Gen. Joe Shaefer wrote yesterday on seekingalpha.com that “true passive investing cannot result from an index fund whose components are changed regularly.” Joe, who runs Stanford Wealth Management and writes a newsletter, explains:

“The committees that decide what stocks constitute their index change their minds regularly. This is not buy-and-hold investing. It is a buy and let someone else determine what you will own.”

He then wonders if buyers of supposedly passive funds know what they are getting into.Both Joe and I are stock pickers whose customers are active investors so we are singing from our own hymnal.

Volatility, which has triggered the recent market sell-off, is not the same thing as risk, although if you listen to enough pundits you might think they mean the same thing. When VIX goes into orbit, in theory, the smart money sells out. It didn't happen last week because the reversed volatility ETNs, like XIV, were sold off massive by “weak hands”, Wall Street lingo for retail investors. Right now according to Morgan Stanley quant Christopher Metli, equity market inflows and a really cheap price for VIX gamma (forward traded-volatility) means that they are good value compared to current VIX—if those ignoring gamma, according to ProTrading Research, are right.

The SPDR S&P 500 ETF suffered $23.6 bn in outflows last week, an 11-year record in amount and a 10-yr record in percentages. This was about 8% of the fund's total assets at the start of the week and means that position unwinding can lead to further selling this week from risk parity funds and commodity traders, to say nothing of exiles from bitcoin.

However, according to M&G's Eric Lonergan, the recent volatility spike was not triggered by news and therefore is less serious than the China devaluation rise in the summer of 2015 and the 2008 financial crisis. However, he warns that investors are all moving in lockstep which means asset prices move more than the fundamentals account for and it may take longer to clear the panic. Also using volatility as a proxy for risk, he writes, is a “recipe for pseudo-science and over-confidence” in tech and statistics.

And of course, volatility is not the same thing as risk, because the only risk investors care about is loss of their capital. Volatility may raise it.Note that because retail US customers often could not get hold of their brokers last week they may still have trades they want to make from the panic, which may show up as soon as Weds.

My mother-in-law died in a car crash on Valentine's Day, so it's a holiday we don't celebrate. This week it will also be a make-or-break day for the US stock markets which will get new data on US consumer price inflation. It was the trigger for Wall Street crumbling so far this month. Two of our companies are reporting, not enough to turn Wednesday into a terrible Thursday coming a day earlier. We also will see a couple of our favorites go ex-dividend.

*Yesterday I got another mysterious stock tip from Russia, from a different writer, Marthena Maus, for a stock called PBYA, Probability Media Corp., which trades OTC. If you get this stuff from Putinland, remember: “there is no such thing as a free lunch.” You do not get stock tips by email from legitimate analysts with whom you haven't a relationship. There is a footnote in Ms Maus's plug saying it had been paid for by notes granted to Pickwisk Capital Partners LLC of White Plains NY, a licensed broker-dealer. Where is the SEC in this imbroglio?

*Teva rose 4.9% on Monday, to go over $19.5 again. The reason was that Crédit Suisse analyst Dr. Vivek Divan, my bellwether on the stock, raised his forecast to outperform from neutral yesterday, and upped his target price to $23 from $20. He put a neutral on TEVA Dec. 15 which I followed. He wrote: about a “clearer path to upside” at Teva:

“Now that we have more details on the [restructuring] plan including a 2018 outlook we believe is achievable, and are seeing signs of early execution, we are upgrading TEVA. Company guidance (and investor expectations) now includes the potential impact of a second generic Copaxone. A potential delay to their CGRP [inhibitor for a migraine] is a new negative but now generally expected, and the market is large enough for multiple blockbusters. We also expect US generics to face continued challenges in 2018 but see potential stabilization in 2019 and beyond. Finally, we are encouraged [that TEVA CEO Kåre Schultz] has a positive track record of executing a turnaround story, even if there are clear differences between the challenges facing Teva and what he faced at Lundbeck. [We] appreciate the early signs of progress we are seeking. The primary risks are greater challenges to US generics and fast erosion of Copaxone sales and further delays to fremanezumab.”

Allergan slashed its Teva shareholding to 3.9% of the total with a sale of 6.1% of the Israeli group's shares via a private deal with J.P.Morgan's London at a price to set at the end of Q2. AGN also sold on the market TEVA ADRs at prices from $20.1991 to 20.9412 accounting for about 36% of the shares outstanding. AGN reported this to the SEC on Monday.

Capital Research's Global Investors increased its stake in Teva last week from 9.7% of shares out to 11.9%, possibly by buying on the market from ALG.

TEVA also launched its asthma inhaler QVAR RediHaler aerosol in US markets in two strengths for patients aged 4 and older. This aerosol replaced corticosteroid spills and can be used without hand-breath coordination which is hard for little kids. It will replace the earlier QVAR. It doesn't work with bronchospasm for which another device must be used. Patients on the existing device must be switched by their doctors.

*Swiss Roche reported very good results from its phase II trial of RG7716 (ranibizumab) with 14% improved vision for patients with diabetic macular edema vs rival drugs. It combines an anti-VEGF compound with an anti-angiopoietin bispecific antibody. That gives a 2 or 3 line improvements on a sight chart plus lower retinopathy. Phase III comes next after which RHHBY expects to launch the new eye jab under the name of the existing DME drug it makes, Lucentis, by 2022. Sales of Lucentis (which is co-made with Novartis from across the street in Basel) hit $3.4 bn last year and will compete with drugs from Regeneron and Bayer as well as from the Swiss home team.

It also is testing a single dose oral treatment for seasonal flu viruses of variable genetic background, which will work against the lot rather than having to be guessed at annually. RG6152 is currently in phase II trials in Japan in partnership with Shionogi.

It also won UK NICE permits for its Gazyvaro (obinutuzumab) to treat advanced follicular lymphoma after it was vetoed on price grounds as a first-line treatment. Now Roche revised its cost-benefit analysis to focus on higher-risk rather than other patients.

*Bonus stock Exelixis is being promoted by Louis Navellier. EXEL was tipped by Patti our biotech maven although it is a US share and I happily own it. Being touted by mass mailing boosted its price by 4.5% Monday. It is an 11-bagger for me.

Oil

*BP is up 2% despite the continued drop in oil prices and the US plan to sell 100 mn bbls from the Strategic Petroleum Reserve, not needed because of domestic fracking output. BP managed to get the countries of Mauritania and Senegal to agree on sharing production from the offshore African gasfield it runs with Kosmos, Tortue, estimated to hold over 25 trillion cubic ft of gas. It will be liquefied and exported. It also began production at the Atoll field offshore Egypt 7 months ahead of schedule at a cost a third below estimate. The gas is fed into the national Egyptian grid via the existing West Harbor processing plant. 

*Ecopetrol rose 2.5% yesterday. EC is Colombian.

*Australian Orocobre which mines for lithium in Argentina and is part owned by Toyota rose 2.7% yesterday.

Tech

*Pilot trainer CAE reported after the close Friday. Its shares gained about a half percent in late trading and it was raised to outperform from sector perform by Royal Bank of Canada. Its eps at 22 cents met consensus forecasts but its revenues fell short despite rising 3.2% y/y to $730 mn. It will pay a dividend of 0.071 cents/sh Mar 14, up from 7 cents. CAE rose 6% yesterday.

*Schlumberger Ltd. rose 2.52% yesterday. SLB is Dutch Antillean.Its software tech Innovation Center in Menlo Park was subject of a praise-laden Financial Times note, yesterday, about “turning data into oil”.

*Nokia Oij was given a higher target price of euros 8.3 by Société générale yesterday and rated buy. NOK is Finnish.

*Vodafone (VOD) and Idea in India are thinking up a new name for their combined cellphone operations. Any ideas? Chote charges is mine. Chote means small in Hindi. I only know a few words but the payback for finding a new name makes it worth trying. 

Banksters and Miscellaneous

*The companies reporting Feb. 14 are Barrick Gold and Mazor Robotics.

*Bank of Nova Scotia is buying Canadian institutional investment firm Jarislowsky Fraser for C$950 mn to create the third largest active investor there, with C$166 bn under management. The friendly deal is to close in its fiscal Q3 (July 31). This is the second major buy by BNS this year after it bought a bank from Citi in Colombia last month, but doesn't fit into its Pacific Rim strategy of focusing on Mexico, Peru, Chile, and Colombia. The Jarislowsky takeover will be positive earnings by 2020 and Scotiabank will buy back some of the shares it will use to pay for it to prevent dilution. I have a part sell order in over the Scotiabank derivatives but have not yet been executed because I am greedy. This may help.

*Royal Bank of Scotland is nearing resolution of pending fines over its misdeeds before it was nationalized in 2008, with the US DoJ. However the bite may ultimately be double the £2.5 bn RBS has set aside for the fines, which means a delay in re-privatization, good for owners of its non-cumulative preferred shares and those of Nat West, like us.

*The UK Serious Fraud Office charged Barclays Bank on Monday with “unlawful financial assistance” over how £2.3 bn its own funds were used to help Qatar lend it £12 bn in 2008 during the global financial crisis. Under threat is its license to operate in many countries. This will delay the call on our BCS non-cumulative preferred shares.

*Although they are not under a cloud, our Santander B floating rate prefs were also up yesterday, by 1.2%. Their new ticker symbol is SAN+B according to Schwab. The SAN common is up more, 1.9%.

*Allianz SE is to report this week but on Friday, Feb. 16, not Weds. AZSEY owns Pimco and the German insurer is also bidding to buy a Bermuda reinsurer, XL.

*Mercado Libre faces a challenge by Amazon in the land of the Amazon, Brazil, where the USD firm is aiming to lease a 50,000 sqm warehouse outside São Paulo, 4x the size of its current book shipping operation. It now relies on third parties to ship their goods advertised on its marketplace. Argentinian MELI is the current leader in online commerce in its homeland, Brazil, and Mexico. MELI was up 7% yesterday because the threat is considered to be greatest for traditional commerce.

Another Amazon snafu keeping me from addressing his birthday presents to my Boston grandson makes me upbeat on MELI. The packages have to be addressed to me, not the kid, or I have to pay $25 more to deliver them to a Whole Foods market near his home. The Amazon process is awkward and user-unfriendly, as I discovered when I ran a baby shower for the eldest of this kid's siblings, and Amazon delivered 5 boppy pillows to my daughter-in-law because they were not removed from her wish list after her first friend bought the baby breast-feeding pillow. You need only one or maybe two however many kids you have unless you have triplets or more.

*China Eastern Airlines not only gained in the mess last week; CEA flew another 4.5% higher on Monday.

Fund Fun

*India will not let index trackers on foreign markets get local securities data to prevent competition from Singapore or Dubai. The passage to India will be tough as all three Indian exchanges issued a joint ban under government pressure. The trouble is that MSCI which includes India in its emerging markets index may lower its weighting from the current 9%. Those using the MSCI index have about $1.6 trillion under management. Our IIF India fund is from Morgan Stanley which naturally uses the MSCI, as they come from the same nest.

*Closed-end Advent Claymore Global Convertible II (AGC) goes ex-dividend Weds. Saba Capital (Boaz Weinstein) bought a 5.22% stake last week either to collect the divvie or for rea.

*Pensionfundsfrom Denmark and global closed-end funds possibly including our Macquarie First Trust Global (MFD) are paying $6.7 bn to take over Danish telecom operator TDC which also is withdrawing its bid for Sweden's Modern Times Group AB, MTG, a TV and entertainment business.Macquarie will take 50% and 3 pension funds the rest.

*After the Mexican rate rise, Fibra Uno, our REIT, is up 3.25% in pesos. FBASF uses the US dollar for much of its borrowing because its rentals of office and commercial properties to foreign groups are priced in Greenbacks.

*City of London Group (Barry Olliff) upped its stake in Korea Fund to 37.1% on macro grounds thanks to the icy Olympics' thaw with the north. KF.

*CoLg halved its stake in Templeton Emerging Markets Fund, EMF, to ~7%.

*It bought 8% of Herzfeld Caribbean Fund, CUBA.

*MMC Norilsk Nickel, NILSY, is the 10^th largest holding of Central and Eastern Europe Fund, CEE, upgraded to buy by Morningstar yesterday. CEE's top 10 except for PKN Orlen of Poland are all Russian.