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..
