A Maoist great leap forward requires that every Chinese investor move in the same direction, long rather than short, into stocks rather than out of them. And to make sure this happens, the Chinese Securities Regulation Commission is demanding records from Chinese and foreign brokerage firms in Hong Kong and Singapore who will have to prove that they never funded or acted to help short sellers.

Local moguls like the head of Zhonguong Aluminum, a stock sold short, are issuing statements saying they were not the sellers. A US hedge fund, inevitably, is the focus of accusations that it triggered a nefarious plot against healthy Shanghai growth stocks which otherwise would have grown to the sky.

In fact, the big sell-off can be explained without conspiracies. The latest Caixin purchasing managers' index came in at a near 4-year low at 47.8. That is a long way from the 50 level which marks the border between and expanding economy (with orders going up) and a falling one (where they go down.) This is one of 3 PMI indexes of varying objectivity, probably the intermediate one between massaged government figures and those from HSBC's Hong Kong sub.

Maoism works when China mobilizes an army to build islands on tide-washed reefs in the South China Sea. But it doesn't work in managing a huge economy by interventions by the ruling Communists over things not in their Little Red Books: stock markets, foreign exchange rates, consumption stimulus, off-balance sheet lending, commodity pricing, trade liberalization, and other capitalist elements. It also doesn't work against the pervasive corruption of the state sector at all levels, which blocks allocation of funds and resources to where they are needed rather than to those who have power.

All predictions of China's rise to become an economic powerhouse competing with the USA have to be extended in time and reduced in impact because of the impact of Maoist thinking.

Industrial Firms

*Malgré août, Veolia (VEOEF) reported on its Q2 last week. Turnover was up 7.3% to euros 12.32 bn, or 3.3% without currency effects. Its net profits came in at euros 321 mn, up 110% (in current currency). It gained from a 4.2% rise in the value of its foreign receipts converted into euros and these grew in Britain, central and eastern Europe, the US except for energy business, and the Far East and Latin America. The water and sewage business, where France has not one but two multinational companies operating, is growing more international. These account for 83% of VEOEY's business.

Earnings before interest, taxes, depreciation, and amortization, (EBITDA, a measure of cash flow) rose 6% mostly because of exchange rate factors and higher volumes in low-tax countries like Chech Republic and Poland.

Other metrics were also good. Debt was marginally cut net of currency effects as investment growth was cut while maintenance rose. Return on capex went up to 6.1% from 5.3%, a significant herald of future growth. Veolia before tax income rose 36.7% in current and 30.4% in constant currencies to euros 712 mn as it continued its cost-savings program.

In addition, Veolia CEO Antoine Frérot confirmed its 2015 recovery objectives: faster revenue growth, higher EBITDA and before tax profits, controlling debt, and continued costs savings (target euros 750 mn). He expressed confidence in the targets for 2016-8 being reached. French water is sinking in its importance to VEOEY, as revenues in its homeland declined, a second sequential fall although sewage services growth resumed after a Q1 fall.

Other business like hazardous waste recycling, engineering, and construction, fell globally because of declining construction and oil drilling, but these are relatively marginal for Veolia. More to come on Investor Day VEOEY will hold Dec. 14.

*Abengoa (ABGB) crashed over concern about its capital increase and asset sale. It wants to raise euros 650 mn and dispose of 500 mn of assets, if said in a regulatory filing. While the capital increase was expected, the asset sale had been pegged at euros 400 mn. ABGB also told investors its 2015 cashflow will fall short by euros 800 mn from the prior forecast, further raising worries about its accounting and ability to pay its euros 6.5 bn of debt.

While the stock fell about 30% in London trading last week, the real chop was on the bond market where its 7% notes payable in 2020 fell so far that the yield hit 17.2% and its 5.5% notes for 2019 to hit 8.25%, according to Bloomberg. It is of little comfort that we shareholders of the B stock have preferential rights to buy the shares being issued by ABGB and that its main shareholder, Inversion Corporative IC SA is subscribing. We have lost half our money on this Frida pick. SELL our Sevillian stock Abengoa at a loss.

Friday ABGB announced that it would sell a 4^th asset package to its Abengoa Yield sub, ABY for euros 277 mn, Solaben 1 and 6, two solar energy plants in the Extremadura region. I am sorry that this pioneer in environmentally sound engineering is in difficulties as commodity and energy prices fall.

*CRH plc (CRH) completed acquisition of over euros 6.5 bn of assets being acquired from merging Holcim and Lafarge but still has to work out Philippine asset valuation, the only bit left.

*Chile's Antofagasta is buying a copper mine there from Barrick Gold (ABX) for $1 bn. Dr Copper is being hit more than even gold in the commodity selloff following China slipping into recession. We own US$ ABX bonds, not the stock.

*Cameco (CCJ) had its target price cut by Dundee analysts who still rate CCJ a buy, to C$22.5 from 24.

Druggies

*GlaxoSmithKline (GSK) has cut its prices for Advair in India to push back against the generic from Cipla. Discounting keeps up sales but not profits based on what happened when Mylan (MYL) launched a generic of the same drug in the UK.

*Teva (TEVA) got a commitment from a bunch of banks to provide it with an unsecured bridge loan for up to $6.75 bn and an equity loan of A$6.75 bn to complete its purchase of Allergan's (AGN) generics sub. TEVA also is buying a 51% stake in the unlisted Immuneering Corp for an undisclosed sum. This will beef up its ability to tailor drugs to its central nervous systems patients' needs using genomic analysis. It was reinstated by JPMorgan at overweight.Separately CEO Erex Vigodman asked for a raise we will have to vote on.

After I noted that Teva sold far more of its multiple sclerosis drug Copaxone once the price had been cut, this was picked up by other analysts. Now Biogen (BIIB) says its tecfidera MS drug is selling less well than expected.

*Reckitt Benckiser (RBGLY) hit another 52-wk high in London trading at GBP 61.68.

*Compugen (CGEN) reported earnings last week. 

Banking

*After the dumping of Santander (SAN) stock resumed in Euroland trading last week, the rot spread to another Spanish firm. Brokers Kepler put a hold on SAN, cutting it from buy. I want to stick with Ana Botin, the new chair, for a while longer. She of course did get the job thanks to being born into the right family, that of former chairman Emilio, her father, himself the grandson of the founder. But Ana was designated heir against considerable competition, from 7 siblings, including several males. She made the cut because she was smart, English-speaking, and ambitious, and in spite of being a woman.

I am impressed by how she is extracting the bank from its bad history under papa in Spain itself: cutting the excessive dividend, and cleaning up the loan book so that provisions for bad debt are now half what they were a year ago. She is offering those depositing mega-euro sums a higher rate of interest, the main reason that Spanish spreads on bank operations (the difference between interest paid and interest charged) fell year/year by 5%. As interest rates rise (and they will).

IT and Telcos

*The German luxury car-makers BMW, Daimler (DDAIF), and Audi will pay euros 2.8 bn ($3.07 bn) to acquire HERE from Nokia (NOK) which will use the money to buy Alcatel Lucent. This barely beat the rumored price.

*BCE of Canada was upped to overweight by Barclays.

Fund Fundamentals

*Fibra Uno closed on a committed $-peso dual currency revolving credit facility for buying more Mexican real estate in the amounts of $360 mn and NMP 7 bnh over 5 years. FBASF is a REIT.