Today stock markets globally moved into the red, because of mounting fear of inflation along with China's crackdown on crypto-currencies heralded by statements from 3 Chinese regulators, of Internet Finance, Banking, and Payments & Clearing. Reuters says they are banning crypto trades. Despite our usual theory that globalizing your positions will help overcome a big drop in the USA—such as we have seen in the last week—it is not working out now. The main London FTSE index fell below £7000 and I cannot find any foreign markets indexes in the black today.

Photo by Annie Spratt on Unsplash

There is one modest winner, gold. JP Morgan analysts wrote today that institutional investors are dumping bitcoin and buying into gold futures instead. But if this is so, gold has much further to rise.

Today's Financial Times front page features former US Treasury Sec'y, Larry Summers accusing the Fed of “dangerous complacency” because “policy projections are suggesting that rates may not be raised for close to 3 years. This is an underestimation of risks both to financial stability” and “to conventional inflation of protracted low-interest rates.” Summers is blamed for “the taper tantrum” when he was Treasury Secretary to Bill Clinton and raised interest rates too soon.

He warns that the theory that there is an equal balance between the risks of inflation and deflation is “very far off an accurate reading to the economy right now.”

What you are supposed to do now is buy into stocks because as prices fall, the odds of your gaining rise. This is how great investors like John Maynard Keynes or Warren Buffett and Charlie Munger and their mentor Benjamin Graham or Peter Lynch managed to outperform.

The good news: stock market gurus like Cathie Wood and Elon Musk will cease getting newbie copycats for their ideas. 20-somethings with cash burning pocket holes will seek wisdom elsewhere.

*I wrote yesterday that AT&T is not a share I cover. Today Rida Morwa writing in seekingalpha.com makes the case for buying T after the panic over its plan to cut its dividend when it gives shareholders stock in its new company. He points out that you will get $2.08/sh until the Newco deal is done, and then get shares you can always sell for his estimate of $9.50 to $12.33 per share of Newco.

*One of our shares is doing a spinoff too, sooner than T. Merck MRK on June 2 will distribute to shareholders, including us, shares in a new company being spun off, Organon & Co. It will be handling 49 Merck products and biosimilars with time to run working in the area of women's health and some established brands. This will include a low dose estrogen-progestin, Nexplanon-Inplanon, and NuvaRing contaceptives; Livial hormone replacement therapy; Follistime for infertility;

The rest of its portfolio will be called Merck Retained Products. You will get 1/10 of an Organon share tax-free for every Merck share you own, without charge. There is bound to be a lot of trading in OGN as people allign their portfolios. OGN will be in Delaware while Merck is HQ's in New Jersey

Organon had revenues of $6.5 bn and net income of $2.3 bn last year. It sells in 140 countries from 6 factories. Today there is no other women's health-focused company but OGN will go in for takeovers.

The reason for the deal is officially to give both companies more options and the ability to offer incentives for management. I think there also is another reason, fear of the US Supreme Court voting to suppress abortion rights and to avoid some foreign restrictions on contraceptive supply coming.

*Reporting today was CAE, the Canadian pilot training firm which suffered from the drop in flights during the covid-19 infections. It opened up training systems for healthcare, initially for those flying patients, but naturally, this did not offset the shut-down of air travel. It reports in US $s. Revenues for FY 2021-2 were $3 bn down from $3.6 bn in 2019-20. Adjusted operating income hit $280.6 mn down from $590.4 mn in the prior FY. Net losses were $47.2 mn or minus 17¢/sh versus a gain of $311.4 mn or $1.16/sh in the prior fiscal. Adjusted net income including the Canadian covid-19 support was $127.1 mn or 47¢/sh, still below the $359.7 mn or $1.34/sh booked last year. In Q4, CAE did better, with revenues of $894.3 mn vs prior Q4 level of $977.32 mn. Adjusted net was $19.8 mn or 7¢ share down from $78.4 mn or 22¢/sh. In this case, excluding the covid-19 support produced a higher profit of $35.9 mn or 12¢ per share. The need for pilots is now picking up helping CAE recuperate. The military continued to train its pilots and there was demand for piloting small planes. But now things will be normal. Another aviation stock looking good is GE but not Easyjet.

*Trip.com of Shanghai, now reporting from Singapore where it will probably move its HQ to from Hong Kong, today gave good but unaudited news about Q1 2021. TCOM trades on Q and its ratio is 1:1 The domestic China travel market is in recovery and its hotel and air ticket businesses both grew by double digits compared to the prior Q1. Its corporate travel arm saw a 10% growth in hotel bookings and a 6% jump in flights. Corporate travel revenue hit RMB 252 mn ($39 mn), up 101%, the biggest growth from last Q1 but it was down 18% from the Dec. quarter.

After trouble early last year, China was already on the way back to normal by March 2020, said CEO Jane Sun. Quality leisure grew and travel inside mainland China has fully recovered, she says. People are staying in mid- to high-quality hotels there. There have been periodic reversals, notably during last year's Chinese New Year period in 2021. There is pent-up demand for more travel and movement which began in March.

TCOM Q1 sales hit RMB 84.1 bn ($628 mn) down 13% from the level of 2020 because recovery didn't occur till March and cross-border travel is still low. Net revenue fell 17% sequentially in this Q1. However, payments for accommodation was up 37% to RMB1.6bn, ($241 mn) mainly because of travel to different provinces in China. Accommodation is low because many people visit family and because of the new year period restrictions. Ticket sales for transportation fell 37% to RMB 1.5 bn or $230 mn, down 11% sequentially. The big loser was packaged tours, down 68% y/y and down 35% from Q4 '20.

Gross margin was more or less flat at 75% up from 74% a year ago. But down 82% from Q4 '20.

TCOM also upped spending on product development by 3% to RMB 2.2 bn ($340 mn) y/y, blamed on personnel expenses. They were up 3% sequentially. This category accounted for 54% of net revenue. Sales and marketing expenses dropped 3% to RMB 952 mn ($145 mn) and only used 23% of net revenue this Q1.

SG&A expenses hit RMB 841 mn ($6 mn) because tax benefits were slashed from 2020 by RMB 254 mn and taxes fell to RMB 8130 that year. TCOM says its taxes were lower because of the non-taxable impact of fair value changes in its equity securities investment and exchangeable senior notes which were not subject to taxes. Revenue attributable to shareholders came to RMB1.8 bn or $273 mn, compared to losses in Q1 2020 of RMB 5.4 bn and RMB 1 bn in Q4 2020. Non-GAAP net loss came to RMB 204 mn ($30 mn) compared to the prior-year level of RMB 2.2 bn and RMB 1.1 bn in the Dec. quarter.

EPS was 44 cents this Qi but excluding diluted losses per share brought this down to minus 5¢/share. It has RMB66.1 bn in cash on hand, or $10.1 Bn. This report is impossible to understand. It gives us no clue on how China is viewing the company and its future. I am selling Trip.com at $41.125 today.

Oil and alternatives

*British shareholders of Royal Dutch Shell, RDS-B, backed its push into clean energy by 2050 by 85%. However, they did not succeed in forcing a faster cut in oil and gas production.

*Schlumberger Ltd fell because Artisan Partners took profits in SLB in Q1 for its Artisan International Value Fund, it reported today.

*Nio, the alternative to Tesla is down 3.79% although it opened lower still. TSLA is down only 1.26% after opening off 3%. Having sold 2/3 of our high-flying NIO I am looking for a re-entry point. Chongqing city is offering RMB500,000 ($78,000) in subsidy for each recharged car batteries (NIO's special sauce) if Nio manages to open 15 stations in that city. Chongqing Electronics sells via Alibaba to US buyers but we cannont get the battery subsidy.

*Colonial Pipelines only paid the hackers $4.4 mn. We had been told it was nearly $5 mn. It is an unlisted company so don't go there. Hedge funds are buying private companies now.

Banksters

*Andrea Orcel cut the damages he is seeking from Banco Santander by half which could not afford to follow through on an attempt to hire him as CEO. But SAN stock fell another 1.71% today regardless, but not as bad as the 2.52% drop in Madrid before US markets opened.

*Scotiabank of Canada gained because estimates of its earnings in the current quarter were raised by 5.8 Canadian cents, to C$17.7/sh from C$17.1/sh. BNS.

*Sampo Oyj, SAXPY reported last week and Finns are buying. It is mainly in banking.

Miscellaneous

*Mexicans are buying Orbia because its Alfagary sub-bought control of Shakun Polymers Private in India. It is up 9.72% in Mexican trading. MXCHF.

*Japan's Nintendo, tipped by Abhimanyu Sisodia, our youngest writer, is up 1.41%. You play games on its console. NTDOY.

Commodities

*Antofagasta, which I bought more of yesterday because I think la efitst govt in Chile won't interfere with copper and gold production beyond boosting pay levels. I was premature, as the UK-listed ADR fell 5% today. I will buy more anyway as my overall gain is over 300% on this share, ANFGF here.

*Weyerhaeuser, a fund invested in timber for construction, saw its estimated Q2 earnings raised to $1.29 from $1.23, WY. More funds below.

Health care

*My largest US holding, Thermo-Fisher Scientific, is up 0.66% today because its licensor Proteome Sciences PLC, got a US patent for the fluid protein single-cell biomarker licensed to TMO. PMSNF is a British stock traded here at 16¢/sh and in London as PRM at 8.2 pence. Don't go there.

*Renishaw, the UK metrology (metal printing) share trying to sell itself, reported quintruple 9-mo earnings earlier this month. Its shares are up in part thanks to use of its fine measurement systems for healthcare as well as metalwork. Controlling shareholders David McMurty and John Deer, CEO, and Chairman who own more than half of the stock want out after the founder's death. With UK stocks losing traction as sterling rises, RNSHF may find a buyer and we may even come out ahead with the pound. Stifel rates it hold.

*Dr. Reddy's gained because it is going to make Sputnick V jabs for Indians threatened with infection or cyclones. RDY.

Funds

*Alliance Bernstein Global High Income Fund, AWF, is up 0.67% to $12.02 today after its senior portfolio manager Valerie Grant was interviewed about Environment, Social, and Governance stocks and talked about Facebook, another rare winners today.

*SPDR Gold, GLD, is up 0.6% today but the ETF is still widely below its levels of last summer. This is market day 5 for the rise in gold prices.

*MSIF Frontier Markets, MFMIX, from Morgan Stanley, is up 1.15%. YTD it has gained 10.06% and over the past 12 months 60.25%. I own it but never tipped it here because its expense ratio is 1.9% and its mangement fee is 1.25%. It is of course also a high-risk fund given its mandate.