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.
