E Good News Is Bad News


*I am resisting the urge to load up on defense stocks, beyond Canadian CAE which trains pilots for either civilian or military planes and Israel's Ituran (ITRN(the Israeli car and truck location software system which has been used to create missile shields). The lesson from the horror-show in San Bernardino is that fighting IS and Al-Queda will take more than hardware.

But if you do want to buy into military hardware, look to Europe which has a cost edge rather than US firms. About half the German planes now being used to fight IS are inoperative because their spare parts cannot be procured. (Volkswagen is not the only technology failure in Germany.) Alas there are no longer any Euroland defense stocks with active ADRs. As the NATO countries cut defense spending the makers of weaponry dropped their sponsored US listings to save money.

*If you want to buy a military supplierm pick up Renishaw plc, (RSW) in London, which sells precision gauges and cutters to the aviation industry, as well as to Applewatch (for which we bought it.) It was up 40 pence on Friday and that is not related to Apple.

*Two ADR companies from France and collaborating over recycling to make war on carbon emissions, targeting waste of water and packaging. They plan on using recycled plastic and manure from dairy farms to make biogas energy. Veolia (VEOEY) and Danone, the dairy firm, will work together to achieve zero net carbon emissions, They plan on using recycled plastic and manure from dairy farms to make biogas energy and other alternative fuel. They will secure water access starting next year in France itself and then gradually applying what they learn globally. VEOEY is an MNC in water and waste management.

*The only defense contractor with an active ADR now is Safran (SAFRF), formerly Snecma,also of France, with ticker symbol SAFRF. It is down to its midsummer price levels in dollars mainly because of FX effects. It makes engines, powerplants for civil and military jet engines, and submarine navigations systems. Iits Q3 sales, up 15% to euros 4.14 bn, beat forecasts. It also makes the Morpho Desktop Itemizer to find trace amounts of explosives on passengers' skin, baggage, carried items, and clothing as well as narcotics. It also makes SIM cards. I will work on this some more.

Pharma & Biotech

*An increasing split in outlook between startup biotechs and the drug majors has become clearer. The biotechs are mostly down because their future success with new drugs is uncertain; and the drug majors are either rising or falling modestly. While takeover bids have reached a new multiyear peaks, the upfront payments for drug development are actually sinking, with most of the payback via milestones depending on future trial and market results.

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