To be frank, despite having been a Brussels-based Common Market reporter for 3 years in my youth, I cannot predict what will happen when (and if) Greece defaults on its debts and exits the European Union. So here, with caution, is what you should be doing about Grexit by Adrian Ash, head of research at www.bullionvault.com, our advertiser, who has a mission to get investors to add gold to the mix in their portfolios. Bullionvault.com which is a way to legally and cheaply own physical gold, is sponsored by the World Gold Council, the miners' grouping, like SPDR Gold, GLD. Adrian writes:

The consensus has seen the looming risk of a Greek default as supporting gold prices.

Our own take is that complacency has fact taken charge. Because fund managers have been cutting their exposure to gold prices, despite the imminent chaos in the world's single-largest economy.

So another view, shared with us by one bullion bank's trading desk on Tuesday, says the Greek tragedy is, in fact, scaring investors away. At least amongst big-money managers. Because they see gold as a 'risk on' asset...buoyed by credit growth and inflationary pressures whereas a Greek default or Grexit would prove a very 'risk-off' event, destroying credit and new lending worldwide and putting huge deflationary pressures on markets everywhere.

Maybe. The Lehman Brothers' failure of late 2008 was certainly a risk-off, deflationary event. And it whipped gold prices short-term...at least in Dollar terms.

But for the rest of the world, even if masked at first by huge day-to-day swings as the Lehman's meltdown spread, gold prices soared. Dollar prices soon followed, as physical demand for gold surged while speculative betting collapsed.

Hot air escaped from the gold price just as it gushed out of all financial markets. But unlike equities, corporate bonds, weak government debt, and even real estate, physical gold quickly found its floor and shot higher.

[There is] no guarantee history will repeat or rhyme. But in a crisis, lots of people who hadn't previously thought about it find they suddenly want to own bullion. Savers already invested in gold were grateful when Lehman's struck that they'd bought in advance.

For the record, the likelihood of Fed tightening in the 2^nd half of this year may also boost gold prices, or not.

* My newest stock pick has had me on tenterhooks for a week and inevitably the price rose while I waited to be able to trade, luckily not too much. The share was beaten down because its industry was hit with fines in Canada, although not itself fined. It was hurt because what sounded like its Canadian sub turns out to be owned by a competitor. The company is a likely beneficiary from the return of Cuban products to US markets, a theme I have focused on for months. It is taking the lead in creating a less harmful version of its principal product. It has pulled off a major coup in the US after two competitors had to divest assets, which it bought cheaply. Being British, it avoids the likely pending sell-off in Euro-land shares, and is a local blue chip, on the FTSE 100. It's a conviction by recommendation at Goldman Sachs and also recommended by Credit Suisse. It pays a steady-Eddie dividend. And it takes our portfolio into a sector I have hitherto avoided.

By now some of you may have guessed the name of the stock. It is Imperial Tobacco, traded in the US as ITYBY which trades around $105. Imperial Tobacco Canada is a sub of British American Tobacco, and it incurred the largest fines up north. There is no link with BATS which will have to pay its share of the £8.1 bn in fines owed to Canada.

While we once owned a “green” maker of cigarette paper recommended by Max Deml in Austria, I have never owned a tobacco company's shares in many decades of investing, for the simple reason that smoking kills. However, unlike people my age who might not have realized what they were getting into when they lit up a Gitane (an Imperial Tobacco brand) in 1960, today's starter smokers know the risks.

ITYBY, HQ'd in Bristol, England, has just acquired for $7.1 bn US cigarette and e-cigarette brands from Reynolds which is being acquired by Lorillard, for $27.5 bn.

E-cigarettes are currently an unregulated mess, with many brands coming from China with mysterious and often sweet additives. Many people fill up vapor devices with unknown mixtures from open tanks in “Vape shops”. Reynolds, on whose e-cig brandsVuse and blu eCigs Imperial has just closed, took the lead in fighting sweet and easily adulterated vapor devices sold in the US and aimed at children. The US FDA says it has no authority to control the  nicotine market. Of course one reason Reynolds worked on it was to boost market share of its branded eCigs against fill-'er-up vape tanks.

Now new owner Imperial already offers “flavoured” and menthol e-liquids for vaping, both in Britain and the USA. All use American tobacco and cost $8 and are compatible with any vaping device. ITYBY also offers Passion Puff, which you inhale from a hookah or an e-hookah pen.

It makes normal and disposable liquid tobacco devices. The disposables may be flavored or not, and cost £3 ($5) for 600 puffs, about the equivalent of 2 packs, if you get desperate. They are cheap enough to lure youngsters into tobacco addiction.

Thanks to being British and not having the FDA at its back, ITYBY is marketing a full range of branded e-cigarettes, to which the Reynolds ones will be added. ITYBY is a global company, 4^th largest maker of tobacco products worldwide, with sales of about $10 bn (£6.6 bn) last year when it raised its dividend 10% while cutting its debt by 11%. That is my main reason for liking the stock. But there is more.

Thanks to its Spanish sub Tabacalera, the government monopoly which was privatized, via a complicated organigram also involving SEITA, the privatized French tobacco monopoly, Imperial since 2008 has owned half the Habanos Cuban state monopoly in... cigars. Cuban cigars have been banned from sale in the US since 1962 when Pres. Kennedy signed a law after stocking up on enough Cuban cigars for the rest of his smoking lifetime. He was assassinated before he had smoked them all. (Smoking was part of cool in the Camelot days. Jacqueline Kennedy also puffed away, on cigarettes, but never in public.) It also controls the largest Dominican Republican cigar-making company. Again not being subject to agita from Uncle Sam, Imperial sells Cuban brand in Britain: Cohiba, and its cheaper version, Cuaba, Partagas, Romeo y Julieta, and Winston Churchill's favorite, Montecristo, and its lower-priced clone for the proletariat, Diplomaticos. ITYBY has managed to launch several new strong brands at different price points in the European market since it got its 50% stake in Habanos in 2008 and there will be more to come.

Cigars may not kill people but snuff, another way to take tobacco, is associated with head-and-mouth cancers. ITYBY makes Skruf brand. So are roll-your-own supplies like stringy tobacco and Rizla-brand cigarette papers, usually used unfiltered. While ITYBY is taking the lead in some safer alternatives, it is not abandoning these business lines. But maybe if enough of us come on board we can change that.

Because of the confusion over the Canada fines, ITYBY fell despite The Financial Times describing its Cuban cigar potential once the embargo goes.

Buy at $102 or lower. The trailing p/e ratio is 16. The yield is 3.35% paid semiannually. The July payment is ex-dividend already.

The metrics on tobacco are very appealing. Return on assets is over 7%; return on invested capital is 11.5%; return on equity over 39.5%. These numbers show that ITYBY is beating its competition in how it invests its earnings. Gross margins at 19.8% and EBITDA margin at 12.5% however are merely level with its competitors.

* Speculation that the new Israeli government will make a deal with Delek over its offshore gasfields boosted DGRLY to a new YTD high, essentially reversing the David Gilo drop Dec. 26. Gilo, the now departing Israeli antitrust chief, called for Delek and its operating partner Noble Energy (NBL) to be forced to divest the functioning Tamar field in order to develop the aptly-named Leviathan field.

Drugs Are Different

* I am unfazed by news the Nestle (NSRGY) is having to pull back its sales target because the African bourgeoisie turns out to be smaller than expected and is cutting its workforce in 21 African countries by 15%. “The middle class in the region is extremely small and not really growing,” said Cornel Krummenacher to the Financial Times, while repeating a 10% annual growth target “in future years” if not now.

Instant noodles and coffee are one thing. Lifesaving drugs are in a different category.

A report by McKinsey on Wednesday says that African patented drug sales which were under $5 bn in 2003 are now $20.8 bn and growing fast. By 2020 the consultant expects the African drug market will more than double again. It predicts a range of $40 bn to $65 bn. Urbanization, better infrastructure, and higher purchasing power will all boost drug demand in Africa. This will also help selling insurance (Old Mutual ODMTY) and cellphone commerce (M-pesa at Vodafone, VOD) as well as TV and media (Naspers, NAPRF)

*Galapagos's quiet period after its US secondary issue ends next Tues. Zacks did a ridiculous report on the brokerage reaction to the US listing saying there was only one “buy”, because the writer appears to have been a non-English speaker. I counted 5 buys if you include “overweight” or “outperform” as indicating broker enthusiasm for GLPG.

* An anonymous contributor (insider monkey) at seekingalpha has worked out that several hedge funds have built up big positions in Teva in the runup to the formal bid for Mylan (MYL). There is no way to set a total on these moves by the hedgies, but they do copy each other. The result is a boost for the TEVA stock price. Since I have owned Teva forever, its results are more important to my view of the share than its bid for the Dutch firm.

* In another attempt to overcome the onus of having sold its cancer meds to Novartis (NVS) and other drugs to others too cheaply, GlaxoSmithKline is funding $95 mn in research into the “living genome” by a non-profit in Seattle not far from the Fred Hutchison Cancer Research Center. GSK thinks this is a practical way to get therapies from genome research into its pipeline and boost its image at the same time. GSK is now considered to be in play as a takeover candidate for Roche or J&J (JNJ).

Round Up The Usual Suspects

* Nokia's acquisition of Alcatel Lucent was given a green light by the US Justice Dept and will not have to incur a waiting period, although the European Union has yet to sign off. NOK is Finnish. ALU or France is the heir to Bell Labs which failed to nab the Internet. NOK is up 2.9% on the news.

* Our favorite Canadian plant food maker, Agrium (AGU) was downrated from outperform to underperform by Crédit Agricole and CLSA on valuation grounds. But they did not cut the target price from US$110, still a 5% rise from the current level.

* Banco Santander is still not allowed to do new mortgage servicing for other lenders because the US Office of the Controller of the Currency left SAN US branches (formerly Sovereign Bank) on the ban list. SAN appears to have opted not to pursue this shabby business by upping its capital in the US.

* The parent of our Vedanta Ltd., Vedanta Resources plc, was recommended by a different anonymous writer on seekingalpha who predicted that VDNRF's free cashflow would “fourfold in 2016” and be used to cut its $8.5 bn net debt. Since this is not standard English I suspect the writer is Indian, like Abhimanyu Sisodia who tipped VEDL, on the NYSE, for us. Abhimanyu writes beautiful English untainted by sub-Continentisms. Moreover, VEDL doesn't hold anywhere as scary a left of debt and is set to reduce that level under the terms of its takeover of Cairn Energy, the VDNRF oil and gas firm. Trade alert.

* Trade alert: to buy ITYBY I sold down part of my holding in CCJ and EC, Cameco and Ecopetrol.

Fund Notes

* The mysterious departure of 2 members of the same family from the the board of Fibra Uno was solved by Eduardo Garcia in www.sentidocomun.co.mx with which we trade news. Elias Cababi Daniel and his brother stepped down because their own property firm, Giesa, has now been listed on the Mexican bolsa, and they were required by that firm to exit FBASF because our REIT buys into Mexican property. If an El-Mann exec figured there was some interesting holding in Giesa, the Cababi Daniels would have a conflict of interest.