S Stagflation?

Yesterday the market decided to get back into technology and telecoms, recycling, energy, drugs, Canada, China, and Mexico. None of this could have been foreseen last week because of the trigger for the revival of these sectors which had not been forecast. It was, alas, the crash of another Boeing Max 8 airplane during take-off which led to the rush to other stock sectors. Unlike the Indonesian Lion airline which crashed last October, Ethiopian Airlines is reputed to be well-run and safe. The hit spread to Boeing's suppliers worldwide.

Another new factor was the Feb. Chinese auto sales figure, down 14% year/year, the 8th month of decline. This naturally hit suppliers.

Today's blog is extremely focused on stocks I want to keep.

David Goldman (AKA Spengler) writing on AsiaTimes.com over the weekend warns that low employment growth and wage rises both reflect a low pool of labor and consumers refusing to pay higher costs for labor. I hope he will continue to feature in US media, but I hope no longer plug for my ex-neighbor, Lyndon LaRouche.

In case you thought inflation is dead, Liz Ann Sonders writing for Market Commentary at Charles Schwab raised the possibility that it merely in “a long slumber from which it's about to stir”. She doesn't think the government deficit will trigger price hikes but she does think that “secular forces” like protectionism, nationalism, and trade wars, plus “traditional triggers like a tight labor market” are evident.

She notes that most forecasts still expect inflation to be low, with the exception of the U of Michigan's. And she also says that the 10-year breakeven rate has hit 1.9% which means it retraced nearly half its decline from 2.17% last Oct. Apart from the low level of new hiring reported last Friday there also was an ominous exit from the labor force entirely, which means that companies may have to boost their wages to get workers.

Meanwhile, in the NY Times, David Leonhardt warns that US economic growth for 12 years has failed to reach the levels forecast by the Federal Reserve. Rather than the 26% cumulative GDP growth predicted from 2007 to now, it has only risen 20%, even if you remove the period of the global financial crisis. He quotes Larry Summers and ex-IMF economist Olivier Blanchard as warning about “secular stagnation. It could even become the worst of all worlds, stagflation. It's worth reading the end of the article to see what I am doing about this risk.

Brazil

*Cosan was upgraded to overweight from neutral yesterday by JP Morgan and CZZ stock gained 4.7%. It is buying back prefs of Comgas by a voluntary offer at Reais 82/sh for up to 14.77% of the share-out.

Britain etcetera

*BP plc will sell very low sulfur fuel oil (VLSFO) for marine shipping. It will also sell high sulfur fuel for vessels with sulfur scrubbers which can clean up the exhaust. BP is also partnering with dirty fuel champion Exxon-Mobil and the Alaska Gasline Development Corp which belongs to the Alaska State, to create an LNG export site for Asia markets.

*GlaxoSmithKline was rated neutral by UBS and Barclays today with the latter setting its target price at GBX1650.

*Irish Greencore, whose primary listing is in London, was upgraded to buy today by Shore Capital. GNCGF did a share buyback recently to cover the sale of its US sub, but US holders of GNCGY were not eligible. I own the F shares because they were available with Fidelity but not with other discount brokers and I converted a couple of hundred (expensively) to be able to give you the prevailing price. I refused to convert them back to get more cash because I thought that was too generous to the broker.

*Vodafone of Britain says that a ban on Huawei equipment will delay 5G installation. Germany is opposed to a ban on Huawei. VOD is under a cloud in European trading over its highly complex capital raising for taking over German and Eastern European telcos from John Malone's group. It will issue bonds which can only be sold to institutional investors because they are so complex to cover the conversion of compulsorily convertible preferred stock financing the purchase from Liberty Media, LBTYA, LBTYK, sold.

VOD Italia chopped 1300 jobs in Italy and 2000 in New Zealand. VOD 's target price was cut to GBX 227 from GBX230 by JP Morgan analysts but it was kept as an overweight. They are my new brokers but my stocks are still in limbo.

*Morningstar rates BAE System as protected by a narrow-moat because of the costs of switching defense suppliers. It says BAESY is 24% underpriced. British stocks are under pressure as the latest Brexit vote nears, but global players are an appealing alternative.

Chile

*Morningstar rates Sociedade Quimica y Minera de Chile as having a narrow moat because of its cost advantages versus other lithium miners. The stock of SQM is 39% below the fair value estimate, says the analyst. SQM CEO Ricardo Ramos said yesterday that its plan is to produce lithium based on demand, which he predicted will be higher than last year. He also said that SQM doesn't intend to hold back sales to “sustain prices. SQM reports on its Dec. quarter on Wednesday, the 13th. It fell to a new low last week.

China

*China Mobile was upgraded to buy from hold by Jefferies Financial analysts yesterday. CHL rose 2.7% but still yields 42% and has a p/e ration of just under 12x.

*The media revival boosted our Tencent (TCEHY) 3.3% in Hong Kong yesterday, the 2nd best tech performer after Sohu which rose 3.5%...

*I have long warned that the 30.6% yield shown for Hang Sen Bank of Hong Kong by e-trade has to be wrong. The correct yield is 3.81% which may be result from the chart showing the price in US$s and the dividend in HK$s.

Denmark

*Bavarian Nordic (sold) hit delay for its liquid live frozen smallpox biologics vaccine. The FDA now needs another 3 months to study Imvamune. BVNRY already manufactured 28 mn doses for people with weakened immune systems. This will not affect operations, it says.

Dutch Antilles

*Schlumberger Ltd is again beloved by Goldman Sachs which raised it to the buy list—but not the focus list—with a $55 target price. SLB fell over concerns that Norway would exit from its holdings over a desire to diversify its state pension plans away from oil and gas, which SLB helps companies find.

Japan etcetera

*Eisai Co (ESALY) with partner Imbrium Therapeutics, filed an ANDA FDA application for Orexant to treat insomnia. There will be a deadline of Dec. 27 for the FDA to approve or decline. Its head Scott Gottlieb has resigned over what appears to be a non-drug-industry pushback, over his attempt at stopping sales of vaping products to kids. He also presented a $643 mn FDA funding increase, to $6.1 bn, of which $100 mn will be for tobacco manufacturers and importers, to cut youth tobacco use.

*Novo Nordisk of Denmark is partnering with Taiwanese Health2Sync on a diabetes management app for Japan.

*Israeli Mellanox, sold too soon, is being acquired by Nvidia for $6.9 bn after a bidding war with Intel and Microsoft. Although they are in different areas of tech, the news has boosted another Israeli tech stock we exited, Tower Semiconductor.

South Africa etcetera

*Spun off Multichoice Group (MCHOY) is up another 7.5% yesterday. It sells internet TV and video entertainment in 50 countries, starting with Africa. It was listed by Naspers, NPSNY, which we keep telling you is more than merely the owner of 31% of Tencent, TCEHY, of China.

Switzerland etceters

*Roche and Celgene got FDA approval for immuno-oncology drug Tecentriq against triple-negative breast cancer, the first i-o drug approved for this disease. It cuts the risk of death and recurrence in patients whose tumors express PD-L, a protein, by an “unprecedented” amount, according to the regulator. As there was only one other drug for TNBC, Abraxane, now left behind, unlike the crowded field for other cancers of the ladder and lungs. Celgene is in the process of being taken over, controversially, by Bristol-Myers Squibb, which I own share of.

Canada etcetera

*Vermillion Energy was rated strong buy with a target price of C$35, up from 33, by Raymond James brokerage. VET fell fractionally because it earns C$s.

*Yesterday, US energy secretary Rick Perry claimed that Chinese need for LNG is helping in the still stalled trade talks. FERC is playing footsie with the Chinese by delaying the approvals for Jordan Cove (OR) plant which our Pembina Pipelines is still waiting for. China is being beastly to Canada as it doesn't dare try to put pressure on the USA. PBA is the victim.

*Barrick Gold, GOLD, has abandoned its $18 bn takeover bid for Newmont in favor of a jv covering their mines in Nevada. It will have 3 seats on the board to Newmont's 2. The payment of huge Newmont change of control bonuses to Goldcorp execs estimated at $33 mn has been attacked by Shareholders' Gold Council leaders. They are Adrian Day, a newsletter writer, and John Paulson, a fund manager, both savvy gold investors. GOLD is up on the news that the Goldcorp execs back the jv.

Funds

*SPDR Gold Trust, GLD, was the 11th most widely optioned ETF from the group in Feb.

*Mexican Fibra Uno shares dropped 2.6% yesterday in European trading on fear of AMLO. FUNO or FBASF.

*Taiwan Fund will use Allianz Global Investors' US arm to manage its fund subject to shareholder okay. It had $577 bn in assets under management at the end of the last year plus $5.516 bn of Taiwan mandates. TWN will also repurchase up to 10% of the shares out over the next year to chop the discount from NAV. It has also negotiated lower fees for service providers and these will be reduced by 20%. with a target of expenses at 1.5% of assets under management. AZSEY sub Pimco is its main US arm but it also uses other entities to handle stocks.

*Canadian General Investments, CGRIF, closed out last week with a share price of C$23.71, down 24 loony cents, and a net asset value per share of C$34.01, down 3 cents. It almost always trades at a huge discount from NAV , despite being a member of the US Closed-end Fund Association, CEFA. Maybe it would help if they figured out the discount in time for publication in Barron's or the WSJ.

*SPDR S Trust Citi Intl Govt Inflation ETF, WIP, is in our portfolio just in case inflation rises. It is up 0.75% because people worry about the latest Trump budget proposal and the risks Liz Ann Sanders wrote about.

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Comments

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Carol Klein 3 years ago Member's comment

Good article Vivian, but I think you made an error. I read the article by David Goldman you referenced. But on Seeking Alpha, not Asia Times.

Leslie Miriam 3 years ago Member's comment

Thanks, have the link?

Carol Klein 3 years ago Member's comment

I think it was deleted. Maybe something fishy is going on.