After all the bad news on China I reported on Monday (and I was not alone), yesterday the Chinese stock market was on an upsurge. Bloomberg figures this is the result of a perception among investors there that the government is back to intervening to support stocks. Others expect another renminbi (people's currency) devaluation.

This is not what Bernie Saunders means by Democratic Socialism. It is neither socialist (because what stock markets have little importance for socialism) nor democratic (because the market-propping is being done by and for an elite.)

It is only a short hop from socialism to the elite. Yesterday the IPO for Ferrari was priced. Trading will begin Weds. (Today) Our Canada reporter writes:

“My teenager has a friend whose dad makes money selling doubtful ipo's. He got himself a Ferrari but then couldn't drive it because like most n. Americans he learned to drive only automatic transmission cars. So he got Ferrari to put in an automatic transmission - which somehow defeats the purpose.”

The ipo price will be on the high side, around $53/share, putting the price of a round lot at $5300, not exactly for the common man. Moreover, the price-earnings ratio is pushing toward 40 times. But since only about 10% of the stock is being floated, the share will have a rarity value like the cars.

For a mere euros 1 mn, you can purchase a Formula 1 car with a hybrid gasoline-electric engine. There is a waiting list of about 2 years and it may not continue to meet US regulations. Only if the Italian firm sells fewer than 10,000 cars here annually, can it escape US fuel-economy rules. Again something for the elite. Better than a Tesla!

Ferrari is a big spender on research & development which accounts for over 20% of revenue spend.

Here is a solution for those stricken with love for Ferrari: buy a watch or sunglasses. Something like 17% of Ferrari's sales do not come from full-size cars at all, but from model cars for spoiled children, sunglasses, posters, hip flasks for drunk drivers, and other paraphernalia in bright red with the prancing horse on it.

*More on Ferrari. We stand to own ~80% of whatever the racing car ipo total valuation will be when trading starts, because that is the remaining stock of RACE in the coffers of Fiat Chrysler (FCAU). This we own thanks to Guy Spier of Aquamarine Fund who talked me into buying FCAU.

The shares will be spun off to Fiat owners next year, including us. If the scarcity rule holds, the stock should pop once public trading starts tomorrow.

FCAU is not itself a winning racing car. Apart from its United Auto Workers woes, it is also a target for excessive tax avoidance in the European Union, thanks to its incorporation in Luxembourg. The EU competition commissioner, Margrete Vestager, is seeking to craft a precedent for a tax crackdown by targeting FCAU and Starbucks for using tax havens.

FCAU's Finance Europe arm reportedly paid corporate tax at around 1% to Luxembourg, rather than the EU average rate of 29%. It is on the hook for ~euros 200 mn, more than Starbucks. Vestager may not collect every eurocent in tax and penalties however, since her main purpose is to make sure that future aggressive tax avoidance schemes are declared illegal. The real issue is the vexed matter of transfer pricing, a constant problem for multinational corporations. Whatever services the Luxembourgeois sub provided, they were overbilled to the Italian-American parent.

Guy, who is British, operates his fund out of Zurich and also has a US version for American taxpayers. He may have underestimated the willingness of the EU Commission's Danish tax enforcer to cross swords with its Luxembourgeois Commission President.

*With the election of another bilingual Trudeau as Canadian prime minister, I think the downtrend of the loony is due to reverse at last. The C$ for months has been hovering between a support level of US$1.2832 and a a resistance level of US$1.3080. A post-election test may result in a breakthrough from the drop which could then lead to a further rise.So how to play Canada?

Here is a stock idea from Mike Kachanovsky, writing freelance for Investor's Digestof Canada. Mostly he is a mining specialist consultant and also is a founder of smartinvestment.ca, a website. Kashanovsky writes: “Lingo targets foreign lingos” to tip Lingo Media Corp (LMDCF) which trades on the high-risk TSX Venture list as LM. He has written about LM​ or LMDCF (US)​  in Investor's Digest before.

LM began life as a publisher of language textbooks, a boring but profitable business before it decided to go digital and build a platform to teach foreign languages a new way: by the learner's specialty. Instead of a one-size-fits-all program, it opted to teach languages by user needs. It has not been easy. After a hiatus of over two years and purchase of 3 troubled software firms to beef up the tech side, Kachanovsky feels that its “EdTech” product line is now “ready for prime time.” It can offer up to 2000 hours of customized on-line English lessons now with its initial marketing push, not into Francophone Quebec, but into Spanish-speaking Latin America. The market for learning English worldwide is put at $56 bn and next year English study will account for $2.5 bn of the total, according Chicago's education financing group GSV Advisors.

Lingo selling a big slice of that $2.5 bn depends on reputation and its textbooks help. It managed to sign up two deals in Mexico to teach English on-line and others from the Peruvian Navy and a Colombian municipality, Medellin. It is now targeting more prosperous Chile. All 4 Latin countries have a national education system serving a growing population. All 4 are full of people wanting and needing to learn English as they become more middle class or professional.

This is a tiny-sales penny stock trading at 4 loony cents with Q2 sales of C$1.8 mn. It is in the black, having earned C$979,000 or 4 Loony cents/sh.

The textbook business accounts still for most of the sales (C$1.5 mn) and profits thanks to a huge contract with the Chinese government, also for teaching English, which runs for another 5+ years. The total market cap is C$12 mn, but Mr. Kashanovsky has target price for LM of C$1. And of course, if the loony rises so will our shares up north.

Oil Patch

*The share price of small cap Energy Recovery (ERII) doubled on Monday after it signed a 15-yr $125 mn deal with Schlumberger (SLB), $75 mn up front and the rest in milestones. SLB gets exclusive use of ERII's VorTeq hydraulic pumping system that reduces the number of pumps needed on a fracking job. It will pay another $25 mn next year plus future annual royalties if the pumps meet performance specs. ERII says VorTeq pumping is first hydraulic fracturing manifold built to isolate hydraulic fracturing pumps from abrasive proppants that cause pump failure. This could save SLB and its clients as much as $5 per barrel on a fracking contract while cutting the number of pumps needed by 80%. As we noted, SLB's CEO and CFO in the conference call last week made it clear that they were using cash to buy tech they deem useful from cash-strapped developers.

*BP plc (BP) is about to sign a cooperative accord with China National Petroleum, PTR, under which the UK firm will build out its Middle Kingdom liquefied natural gas imports, plus the related southern China petrochemical and gas station system to use the LNG, along with a jv to supply the shipping industry. This is a second deal for the UK firm as Xin Jinping visits London. BP earlier did a deal with CNPC over oil.

BP also sold for $350 mn 75% of its 15 storage terminals and infrastructure in the Houston Ship Canal andother sites all over the USA to Kinder Morgan (KMI), a stock i also owns for its 6+% yield. BP will keep 25% after the closing next Q1 and lease back the facilities.

Brazil Commodities

*Vale (VALE) is down on news that UBS's Andreas Bokkenheuser set a neutral rating (up from sell) on its stock writing that commodity prices are “normalizing” and becoming “balanced.” We have tipped VALE mainly because the Brazilian iron-ore miner gains vs its Australian rivals in the present glut. The quirky Swiss analyst has a $5.30 target price as the share is under $4.60.

*However fellow-Brasileiro Cosan (CZZ) is up sharply, perhaps because CZZ is seriously deficient in political connections. It produces sugar cane and ethanol and also runs a logistics system.

Drug Stocks

*GlaxoSmithKline (GSK) is getting back its respiratory mojo. GSK announced very significant positive results from 2 head-to-head studies directly comparing the efficacy andsafety of its Incruse^® Ellipta^® (umeclidinium) to two rival bronchodilator treatments, tiotropium (study 201316) or glycopyrronium (study 201315), in patients with chronic obstructive pulmonary disease. The improvement for COPD patients in the firs trial was huge. GSK stock rose over 5% in UK trading. Credit Suisse on Monday, switched its ratings of GSK and Astra Zeneca, upping GSK to neutral from sell and AZN to sell from neutral. GSK was given a GBX 1440 target price.

*Novo Nordisk (NVO) will expand its drug delivery partnership with Emisphere (of NJ) for oral delivery of meds for metabolic disorders like diabetes and obesity. NVO will use its partner's Eligen platform for oral medications. They worked together to develop oral GLP-1 receptor agonists against diabetes starting in 2008. In 2010 Emisphere snagged a deal for Novo's insulins worth up to $57.5 mn in milestones. NVO is Danish.

*Teva (TEVA) is down 2.5% mainly because of the sinking Israeli shekel, beaten down by what looks like another Intifada. Since it earns mostly in US$s this is perverse. TEVA inked sale of its Israeli Nephromor dialysis chain, the country's largest, owned jointly with Clalit Health Services to German specialist Fresenius Medical Care for about NIS 326 mn.

Fund Functioning

*Fibra Uno (FBASF), the Mexican REIT, announced the results of its Oct. 16 General Ordinary CBFI Certificate Holders’ Meeting , where US shareholders got no proxies. Eduardo Garcia writes in www.sentidocomun.co.mx that the local stock, FUNO, rose 1.1% on the news. This was mainly because there will be a buy-back for ~5% of FBASF shares outstanding.

The shareholders allowed to vote also approved the Technical Committee proposal that the 9.9% of CBFI shares not taken up at the April 4, 2014 public offering be kept in the FBASF treasury for a buy-back program in Mexican markets if authorized by regulators. They can also be used to buy more real estate.