First Kill All The Lawyers

Because market forces have pushed up US dollar interest rates to around 3%, most other countries have seen the same increase in their official interbank rate, about 0.25% this spring. But there are a few outriders.

At the same time another high-interest country, Argentina, which under President Mauricio Macri attempted to reform way from the Peronist shambles left by his predecessor, who never behaved herself, asked the International Monetary Fund to give it help in cutting its rates from the current level of 27.25%.

Messy Ukraine, undermined by political attacks from Russia and home-grown corruption, has rates at 17%.

Yesterday, the central bank of the Sick Man of Europe capitulated to reason by raising its interest rates by 1.25% tp 17.75%, something of a record for yields. The country is Turkey and the move was strongly opposed by President Recep Tayyip Erdogan, partly on religious grounds, because high interest rates are un-Islamic, and partly because he shoots from the hip like another President we all know about.

Only other countries so far have had to hike their interest rates by that much and in each case politics bears part of the blame. Mexico's rates were raised 1.75% so far to 7.5% because of the poll gains for its left-wing presidential candidate, Andres Mauel Lopez Obrador, now the front-runner. He will probably turn out to be less of a Robespierre than the markets expect, but of course this is uncertain.

Other countries which have had to raise interest rates are Romania, where yields are 7.5%, and Pakistan, where they are 6.5%.

Since we invest in stocks from Mexico and Argentina, we have to watch these moves in interest rates closely. And there is always a risk of markets misjudging the risks, and confusing one country for another.

More today in the usual Friday pileup, not of reporting companies but of other moves in the markets. We have news from Assam and Bangalore in India, Germany, Finland, Russia, Canada, Hong Kong, Guangzhou, Shenzhen, and lots of other cities in China, South Africa, Britain, Nevada, Lxembourg, Japan, Thailand, Spain, and Sweden. We start with some stories about legal issues, which justify my quote from William Shakespeare heading this blog.

Legal Issues

*EON SE of Germany opted to delay the closure of its sale of 46.65% of Uniper to Finnish Fortum for euros 3.8 bn, about $4.5 bn because of obstructions by the management of Uniper which is illegal under German corproate law. Backed by Elliott Management, EONGY has delayed the takeover which could monetize its UNO1 holdings until the next general meeting of shareholders, which gives it time to file a complaint with German authorities against the board of the latter firm and name a special auditor to examine Fortum's actions. Elliott via a Luxembourg company called Cornwall owns about 8% of Uniper.

The merger has cleared all the other necessary approvals, including one from Russia, but is being held back inside Germany.

This delay will affect other moves by EONGY to transfer subs to fellow-German ute RWE in pursuit of simplicity and synergy which are lacking in its complex organigram, to say nothing of cash. Uniper appears to have placed negative ads in Finnish newspapers, which is a no-no under German rules on takeovers.

*Citigroup yesterday downrated our Zymeworks, possibly based on non-public information. After the close ZYME announced that it would raise $85 mn (US) to complete development of its ZW25 drug against Her2 and other cancers, and to initiate its next drug, ZW49. This came via a notice to Canadian regional regulators and the SEC. The joint book-runners for the issue are Citigroup Global Markets Canada and Wells Fargo Securities.

Where is the Chinese Wall in Canada?I asked Martin Ferera who covers this share to find out. In the US it would be illegal to cut stock's rating if your bank will raise money which will dilute existing shares. Martin replied that ZYME never said they would not raise more capital but he wishes they would have waited until later this year when one or two of their partnerships would move into clinical trials, triggering “decent milestone payments.” He adds”I can only assume they decided to get the money while they could in case something nasty happens later this year.” ZYME is run from Vancouver where Martin lives.

Zymeworks stock fell by $6 to $16 this week on the NYSE, a dramatic drop and fell below $19 yesterday on no news I could find as a non-Citi investor.

​​​For more information of how markets are illegally distorted by brokers all the zyme (pun intended), subscribe to Global-Investing

*Sociedade Quimica y Minera de Chile yesterday sent a notifiation to the SEC claiming that the agreement imposed on it by the Chilean regulator Corfo is “signficiantly more demanding than the agreements that Corfo previously reached with the other lithium producer in Chile, Albemarle. SQM did not have a​n​d has not had privileges of any kind.' “The payments that SQM makes to cor​f​o are based on the prices and volumes of the different products. Costs and expenses of SQM do not affect payments to Corfo.”

SQM then went on to complain that “as a consequence of the agreement with Corfo for lithium products in the second quarter” the bill quadrupled and will represent more than 50% of the gross profit that SQM expects to obtain.” It also claims that lithium produced in Chile has to pay “one of the highest taxes and royalties “ I assume the controlling shareholders from Chile are warning off US investors in SQM (like us) and helping explain why our Canadian Nutrien sold off its SQM stake.

Read more about the fiddles in Chile by their former first son-in-law.

*Our Thai group Minor International is bidding for the NH (Hotel) Group of Spain, NHHEF which we owned shares of ages ago before we had to sell because they were running a hotel in Cuba during the embargo. MNILY is run by an expat American out of Thailand, who is offering euros 1.64 bn for the rest of NH, about $1.9 bn. It already ownes 25.2% bought for euros 622 mn from troubled HNA of China which is bankrupt. It also converted some bonds to shares so it owns more like 38% in total, which under Spanish law means there has to be a full bid. Minor is offering eurs 6.4 per share, what it is paying HNA for the first tranch of its stake It plans to buy the rest of NH from HNA for 6.1 euros/sh in mid-Sept.

HNA had a rocky time with NH after it bought in and was banned from the board in 2016 after it did a deal with a rival Spanish hotel group, NH also turned down a bid from Barcelo, another Spanish hotel chain, opening the way to William Ellwood Heinecke and MNILY. As a shareholder I got a presentation from Minor which left out a key element of the offer—where MNILY will get the dough. But the son of the former US CIA station chief in Bangkok who began in business with ice cream stands after graduating from high school there always manages to land on his feet. His group now owns hotels in Europe, Africa, Australia, and the Far East, plus time shares, restaurants and eateries. He took Thai nationality in 1991 for tax reasons.

​One of my favorite players in the "make America less great contest" is the unlikely hero of this saga who started up his first business while still in high school (in Bangkok). Read more about this monkey business  with a cast of characters worthy of a novel!

*Anhaeuser-Busch-Ambev was tipped in seekingalpha.com by Harold Goldmeier who points out, rightly, that the beer season has been delayed here by cold weather, but that it will come. He thinks BUD shares, off about 21%, will bubble up again.

Technology

*To be spun off, Tencent Music Entertainment Group had to boost its 3-yr old “strategic partnership” with Zhejiang Radio & TV Group so they can originate content, creating their own music for movies and TV, to grow their music brands, and also jointly run advertising and marketing.

Parent TCEHY is being required by Chinese securities regulators to issue shares in China itself rather than only listing (as now) in Hong Kong. This will be in the form of CDRs, Chinese Depository Receipts. It will be one of the first to file because China wants to open up its capital market with solvent and attractive companies. As in Hong Kong also, the issue process will be strictly controlled. But it will make it easier for domestic Chinese investors to own TCEHY, which should boost its stock price. The purpose is political, to cut the independence of Hong Kong and the speculative frenzy in Shenzhen and Shanghai which lack good stocks.

TCEHY is going along with this move by creating a single identification system for the entire Pearl River Basin. Its We-chat E-card is an electronic pass which will gobble up inputs like passports, bank accounts, and purchases or hotel reservations on both sides of the Hong Kong border. Called PYMNTS.com it will operate in Gangzhou, Shenzhen, Zhuhai, Foshan, Zongshan, Dongguan, Hizhou, Jiangmen, and Zhaoqing and probably some other villages I can't find on the map.

*Naspers Ltd of South Africa rose over 18% yesterday to $53.26. It is the smart way to invest in TCEHY as NPSNY owns 31% and has other good tech investments in Africa and Indi​qa as well. Yesterday, it gave back only 1.8% of that rise.

​This pairing is a regular theme of mine. You buy ​​Naspers to own Tencent 50% off.​

*Nokia and T-Mobile (TMUS) have set up a true 5G two-way mobile commercial data exhange session in 3GPP using a 28 gigaiherz intervendor band. This took place in Bellevue, WA, and uses technology developed before NOK bought it from Bell Labs. Both companies are pushing hard for US business from their bases in Finland and Germany respectively, and mastering the tech is the way to go.

*Interviewed by The Money Show Digest, TalkMarkets contributor Steven Leeb argu​es that “despite a bit of bad luck, Ormat remains a strong long-term recommendation” as the leading integrated geothermal energy producer. He adds: “thanks to ORA, the US is the world leader in geothermal, the only renewable in which the US comes first.” The bad luck is the impact of the Hawaii volcanic eruption on its Puna Power plant which has taken the share down ~10%. The plant by Kilauea only accounts for 4.5% of ORA output and the company has $100 mn in insurance to cover it. He thinks it might fall to $45-50 but that it has much more long-term upside than downs. Like me, Leeb is an old hand at editing newsletters but now he mostly writes books. ORA is Israeli owned but incorporated in Nevada.

*Vodafone Group lost 4.6% today in London in a reaction to the US deal with ZTE of China. VOD is a British cellphone operator mostly operating in euros which didn't help, as sterling is upwardly moving. VOD in India is using NOK's cloud mobile gateway for its home grown silicon valley in Bangalore.

*Azure Power landed the largest solar project in Assam, the nearly separate northeastern bit of India which is hard to supply with anything, a 25-yr contact with Assam's electric company. To be built by next year, it will produce 75 megawatts in a solar park at a price of 3.37 rupees per kilowatt.

Funds

*Investor A/B via a subfund has gained with Permobil, a private firm leading in advanced rehab technology offering wheelchairs, seating, and positioning tech in Europe, the US, and increasingly in Asia. Permobil CEO Joh Sinton is leaving and will be replaced by Swede Bengt Thorsson, now an exec at appliance-maker Dometic and formerly with Scania.

IVSBF and its controlling shareholder from the Wallenberg family, as now moving into artificial intelligence, according to yesterday's Financial Times, to give the US and China some competition. The Investor A/B portfolio is stuffed with companies in engineering, appliances, telecoms, and defense, a reflection of Swedish strengths. This may be because PayPal (PYPL) snatched Sweden's iZettle payments systems earlier this month. Now the family trust will invest SK1 b ($114 mn) it AI research in Swedish universities focused on machine and deep learning and quantum mechanics. It also created a Swedish-Finnish jv called Combient to work on big data and automation.

If the Swedes get into further European investment they may just open up the road to digital transformation outside the stars of China and the US.

*Bonus stock Global Self Storage, a former global stock fund and now a storage facility REIT we kept after it changed course, is up 4.5% in the run-up to its ex-dividend data next week. It yields 6.25% gained by running storage facilities in 2nd tier US cities. It has fallen about 20% in the past year.

Latins

*Brazilian capitulation to striking truckers who want cheaper diesel fuel took down Cosan, CZZ, by over 6% which is among other things the operator of gas stations.

*Orocobre of Australia which operates lithium mines in Argentina lost hugely yesterday on no reason I can find. OROCF lost 5.2% on huge volume to $4.07.

Disclosure: None.

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Vivian Lewis 4 years ago Author's comment

since I wrote the article myself I give it 5 stars and hope to win a free Echo Show, whatever that may be

Vivian Lewis 4 years ago Author's comment

since I wrote the blog I naturally want to say it was good and win a free echo show, whatever that may be.