Writing for his firm Llewellyn-Consulting.com, a former senior economist of the Organisation for Economic Cooperation and Development considers forecasts. He sounds somewhat like the late Yogi Berra about forecasts about the future:

“Many important decisions – macroeconomic, policy, corporate, military – have to be taken in respect of a future that is intrinsically unknowable. But there is no ducking the issue: decisions have to be taken. Even the decision not to take a decision is a decision. So: how best to go about taking decisions that will come into effect in, or even affect, the future? Basically there are three possibilities.

“One possibility is to forecast what that future will be. But it is a mistake to place much weight on [any forecast number] when the absolute error for OECD economies is o[n] the order of 1 percent.

“At turning points, when accurate forecasts would be the most useful, errors tend to be even bigger: the year-ahead OECD-GDP forecast made in Dec.2008 was 3 percentage points, and following the first great oil shock of 1973-74 it was 4.

“This is not to say that forecasting is pointless. A forecast assessment provides a consistent quantitative framework for thought, in which outcomes are conditional on identified judgements. Moreover, forecasts [give] the forecaster early warning when something is going on that is not understood. But there is no avoiding the fact that economic forecasts generally offer a poor guide to the future.

“Moral: base your decision on a forecast whenever you must, but look at past errors. To the extent that forecasts often do not provide an adequate basis for decision-making, an alternative is to assess the probability of different possible outcomes or decisions; and multiply that risk by an estimate of the potential consequences.

“Assessing the cost of potential consequences can be difficult, but fruitful. For example, commonly heard on trading floors before the 2008 crash was 'The chances of this happening are only one in a million.' Even true, however, the appropriate riposte would be 'But what if it did happen?' If the answer was 'catastrophe' then it would be wise to avoid the action.

“Moral: no decision should be taken without a risk assessment of the potential consequences. “Unfortunately, these two issues become [greatly] more difficult when the system is complex. Models of even moderate complexity, when shocked, often exhibit extreme, even chaotic, behaviour in ways that could not have been forecast and were not expected ‒ including by the person who built the model. “Examples are legion. Recent ones include the developments after the invasion of Iraq; and the cascade of financial and economic events following the collapse of Lehman Brothers.

“Moral: avoid allowing key variables in complex systems to go outside historical experience.”

Yesterday's market closed barely dented by the renewed drop in the oil price, leading some experts to say this new linkage was now ended. The decoupling was ended in spades, with markets tumbling.

Moreover today Chinese stocks and the reniminbi rose but it made no difference. It snowed as people headed off to their home villages from Guangzhou (formerly Canton.)

Before turning to our stock portfolio I wanted to let you know that the website I was one of the first contributors to, www.TalkMarkets.com, now has over 500 authors. Contributors are paid in equity shares, but I also invested money to become an angel investor for the site.

It has now closed a major partnership deal with Thomson Reuters which will host all its headlines (for clicking to) at no cost to TalkMarkets. It also won the “Best Stock Site of 2015” award.

The startup is now publishing over 100 articles/day and has 17,000 registered users, including some of you. Now it has to boost its editorial team and needs more angels. If any readers want to find out more, please send me an e-mails (my phones are down) and I will put you in touch with TalkMarkets so you can become an angel investor too.

More from Britain, Israel, Italy, India, Canada, France, Brazil, The Netherlands, The Dutch Antilles, Belgium, and Finland.

Oi, Oi, Oil and Energy

*BP plc fell 2.4% yesterday. Today it careened downward some more after adjusted Q4 earnings fell 91% to $196 mn, over 70% below the Bloomberg analyst average.

Here is some of the report by Zacks, as transmitted to me by www.TalkMarkets.com:

“Earnings per ADS [ADR] came in at 6 cents, lower than the Zacks Consensus Estimate of 17 cents. Revenues of $49,233 mn were lower than the year-ago figure of $75,096 mn. Total production of 2.369 mn BOE/day was high[er] 8.3% year over year.”

The formulaic Zacks report left out some figures and probably was a robo-report from an emerging market, because of the weird last sentence and other awkwardness and his much higher earlier estimate. Here is Bloomberg for balance: CEO Bob Dudley said BP aims to “get the books so they balance at $60/bbl next year. We now know [they will] balance below that price.”

BP has been cutting costs and selling assets since 2010's Deepwater Horizon Gulf of Mexico oil spill. Last Oct. it cut its capital expenditure (capex) program for 2016 to $19 bn (from $23 bn).

BP now can further cut capex to $14 bn if oil stays at $40/bbl, which would balance the books by 2018 and allow it to maintain its dividend, according to Barclays analyst Lydia Rainforth. Another analyst, Ahmed ben Salem of Oddo & Co. said “the dividend payout is probably safe for this year but if oil stays around $30 they would have to cut capex further.” (Source: Bloomberg.)

Today BP sold to Zenith Energy its liquid storage terminal in Amsterdam, Rotterdam, and Antwerp, in Holland and Belgium, used for barges, ships, and trucks to load up. The price was not disclosed. The deal will close this quarter.

BP has lost 8% in US trading, a mark of its continued dividend appeal as markets nose-dived all around the world on renewed falls in oil prices. It fell 8.7% in the UK earlier. Now here are the analysts who came up with new advice today: Deutsche Bank, buy, target price GBX445; Nomura, neutral, TP GBX350; Liberum Capital, hold (reduced from buy), no TP. (Source: brokerage reports.)

*The drop in the oil price has hit pipeline and exploration companies, whichis normal. But it also has hit overall markets, including automobile companies like Fiat Chrysler , which makes no sense. FCAU is now totally out of Ferrari which disappointed its IPO investors last week, but I can think of no other reason for the share drop. Fiat sold 5% more Rams in Jan. than last year, 29,938 pick-ups, and the marque now commands 22.6% of the pickup business, third after Ford and GM. Pickup sales are expected to grow 56% this year by analysts at TrueCar, thanks to cheapo gasoline.

*Tata Motors is also down in US trading although it rose in Bombay. TTM may be suffering before the US car sales data for Jan. are released. But the numbers were good with total sales in Jan actually beating forecasts, as you would expect with plummeting gasoline prices.

*Schlumberger Ltd lost 3%. SLB helps find and extract oil and gas wells.

*Brazilian alternative fuel firm Cosan Ltd, which makes ethylene, is off 7.8%. CZZ.

*Delek Group (DGRLY) has not traded at all today in the USA, perhaps because the market-maker slashed its price too heavily from yesterday. It yesterday signed a $1.3 bn deal to sell Leviathan gas with Israeli Edeltech, an operator of power plants, and rose 6.9% in Israeli trading. It closed at $18.1 and now the bid ask are $17.28-$17.51.

*My note about Cameco, miner of uranium was reprinted in the Jan. 29 Investor's Digest of Canada, because I commented that there is no way China can supply fuel for its nuclear power plants without buying it from the world's leading supplier, which happens to be CCJ (CCO in Toronto.) I think the price of uranium will go back to the $80/lb it commanded before the Fukushima disaster.

Waterworks

*A plan to extract 50,000 acre feet of water from the Mohave desert aquifer and pipe it 200 miles (the first 43 miles along an existing railroad track to San Bernardino) to supply desperately dry Las Angeles has won investment from US hedge fund Water Asset Mgm and Britain's Odey Asset Mgm.If Scott Slater manages to build the pipeline by 2017 he will supply water to 400,000. Pipeline integrity will come from Pure Technologies, PUR in Toronto, which is also a major seller of systems for making sure the pipes, valves, and hydrants of water works from Washington DC, Houston, Oklahoma City, to Dakka (Bangladesh), Australia, Brazil, Spain, Portugal, The Philippines, India, China, The Emirates, and Saudi Arabia. This small cap share is now harder to follow as its US pink sheet share is no longer quoted. The stock at C$4.47-4.50 is a ridiculous bargain given demographic and climate trends.

I bought more at C$4.50 among other things in order to be able to track it as PPEHF doesn't get any results with Interactive Brokers where they are held. Sometimes I buy to make my work easier, as well as from conviction.

*Veolia Environnement (VE), which supplies water, sewage, and other municipal services around the world, is off less dramatically, down 1.37% to Euros 22.36 today and it has held up well YTD, gaining about 90 eurocents. It is very volatile and more involved in emerging markets than PUR, which nearly lost its shirt in Qaddafi's Libya (after which we bought into it.)

Taking Drugs

*TEVA and AbCellera will jointly use the latter's novel high-throughput single cell antibody platform to research rare monoclonal antibodies aiming a new biological finds. Few details were released because AbCellera is a Vancouver-based private company. The deal was worked on by Teva's chief scientist who used to live there.

However, Teva has dropped its deal with Synthetic Bio to combine oral estradiol with its Copaxone to treat women with relapsing-remitting multiple sclerosis after SYN's phase II trials showed no valid effect vs Copaxone alone. Royal Bank of Canada reiterated its outperform rating for SYN and set a target price of $8 (US). Your editor took a fling on SYN which lost 17% on the news but is now only down 12% at $1.28. It is tough picking drug discovery startups priced in pennies. Read on.

TEVA is also a potential gainer from the court ruling against OxyContin patents being valid.

*GlaxoSmithKline has expanded its deal with Aptimmune Therapeutics on cancer immunotherapy with a further investment of $350 mn over 7 years to take its NY-ESO-1 T-cell receptor therapy, now named GSK 2277794, to trials against synovial sarcoma and eventually other soft-tissue sarcomas. GSK will also be given the right to test the cancer drug in combination with other drugs against sarcomas, multiple myeloma, and lung, ovarian, skin, and esophageal cancers. It also has the right to buy Aptimmune out if these pan out. GSK initially invested $500 mn in ADAP-Q 2 years ago, before the UK firm's ADR IPO. I missed that one.

GSK is joining a euros 210 mn venture capital fund called Medicxi Venture to finance research.Johnson & Johnson is the other major backer with JNJ and GSK accounting for 21% of the capital.Index Ventures' life science arm is aiming to create a $1 bn European “virtual asset-centric” cutting edge biotech research fund, which so far has no employees but 3 general partners it shares with IV.

This follows an earlier investment into the parent firm in 2012 by JNJ and GSK which want to boost bringing to market non-US drug discovery. IV backed a successful Danish biotech firm, Genmab.

GSK also applied to the US FDA for its quadrivalent flu vaccine jabs for infants aged over 6 months. The current license allows it only for children three and older. The application follows a series of trials to determine that the inoculation against flu A and B viruses works and is safe in babies.

What Banking Crisis?

*Banco Santander fell another 2.9% today in Spanish tradig, to euros 3.69, which means that like your editor, Chairman Ana Patricia Botin who loaded up on the UK stock last week must be feeling buyer's remorse. SAN is not an oil company. .

*Investor's Digest of Canada, besides quoting me, reported on the favorite stock of Mike Vinokur of Trapeze Asset Mgm in Toronto. It is Bank of Nova Scotia. “You're getting a bank that's cheap on a p/e basis [11], that's got a high level of capital, that has a very big international footprint”, he says. His target for BNS is C$72 back to the p/e level of 18 months ago. He adds: “There's upside to that estimate based on overall growth and valuation multiple.” He considers it the cheapest leading Canada bank and he figures its p/e ratio for 2017 earnings is 9.

He blames its recent price drop on its exposure to Latin America and emerging markets, which we consider a strength. But he also warns that “credit issues related to energy investmemts and consumer debt in areas affected by the energy industry's troubles (Alberta, British Columbia, and Saskatchewan) could led to more lagging share prices.” However, he then says that direct total exposure to oil and gas is only 3.5% of total loans, which Mr Vinokur thinks is “acceptable.”

For Canadians, the Latin business adds to Scotiabank risks. But we want that exposure. And BNS is relatively less exposed to the oil patch banks which only do business in Canada. 
 

Telcos

*Rumor has it that Liberty Global and Vodafone (VOD) have restarted talks about swapping assets. LBTYA is John Malone's European cable upstart. More about his rival Patrick Drahi below.

*Crédit Agricole has put an underperform rating on Nokia of Finland. This matters because NOK stock is now being tracked by French-listed Alcatel Lucent, ALU, which NOK is taking over. ALU's product, technology, and clientele will give scale to NOK's business in exchanges. The main nay-sayers are worried that NOK is not getting enough euros for its patent portfolio. I like the management led by Rajeev Suri who is not a Finn. So far 3 of the 5 analysts who cover NOK rate it a buy, according to TipRanks statistics..

Funds

*New Ireland Fund at end Jan. had 18.92% of its assets under management in CRH plc, the cement and aggregates firm, second to only Ryanair at 20.82%. There are no other double-digit holdings at IRL.

*Pershing Square Holdings, the Bill Ackman activist closed-end fund, lost another 11.1% in Jan. We own PSH which trades in London. In today's NY Times, I learn that 4 aggressively acquisitive and highly leveraged “platform companies” generated over $1.1 bn in investment banking fees over the last 3 years. A platform company builds with mergers and acquisitions rather than organically. The quartet which produced these great fees includes two PSH favorites, Canada's Valeant Pharma (VRX) and Platform Specialty Products (PAH). The foursome have lost over 50% of their stock market value since August, and have a collective debt burden of $78 bn, according to the Times. The Times reporter then goes on to say (without a quote) that short-seller Jim Chanos suggests that “the investment banks had strong reasons to promote them to investors.” All Mr Chanos is quoted as saying is that “those roll-ups are huge fee-payers to Wall St. They're investment banking-driven.”

VRX accounted for 19% of the total fees since 2013, with the leading recipients Deutsche Bank and Goldman Sachs. The Times then quotes from Mr Ackman's mea culpa letter of two weeks ago that he had made the error “of assigning too much value to the so-called 'platform value' in certain of our holdings.” PAH fell 8.82% after the Times hit the stands.

Note that Altice, which took over some Portugal Telecom (PT) assets on the cheap, relied even more on investment banks which he paid $484 mn in fees. It is headed by Patrick Drahi and most recently sought to buy Cablevision Systems (CVC) in the US. 

*Eaton Vance Tax-Managed Global Dividend Equity CEF, EXG declared an 8.13 cent dividend. The stock fell 1.22%. EXG is not an oil company. It closed last week at an 11.4% discount from NAV. Note that it is often used by investors as a pair trade when its discount rises. In theory it is the one they buy while they sell Eaton VanceTax-Managed Global Buy-Write Opportunities Fund, ETW at a 7% discount. But when markets go south these arbitragers are not willing to hold CEFs to pick up pennies in front of a bulldozer and sell both.