Dear rss free blog,
Smith & Wollensky, the NYC restauranteur, advertises
that it offers “steak for stock” to potential customers facing liquidity
problems because they did not got cash bonuses. The steakhouse will buy NYSE
shares at the closing price for desperate diners using stock to pay for a meal.
It is probably illegal if you got shares hanging in a
deep freeze in lieu of a bonus. And if you didn’t.
Portugal is run by a Premier called
Socrates, being tainted with the hemlock of budget troubles in Greece.
Europe’s southern tier and Ireland all hurt the Euro exchange rate (and “help” the dollar, in fact delaying a US
recovery because exporting will be tougher.) Greece
and Portugal are not as
badly off as Iceland,
because they have fixed currency exchange rates with the other Euro-bloc
countries.
PIIGS
cannot devalue as Iceland
did, but that means their troubles afflict the whole currency union. The only
southern country in good order is France. It can now sell us
cheaper wine and cheese and Airbuses and nuclear power stations and tourism. This means
trouble for Boeing, Napa Valley, and Wisconsin.
The mispricing of Exchange Traded Funds is becoming
more widespread as a two-tier market develops, between the one or two dozen top
highly liquid ETFs and the rest. You can see gaps of one or two percent between
the price and the net asset value of even the most popular ETFs, as I have
learned doing my weekly tables. (Our tables for paid subscribers show the
performance of recommended stocks and funds. Paid subscribers also get daily
information on portfolio developments. Pre-subscribers only get the
macro-economic material, not stock advice which we charge for.)
Moreover you cannot even get net asset
value data for the smaller ETFs including the gold vaulted in Switzerland
should you be tempted. The incomplete close-of-day data are published on yahoo finance. If an ETF is not even matching its price to
net asset value, it is even less likely to be tracking whatever index is
claiming to copy.
Since I published my report on Exchange
Traded Portfolios (for sale on the website, www.global-investing.com) there has been big news. Fidelity
Brokerage will allow free US trading in the 25 largest iShares ETFs, This no-brokerage-fees
policy takes a leaf from an earlier free-trading program by Schwab with BlackRock. This move is part
of an increase in competition over low-cost brokerage services.
But there is a dark side. The ads say that
“Fidelity receives compensation from the ETF sponsor and/or its affiliates in
connection with a marketing program that includes promotion of iShares ETFs and
certain commission waivers.” That means the ETFs themselves will be paying a
fee to Fido for trading them. No free lunch.
A limit: you will not be
allowed to do more than 6000 free ETF trades per year if you have less than
$50,000 in assets with Fidelity; more assets mean more trades. Even the small
account can do about 20 ETF trades/day.
Cui bono? Not actually the shareholders of
the 25 biggest ETFs using an on-line broker. It doesn’t
have to be Fido: the largest will be determined based on positions at E*Trade, Schwab, and TD Ameritrade. All shareholders will bear 12(b)1 (SEC allowed marketing) fees to encourage the hot-hand day-traders to
use Fidelity. Buy and hold investors in the biggest exchange-traded funds will
pay Fidelity for letting the funds be traded more actively. Smaller ETFs will
become even less visible.
In fact the problems of less liquid less
active ETFs will become greater. Tracking error will increase. Here’s what
reader RW writes (a certified libertarian who puts up with my liberalism
because he likes good stock ideas): “they’re enticing Joe Sixpack to put his
401k in ETFs, with NO Commission! We’re just doing this because we love
you.”
We already reported that Wisdom Tree
next month will shutter ten ETFs it created, mostly for trading outside the USA. They are
being closed down because Wisdom Tree cannot make enough money to run them from
the small number of investors who have bought.
From Dow Jones, my
reason for not selling one beaten down share:
“Mexico’s bank
loans rose 5.2% to 1.969 trillion pesos ($152 bn) in 2009 from 2008 … according
to preliminary data published Wednesday by banking and securities regulator
CNBV.
“Last year Mexico experienced its worst
recession since the 1995 peso crisis, with gross domestic product expected to
have contracted nearly 7%. Banks responded to a surge in bad credit card loans
by restricting consumer credit, while high unemployment also made consumers
more reluctant to take on debt.
“Lenders, however, saw strong demand
for commercial loans as volatility in the financial markets early in 2009 made
it difficult for many corporations to sell debt. Mortgage lending also held up
during the recession thanks to a chronic housing shortage and to government
home loan programs. [Year over year]
mortgage loans increased 15.6% to MXN330.13 bn.
“Bank lending is expected to recover
with the economy in 2010. The Bank of Mexico expects GDP to grow between 3.2%
and 4.2% this year as Mexico
benefits from an economic recovery in the U.S., its largest trading partner.”
The
Mexican credit increase was blamed for the latest wave of selling of Spanish
bank shares, including Banco Santander
which we sold last year over protests from half our Spain-based readers (the
other half applauded). It may be just concern over contagion from Greece to Spain. More below for paid
subscribers.
*From Jonathan Anderson of UBS in Hong Kong, why not to sell another beaten-down share. Note that the last Chinese housing bubble burst only in
2003-4 and real estate fell again in 2007-8 when the Shanghai stock market crashed. This makes the
statistical exercise even harder for China than other developing
countries:
“As UBS China economics head Tao Wang has continually
emphasized, there is no real evidence of a structural bubble in Chinese
housing. Prices have been relatively well-behaved. There has certainly been an
upward trend in the physical volume of housing construction as a share of the
economy over most the past decade, but not an unreasonable one given the
magnitude of reforms that opened up private housing market in the late 1990s.
And crucially, overall mainland leverage ratios barely rose between 2000-08,
and actually fell from 2004 onwards. [Leverage ratio is the level of private
sector credit to GNP, a crude measure of housing prices as a share of wages.
VL]
“The
problem comes when we look at the last 12 months. Housing prices have started
to rise at a pace faster than incomes. Physical construction and sales volumes
skyrocketed over 2009, by much more than could be explained from a post-2008
“rebound” alone. And for the first time in many years the credit/GDP
ratio jumped to record heights.
“In short, all the warning flags that normally point to
trouble ahead – especially volumes and
leverage – have suddenly appeared. Does this mean that China is now
threatened with a pending structural collapse? Well, no; once again, using the
historical experience from the Asian crisis countries or the more recent
stories in the US, UK and Eastern Europe, the “normal” length of a
bubble cycle with excessive leverage and overblown construction and real estate
activity would be at least 4 to 5 years before things fell apart – by this metric
it’s still early days in China, plenty of time for the authorities to step in
and cool things down.
“The bad news, though, is that the process of tightening
monetary policy almost inevitably means a sharp y/y slowdown in property and construction,
given how inordinately fast the numbers have run in the second half of last
year. And this means that a lot of “big China bears” – although very
wrong on the structural call in our view – could appear very right for a few
quarters as momentum drops off.”
To find
out which are the beaten-down stocks still in the portfolio, you have to be a
paid subscriber to read on. You also have to pay to get current views on the 5 recommended stocks which reported today, why this blog is so long and late appearing. And our take on Toyota.
*Bonus stock Ormat Technologies (ORA) announced that its sub, Ormat
Andina SA., won a geothermal exploration concession in northern Chile.
The concession is 26,000 acres north of the San Pablo/San Pedro twin volcanic complex and
close to access roads and to copper mines that could be a potential user of the
electricity. ORA will do preliminary tests and studies on the feasibility of
the site for commercial development. ORA is a USA company with Israeli ownership,
why it is a bonus stock. We do not cover USA shares.
I did not get my copy of this blog so I am resending it. If you got yours, forgive me. There were too many chocolate ads in the version sent earlier. You can get fat without even eating any of them.
