The USA is turning into the Weimar Republic. On the one hand we have a fervent nationalist and on the other a righteous socialist. Both of them have weird hair and, unlike their German predecessors, are not magnetic orators.
But it is still scary to someone bi-cultural. I was raised by parents who had lived through Weimar and the rise of Hitler and always voted for mainstream candidates, even when a neighbor of ours was head of the US Communist Party, and even when changing demographics brought Latinos to what had been a German-Jewish enclave in northern Manhattan. They avoided leftism and jingoism from experience.
Viscerally, I am frightened by what is happening in the primaries. Hitler came to power via an election, not a coup d'état, after a period of economic upheaval.
For good news, the price of oil is inching up again. And the market has decided that Deutsche Bank is not likely to default on its coco contingent convertible bonds.
So we do not have to try to find the equivalent to Hjalmar Horace Greeley Schacht, the head of the Weimar CB who supported Hitler in opposing reparations payment (and even campaigned on this during a visit to the USA.) But
he quit the Nazi government over German rearmament after the invasion of Czechoslovakia. He also argued against “unlawful activities” after the Kristallnacht attacks against Germany's Jews, and tried to work out a way to allow Jews to leave Germany with assets the Nazis wanted to seize.
This might have
been expected from someone bilingual in English and named after an American newspaperman by a father who had lived for decades in the USA. He was, moreover, born in Schleswig-Holstein, then German, but now Danish, and was Catholic in a land of Lutheranism.
Schacht linked up to the anti-Nazi resistance as early as 1941 although he was kept on at the Reichbank after the US entered World War II, mainly because Hitler feared the impact of his leaving. He was only ousted early in 1943.
Schacht was arrested and put into a series of concentration camps after von Stauffenberg in July 1944 failed in his attempt to assassinate Hitler. Liberated by the US 5th Army he was tried at Nuremberg for “crimes against peace”, but not for “crimes against humanity”. But he was acquitted from charges that he had planned or waged wars of aggression. He later founded a private bank specializing in loans to developing countries as he had worked with many of their banks during the Weimar years to try to keep the Reichbank afloat by accepting payment in Reichmarks rather than dollars.
Mr Schacht worked for Dresdner Bank rather than Deutsche Bank as a young man. DB stock rose 14% this morning on news it is buying back some coco debt.
*CAE reports oddly, in C$s and for a fiscal year running to March 31. It reported today that revenues rose 10% to C$616.3 mn in Q3. This was below the Capital IQ consensus of C$626.5 mn. However profits, or what the company called net income before items, came in at C$59.4 mn or 22 loony cents/sh vs consensus of C$52.1 mn and 20 loony cents, a nice surprise. Items mostly were over restructuring. Profits also were up 14% year/year.
CEO Marc Parent at the maker of aviation and medical simulators forecast that CAE is “well on track to meet our positive outlook for the fiscal year [2015-6]. In civil, we expect to surpass our previous full-year outlook for sales and look forward to solid growth and a higher margin. In defen
se, our YTD performance, robust pipeline, and order backlog support our outlook for growth.”
He also noted that free cash flow was C$200 mn up on 2014-5. Return on capital employed in Q3 hit 11% vs 10.5% a year earlier, and debt fell dramatically to C$794.9 mn from 971.7 mn in the prior Q3 or 29% of capitalization from 38%.
So naturally CAE is thinking about a buy-back, in Canada called a normal course issuer bid, which will aim to repurchase 2% of the shares out once the Ottawa regulators give it a green light. It is intended to offset the dilution from the Montreal firm's stock option issues and DRIP programs. These are mostly in Toronto, but the US shares will indirectly gain if the buyback is approved.
News from the New
*Greencore Group plc finally got a major analyst to cover it, Société générale which rates GNC hold with a GBX 386 target price. That is nicely over it current level of 360.5 pence and the 358.6 pence I paid.
*Reply to reader: I sold my Fanuc last year at a nice profit, having found the share in Paris, scared that Chris Loew didn't cover it. It gained in yen but I haven't worked out the gain in US$ yet. Their robots as you guessed are used to make and paint cars, but the management is not very open or shareholder-friendly. While they upped their divvie last year it took a shareholder revolt to get FANUY to extract money from its treasury. Now that the BoJ has imposed negative interest rates it may never pay out again.
*Airbags are more in focus than when we bought into Autoliv on Feb.4. Today Volkwagen announced a recall of 680,000 US cars made between 2006 and 2014 equipped with murderous Takata airbags which hit passengers with bits of metal. Daimler yesterday announced a charge of $382 mn for a recall of 840,000 vehicles with Takata airbags. ALV announced its dividend today and we will get it, 56¢/sh if I worked it out right. The share was upgraded to outperform with a $130 target price by Robert W. Baird, up nearly a third from where we went in at $96 and change.
Banco Polonio
*With the pressure off Deutsche Bank, Santander is up today. SAN is actually a competitor of DB. It is a big player in Poland where it is facing new taxes which hit foreign-controlled banks from the nationalist government and a new initiative to investigate fees foreign banks charge their Polish customers, the latter reported today by the Financial Times. SAN bought Bank Zachodni, WBK, and Kredyt Bank under the prior Chairman, father of the present one. I don't think Ana Patricia Botin is as keen on Poland as Emilio was because of the high cost of core capital for this venture and as she is known to read the FT, unlike her father who could not manage English. She graduated from Bryn Mawr.
The FT writes that yesterday local bank execs were summoned to explain their fees, after new taxes were imposed. These taxes take 0.44% of foreign bank Polish assets from non-native bankers. Another initiative against banks still to come may convert Polish mortgages denominated in euros into zlotys.
If they bug SAN enough, SAN can walk out. Emilio bought from troubled Allied Irish Bank and Kredietbank Luxembourg, during a period of strong Polish growth and optimistic projections of catch-up with the European Union, like Spain's. SAN financed higher education, business, and consumption, and offered asset management. Two smaller foreign banks in Poland, owned by Raffeisen (Austria) and PBH (GE of the USA) are already for sale. Emilio would have bought them by now.
I expect another round of distributed denial of service attacks when this note is published. We used to use a Krakov firm to help our internet istribution, introduced by a Pole who worked in this building. Ahead of SAN, I have become disillusioned with Poland.
Nattering Nabobs of Negativism
*Cemex was downrated to hold by Zacks, a Chicago analysis shop looking for earnings surprises and momentum. Its reports are increasingly being written by third-world folks with poor English and not much stock savvy, almost certainly not in Mexico.
*Nokia is up today despite a scare story about how it hasn't collected enough Paris-listed shares of Alcatel-Lucent to get ALU delisted. The Finnish telephone exchange firm got only 91.25% of ALU stock, below the 95% required to de-list. The theory is that NOK will overpay to get rid of the annoyance, but being Finnish it is stubborn enough not to. NOK is up 2.8% today.
Druggies
*GlaxoSmithKline not only raised its forecasts for 2016 earnings by double digits in its most recent report. It also now has brought forward its £6 bn revenue target from 2020 to sooner, 2018, reported by Moody's. The rating agency is agnostic about whether CEO Sir Andrew Witty can pull it off.
Separately, AbbVie, a GSK sub, has signed a partnership with startup Synlogic of Cambridge (MA) to develop synthetic molecules for treating for inflammatory bowel disease by activating part of the patients' microbiome to halt the inflammation. Moody's doesn't look at these deals but only complains that GSK sales barely rose in 2015. GSK is already in the bowel disease line with ABBV's Humira which also treats Crohn's disease and ulcerative colitis.
*However, Moody's is very negative about Novartis expecting flat sales and operating income this year because of pending loss of its US Gleevac/Glivac patent and troubles at Alcon, formerly ACL, which we owed.
But the rater says NVS better met its 2015 targets than GSK. Novartis today signed up two insurers for its pay-for-performance program for heat failure drug Entresto, Cigna and Aetna. They will pay “value-based” prices for Entresto based on how many treated patients have to be hospitalized afterwards. This from Reuters. I like the concept a lot more than I like a US National Health Service or even a VA from Bernie Saunders and expect it will spread to other drug-makers.
NVS is working with Microsoft to create a digital camera app so doctors can track movements to see if multiple sclerosis patients are doing worse. Called AssessMS, it will not to replace but to bolster the expert, said Abigail Sellen of the MSFT Human Design arm. (Source: FierceMedicalDevices.) The UK NHS is investing £4 bn for digitizing records, appointments, prescriptions, and tests. Don't imagine government is going continue using human beings when machines can serve instead.
*After its good quarter and annual report, Compugen is buoyant, up 2.44% in US trading today.
*Galapagos allegedly fell because of US short-selling according FDANewsAlerts which writes that shorting levels have fallen nearly 7%. GLPG via its market-savvy CEO Onno van der Stolpe is a serial planter of upbeat news in obscure publications, aimed at the Belgian bourse-beurs, perhaps all that this is about. The volume of shorts in its native Belgium or in Amsterdam where it also trades is not reported.
*A new phase III clinical trial of ALKS 3831 (samidorphan) against the Eli Lilly drug olanzapine for treating schizophrenia will enroll 540 patients for 6 months. The trial, called Enlighten, will test the Alkermes drug for metabolic improvement against the LLY one, which causes weight gain. It did well in phase II for the Irish firm which was sold off brutally after an earlier trial went wrong. Now the stock is up at last and moreover, fund manager Blackrock has boosted its holdings to 6.7%, back over the 5% threshold where it has to report to the US SEC. It now owns 1.7 mn shares. Your editor averaged down too soon. The share is up 8-10% today.
*Indivior, after sinking over the congressional clamor that something be done about heroin addiction, is now recovering. INVVY is up 8%. It does something about heroin addiction, offering sub-lingual substitutes which cannot be peddled on the street.
*Teva reports before the opening tomorrow. Consensus Q4 earnings $1.28/s and sales $4.8 bn. The chances of its EpiPen generic getting US FDA approvals about which a seekingalpha writer worries. TEVA can survive a delay although I am not sure the patent holder, Mylan, can survive a speedup. TEVA is up today, a sign that those in the know expect a good report.
*Hikma Pharma, the Jordanian-incorporated UK- and Dubai-listed drug firm with ADRs, is being sold off and shorted because of its reduced offer for German generic drug-maker Roxane from private firm Boeringer Ingolheim, according to the NY Times today. The offer price terms were cut after Roxane failed to meet 2015 profit targets, is actually good news for the Arab firm. Jefferies today raised HIK-London to buy with a target price of GBX 2555, 33% up from its price of 1945 today in London. HKMPY is almost certainly being hit by Germans upset at the carpet-merchant price change. I felt bad when I bought it and bad when I sold, so I am not getting back in especially since after a conference call explaining the price cut, the share rose 4%.
Raw Materials
*Two Delek subs have suffered the cancellation of talks with Cyprus over delivery of natural gas from the huge Leviathan offshore field today, for generating electricity on the island. The Cypriot DEFA gas firm cancelled its tender. DLKGY remains a partner in the offshore Cyprus Aphrodite gas-field which is still in talks with DEFA, a state-owned outfit in the Greek part of the divided island. The stock which is constantly being roiled by politics, not just in Israel, is off about 1%.
*Colombia is filing a lawsuit over refinery construction cost overruns against CBI, Chicago Bridge & Iron. Given the sinking peso, the odds are that it has grounds. The refineries were commissioned and operated by Ecopetrol. EC is up on the news.
We exited CBI 15 months ago.
*The wobbly and erratic rise in oil prices today helped BP plc but not yet spilled over to alternative fuel stocks, ranging from natural gas to nuclear.
*However non-oil raw materials exporter Vale of Brazil is up 3.25% today.
Funds
*I like to diversify among yield funds invested in emerging markets, mainly to avoid management blind spots. But the latest from
Western Asset Emerging Markets Income Fund (EMD, a CEF from Legg Mason) is worrying, despite their now having a woman as Chairman, President, and CEO, Jane Trust, who doesn't live up to her name. The fund has grossly underperformed its index in NAV, down 4.29 in H2 to Nov. vs a drop of 0.71% in its benchmark. The main reason is Venezuela. The fund had 2.1% of its assets in Caracas govt paper plus a similar amount in Petroleos de Venezuela and other Venezuelan non-government notes. Venezuela was its 8th largest investment destination and it actually added to energy investments during the year. It also owned bonds from Odebrecht, the defunct drilling outfit's and Oi from Brazil. Does Legg Mason require that its bond managers read the news? It distributed 42 ¢/sh to holders in the FY, but 27% of that was not earned from interest or capital gains, but counted as tax free return of capital although the numbers have yet to be confirmed with a 1099.
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