary recession or soon go into roaring inflation or neither.” 

     Here is my reply:
 
     “The only reason for not buying all these oldies is if you have to sell other stocks to pay for them. The portfolio is down heavily this year and I am not myself in a mood to sell much to be able to afford to buy. (Unlike JB I did not have the good sense to cash out at the end of 2007.)
 
     “Buying is tough when the market is carooming down. So what you have to do is go in slowly. Pay $8 to $10 commission per trade with an on-line discount broker when scaling in. Use a limit order when you buy.
 
     “That is important, to avoid some of that whipsaw action we see almost daily in the markets. Like Monday.
 
     “Note that the Rightside version of Global Investing's Model Portfolio is a right royal mess and does not track the shares we own as it should. So be sure to use your broker's pricing service before you trade. Or check with Reuters, Bloomberg, WSJ/Marketwatch/BigCharts, MSN, or Yahoo Finance sites before doing anything.
 
     “Now on the individual stocks you mention: I would not be buying RBS common. It is unlikely to recover for years from its madcap adventurousness buying ABN AmRo. The preferreds on the other hand are incredible bargains. current yields are up in the 20+ percent range and the only way to stop paying them is to buy the preferred back at $25 producing a YTM that staggers the imagination. (Yes, RBS can not pay the dividend. But think of what that would do to its rep in Edinburgh!)
 
     “All the other shares you mention are worth buying. They are down because of concern about banks, because of fears that China will stop growing, because of currency factors, because the oil price is down. These too will pass.
 
     “There obviously will come a time when we have to pay for the bailout with currency depreciation. The difference this time is that there is plenty of bailing out also being done by other countries so it may not mean the dollar collpases, as in prior episodes. But the dollar is clearly the Bubble of the Month all the same and it will fall some.
 
     “So we will first have a deflationary recession and then roaring inflation. Both, in sequence. You can think about this over Hallowe'en. And then over Election Day.
 
     “So buy some gold, like GLD or IAU (which are missing from your list.)”

 

      Your editor, who is rather broke and hesitant to sell into a wildly fluctuating market, used available cash to buy SLB, BCS, STD, NatWest preferred, and KPELY.PK. I hesitated about DryShips which is back to the levels at which it came out. The share is a proxy for the beatend-down Baltic Dry Index, which is suffering not just from slacker Chinese demand, but also from the drying up of trade credits, according to my friendly daily pink paper, The Financial Times.

     Given the aggravation caused us by the shenanigans of CEO George Economou of DRYS.Q, who uses the company as his personal piggy-bank, I don't want to play the reversal of credits drying up with Dry Ships.

     Moreover, the offshore drilling industry into which he is moving us, is also not going to be able to overcome loss of fianncing for drilling leases and purchase.

 
     *There is every indication now that Teva will proceed with its takeover of Barr (BRL) before year-end, depending now only on regulatory approvals. The Israeli generics firm won agreement from Barr’s banks to maintain their credit lines in place, voiding their ‘change of control’ option to pull them. This helps the deal go through. TEVA.Q got a $100 mn settlement over collateralized debt swaps which lost money, to be added to its financial holdings this quarter (probably from Credit Suisse, we guess). It sold its veterinary products line raising another lump of cash. Teva is now among the top 10 shares quoted on Nasdaq. See below if you arb.
 
     *Also from Israel, where interest rates were cut by the CB, Elbit Imaging will build shopping malls in Russia via a joint venture of its Plaze Centers NV (traded in London) and a Russian partner, Snegiri Development. The principal of the latter is Alexander Aldexandrovich Chigirinsky, who is a Russo-Israeli. The first shopping center will be in Krasnodar. EMIFT.; IBN; STD;  CZZ;
 
      *ICICI reported net income of 1.104 crores of Indian rupees, equal to Rs 10.14 bn or $202 mn. This was up 1.1% over prior year levels above analyst estimates. This is $5.84/sh (for what works out to Q2). It managed to raise fee income a shopping 26% which slashing expenses by 12%. IBN also put paid to some of the appalling rumors that have floated around in India. Its loss in the U.K. came to $35 mn, or which 28 mn has already been provisioned. Its profit figures are net of a loss in its insurance j.v. with Prudential (U.K.), a start-up. Insurance companies lose money at the start. Its loan book will grow in only single digits the rest of this fiscal year (to Mar. 09). Its interest margines in Q2 were 2.4% vs 2.2% in the prior year. 
 
     *Spain’s Banco Santander reported today too. It will not sell its insurance and asset management subs after all, because it is not getting its price. Instead, STD will halt acquisitions, said CEO Alfredo Saenz, and about time too. It expect to raise its Tier I capital level to 7% next year from an already respectable 6.31% now, he said.
 
     Senor Saenz confired that STD expects to earn euros 10 bn in profit in 2008 and keep its nonperforming loands down to under 2% of its book. Non performers were 1.63% of its outstanding loans at quarter’s end, vs 1.45% at the end of the June quarter.
 
     For Q3, STD reported net up 4.4% to euros 2.21 bn, which however was below the average forecast by analysts reporting to Dow-Jones. The main boost to profits was a euros 451 mn from Banco Real in Brazil which was acquired last year from ABN-AmRo in a deal where STD was the only winner. Revenues were up 7% year over year to euros 7.45 bn in the quarter. Again costs were contained, up only 1.5% year over year.
 
     STD has had to raise its loan loss provisions by 1.54 bn from prior year levels of euros 898 mn. To cut its loan losses, STD also bought euros 2.76 bn of real estate loans from its borrowers, acquiring the properties; this is backdoor refinancing.
 
     Some sore spots. It will sell its Venezuelan bank next month after Hugo Chavez attacked Spanish ownership. It will take 3-4 years to restructure and right Sovereign Bank of PA. Abbey Natipnal profits were up 4% on the basisis of comparables but slashed by a weaker pound against the euro in which STD reports.
 
     *Cosan raised $200 mn with a private placement of its shares at $4.50. If the new president does not owe loyalty to Illinois and Iowa farmers (from his prior job and his need to win the primaries), the blockage on sensible ethylene from Brazil to protect U.S. corn producers will be dropped. This will boost CZZ.
 
     *Companhia Vale do Rio Doce is investing $1.3 bn in power plants (rather than in iron ore mining) for better balancing its order book and future needs. RIO also said it has no quarrel with its Chinese partners in developing new mines or in pricing their output. RIO; RIO.PR
 
     *Nippon Steel is investing in Posco’s Vientma steel venture, part of the mounting tie-up between our Korean steel-maker, PKX, and the Japanese from over the water.
 
     *A reader asked if he should buy Barr (BRL) to benefit from the eventual takeover premium from Teva. I wish I could say this will work. But considering the hassle we have been through with the takeover of BCE in Canada by a bunch of pension funds, I am hesitant. The latest BCE forecast is that the deal will be done this year, about a half a year late. Moreover, to clinch it, the Canada telco has had to omit its last 3 dividends, retaining cash which will go to the acquirers. This has now led to 2 class-action suits in Canada from grisduntled shareholders.
 
     *Final Canada note: EnerVest Diversified Income Trust, a former recommendation dropped when Canada opted to raise corporate taxes on income trusts last Hallowe’en, is proposing to diversify into equity and debt from a range of industries, not just energy. It will offer warrants to subscribe new units to existing shareholders at a discount to the price being charged the public. The details will come next month.
 

     *Although GSK plans to stop its share buyback program next year, it did another deal for 300,000 shares yesterday in London. Habit forming I guess.

    

From Our Sister Publication

   Global Investing is now a weekly publication. Global Investing Pro comes out where there is news. Here is part of today's GIP blog:

Hard landing; and soft test news
Vivian Lewis 10/27/2008 1:31:03 PM

          *Beijing Capital International Airport Co. fell sharply today in Hong Kong and I tried to find out more regarding the airport operator at my Chinese lunch with people from over the border in Shenzhen.

    It appears that a rumor was floated by China Times, a newspaper that BJCHF.PK is being stiffed by Chinese airlines which are hurting with high interest rates and (until very recently) high prices for aviation fuel, coupled with lower levels of travel post-Olympics.

    The newspaper said that they owe the lovely Beijing airport 800 mn yuan, a out $117 mn. This was denied by Sec. Shu Yong of the airport, who, while not giving out a figure for how much the airlines owe, said that airlines always delay paying landing and takeoff fees, and the amount owed has not gone up.

    Shu also denied that Beijing Capital was relying on bank loans as  the newspaper reported. In fact there have so far been no bank loans at all but if the airport buys the new terminal from the city, there may well be loans to finance the deal. So far, however, it awaits regulatory approval.

    Despite the denials, the Hong Kong share price of BJCHF fell 17%. It is now more than half off from the 94 cents (US) which we paid. This level seems to over compensate for any likely loss over the next year. The costs of the new terminal, a prestige Olympic project, were scary, but Beijing is not about to close down. So there will still be planes landing and taking off.

     Don't parachute out.

     *Frustratingly, Stallergenes just announced that the FDA has given its approval to new Phase III U.S. adult trials of its Oralaire sublingual allergy desensitizing product against grasses. This is a major piece of news for the French maker of allergenes. The product combines 5 grass allergens in a single oral desensitizing program now being tested.

     What is frustrating is that the French company failed to put out a release in English. It is partnering in the U.S. trials with Quintiles Transnational Corp., a U.S. firm which specializes in overcoming regulatory hurdles, and the approvals came from the Federal Health Administration (FHA) which issued an IND. Both those entities operate in English. Couldn't Stallergenes find an anglophone in Paris to translate the big news? What is the matter with them? They need to get sublingual medications to get their tongues (langues) around English.

     Perhaps because of the francophone lunacy, despite news of the breakthrough to the U.S., the price of the share fell in the market debacle of Monday by nearly 10% to euro 31.34. (I am using the Paris quote for 006567, not the Euronext-NYSE one).

     In 2009, we will now have 4 clinical trial results for its sublingual desensitizing allergen programs. which will mark a new era for Stallergenes: grasses en Etats-Unis; another long-term trial of grasses in Europe; acarians (dust mites and maybe, this Hallowe'en week, also spiders); and one for birch trees.  

      Stallergenes expects to try to line up a strategic partner here next year to launch these products on the U.S. market. I cannot believe they do not want a partner who speaks English.

       Separately Stallergenes confirmed its earlier expectation levels for 18% growth in 2008 and 2009. In this market!

       Both stocks are buys now if you have cash around.

And it's not Friday the 13th!
     A NY broker dealer named Hank but not Paulson said that I left out a major element in roiling markets at the end of the day: mutual funds. He thinks that open-end funds net out purchases and sales of their offerings toward the end of the day and then move into the market to buy or sell shares for creating new fund shares or redeeming them. Their heavy trades often trigger copy-cat moves by others seeking a direction for the market.
 
     A Chicago CFA named Jeff says that his studies of exchange traded funds show that the ones which move to double-digit discounts or premiums at the day’s end are usually new, thinly-capitalized funds with “quirky” indexes or “idiosyncratic non-transparent strategies. These funds are due to be merged or folded in any event. Meanwhile the ETF majors are trading the way they are supposed to, at net asset value or close to it thanks to the facility whereby institutional investors can buy or sell the underlying securities to keep the ETF price where it is supposed to be.
 
     Jeff thinks there will be many dead ETFs soon. There are about 500 a year usually among those with less than $50 mn under management. In Sept. 313 ETFs were below that level.
 
     *If you are looking for the next bubble to pop, consider the U.S. dollar. It goes from strength to strength in a self-fulfilling prophesy. Our Japanese hausfrau friend Koko Watanabe has now taken to unwinding her yen loans.
 
     Morgan Stanley has slashed its target for Santander to euros 45 from 58. STD. UBS has cut Barclays target to 220 pence from 400. Keefe Bruyette & Woods rates BCS equal perform now, having called it “outperform” earlier. I trust KBW more than brokerages competing with European banks. But these estimates are missing the impact of a stronger dollar on Sterling and Euro returns.
 
     BMO has slashed its rating of Scotiabank (Bank of Nova Scotia, BNS) to equal-weight from outperform. This reflects a subdued outlook for Latin America where BNS is active. The share dropped 11% on initial trading in Toronto but now is down only 1.5%.
 
     *Companhia Vale do Rio Doce told the world (as if the world did not know it already) that if the global economy goes into a recession demand for metals like its ironore pellets will “decelerate”. The Bovespa trading in shares of RIO initially fell 8.5% before recovering to be off only 2%.
 
     *As I forecast, China has decided to do something about the slack housing market, which, as I said, will help our Xinjiang Real Estate, where I added to my positions. XIN is still cheap.
 
     China will give home-buyers (but not speculators) a tax break. It has cut down the down payment percentage to buy. And loan interest rates for first-time buyers have been cut. The Chinese housing demand boost is not based on speculation so much as simple need for recent homes, remember. About 145 million Chinese move to cities each year.
 
     The new measures will increase demand and help boost China’s economy. They will also lead to faster imports for the Chinese construction industry and new homes. Steel demand should go up if the government program works.
 
     Last year home sales were up 50% from 2006, an unsustainable level. Still, the move of people to the mid-sized cities of the interior, where the jobs are and where XIN is building, need to continue.
 
     Housing prices have fallen sharply and cash-starved builders have been unable to raise finance. Moreover, they would not sell apartment at a loss so the market froze up.
 
     While this is a hard on to time, I think that Chinese home demand is unlikely to stop in its tracks. And the government needs growth and happy people to stay in power. So if the current program is not sufficient they can always go ahead and create the Chinese version of FNMA.
 
     *OAO Gazprom credit default swaps are now trading at 18.75% which implies that the company is bankrupt. The OGZPY.PK bonds are subject to negative revision by Standard & Poor’s along with Russian state debt whose CDO’s are only traded at 10% to insure debt repayment.
 
     However, Russia built up a cash cache during the glory years of well over $500 bn and while some of it was channeled to the banks to boost liquidity, Russia still has about $350 billion to spend. OGZPY is likelier than oligarch’s unconnected enterprises to get help from the Kremlin.

     Even more than cash, OGZPY wants to be allowed to charge more for pipeline throughput of independently produced gas. It applied to Russia’s Federal Tariff Service for a 10% rate hike to be approved or denied next month. Most analysts covering it rate OGZPY a strong buy. If you loved it at 3 times as much money you must adore it now.

     The Russian stock market was closed again by the regulators and will nto open till Tuesday. The CB spent $13 bn to support the ruble,w hich fell to 27.23/$. Going to Russia last summer was a big mistake. I could have saved money going now, although I would have missed the White Nights.

      *Areva, the French nuclear group which also reported earnings yesterday, follow up by announcing a joint venture in Newport News VA to build nuclear reactor heavy equipment for the resurgent U.S. nuclear generating industry. Its 33% partner in the $360 mn manufacturing facility for the EPR third generation-plus reactor is Northrop Grumman Corp.
 
     The plan is for 80% of nuclear plants using Areva technology in the U.S. to come from U.S. sources rather than imported ones. This will cut down on Areva’s exchange costs and also on the political risks here. According to The Wall Street Journal, U.S. nuclear reactor sales can top $100 bn in the next few years.
 
     ARVCF.PK is controlled by the French state. It reported weak Q3 growth of 9% to euros 2.935 bn, boosted by cheaper uranium and higher transmission and manufacturing revenues. But the “back end” (reprocessing) business was hurt by a strong dollar and cheaper uranium and fell 11%.
 
     In addition to its deal with Northrop, Areva has a joint venture with Duke Power to create a standard power plant to burn biomass, called Adage.
 
 
     *ETF Securities Ltd., a London developer of ETFs, bought for $3.3 bn two gold exchange-traded commodity funds (ETCs) from Britain and Australia, which also sell their products in other European markets. ETCs, unlike ETFs, actually own physical gold bars which are kept in custody. They may be of interest to some of our most paranoid hard money readers. They are, you should forgive my term, earmarked, and cannot be lent out. So they do not earn the modest return we get from State Street Global Advisors with our GLD.
 
     *Keppel Corp is a strong buy after it reported its Q3 net rose 10% despite derisory profits at its oil refining jv (Singapore Pete) and real estate woes, where profits fell 44% year over year. Operating profit rose faster than profit before tax, because of the low refinery profits. However, profits actually fell sequentially from the 2nd quarter.
 
     The sales and profit boost came from AS$1.6 bn in new orders for offshore oil rigs up 10% from prior year levels. Revenues rose 14% to S$8.1 bn for the 9 months. Offshore and Marine was up 11% and accounted for 69% of 9-mo revenues while property revenues halved.
 
     KPELY has no next debt and its return on equity is 21%.
 
     However, KPELY.Q missed its numbers, a forecast of S$281 mn by analysts surveyed by Dow-Jones. Finance director Teo Soon Hoe said it believes in “intact fundamentals underpinning rig demand” but warned that some business may be hurt by the credit crunch. Over the next 12-5 months, given that it is working on existing orders, the impact would “not be significant” as half of the money has already been paid. It has an orderbook to 2012 of S$13 bn with diversified oil and oil service company buyers. 
 
     I am quoting this material at great length because JP Morgan has downrated KPELY’s target because of its “falling” orderbook. Citicorp rates KPELY 1 Low risk, its best rate. Each ADR is equal to two Singapore shares. Your editor is buying more.
 
     KPELY will not peddle its contracts as aggressively as in the past and avoid deferred payment deals. Mr. Teo said that net debt-free Keppel may borrow to bring its leverage level to 20% by the end of this year. Its 9-mo free cashflow was S$1.5 bn, something of a company record, up S$169 mn from the prior 9-mo period. Net cash from operating activities was S$1 bn before changes in working capital and S$391 mn for investing in takeovers and capex.  
 
      *BG has found another Oz company to buy, rumor has it. It is said to be bidding A$ 8 bn (US$ 5 bn)for Australian Energy’s 24.9% stake in Queensland Gas Co., in which it already owns 9.9% and may make a full bid for QGC. This is about the same amount as it offered for coal bed methane firm Origins before walking away. BRGYY.PK is down on the gossip.

      *Yara shut in its Italian urea production facility which normally turns out 600,000 tons of urea per year because of slackening demand. YARIY.PK in Norway produces the nautral gas-based fertilizer more cheaply.

       Note to readers: because of financial and  technical issues with the Rightside Advisors blogsite which have still not been addressed, notably the lack of current prices on our model portfolio and increasing difficulties producing issues using its clumsy content management system, your editor will next week go to a twice-weekly format for blogging.

      The lack of price data is inexcusable because in the dark ages when I had a modest following, we were able to get price data from providers in return for giving them what amounted to a modest free ad.

     What is lacking is managerial willingness to spend the modest amount of money it would take to incorporate a current price feed into the site, something that is not beyond the ability of technical experts, on condition that they are told to do this.

     Of course, my relations with Rightside Advisors have been fraught since it was taken over formally by Ad Authority when I was put on a black list by the new owners, led by Jason Kulpa, for nearly two weeks, and denied access to the blog-filing system. Moreover, Mr. Kulpa put out false and slanderous articles supposedly by me which accused me of having a nervous breakdown, a total invention by him. Naturally this led to cancelled subscriptions.

     My attempts to gain compensation from my contracting partners at Rightside Advisors for these abuses have not borne fruit. Meanwhile, my company's revenues have been halved by the uncertainty among existing and tuture subscribers about my ability to continue. Of course, the collapsing stock markets added a further element of uncertainty.

     Throughout the disputes, I have scrupulously kept my side of our contractual arrangements. This care has not been recognized. My lawyers '0calls and letters to the legal representatives of Rightside Advisors have not even been given the professional courtesy of a reply, which added to my company's financial costs for his services. Of course I would prefer not to sue, because this would be really expensive.

     However, nothing in my contract requires that I blog at any pace other than one set by my own convenience. So I am free to cut back if it suits me, and it does.

      Blogging less frequently will give me a chance to research stocks more closely, as I must do in the current financial environment. Daily blogging without getting paid for it is no longer an option for me because my own portfolio is suffering along with yours.

      This will also give me more time for other free-lance work which has the advantage of being remunerated. Until I started Global Investing 20 years ago, I earned my living as free-lance journalist so this is in character for me..



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