Today we hear from bad news bears around the world.

Reuters writes on the financial sector:

“Market volatility increased trading revenue at major banks in Q3, but not enough to make up for a decrease in [H1]2014, according to an industry survey. [But] revenue for the top 10 international investment banks reached $36.5 bn in Q3, up 11% [over] Q3 of 2013.” But not enough to offset H1 lag or to pay all those fines I guess. What this means for our subscribers is discussed below.

Today the stock exchanges of Hong Kong and Shanghai activated their long-awaited cross-border link. Most of the trading was by Hong Kong investors buying in Shanghai rather than the reverse, and the modest daily limit of RMB 13 bn was reached well before the closing. The limit on buying HK stocks was not reached although normal arbitrage would have made it the more active trade, as Hang Seng prices for the same equities are often much cheaper than those on the Mainland.

First-day saw both exchanges down, with the Hang Seng down 1.2% and Shanghai down marginally. What this means for our portfolio is discussed below.

From Cleveland, “EarningsScout” Nick Raich writes about the big picture on US stocks:

If Raich is right, Europe's malaise will hit the US stock market in the next two quarters as earnings, however “massaged”, fall year-on-year. American stock market exceptionalism is doomed. This means global investing makes sense despite the drops lately.

Japanese UnAmerican Sales Taxes

More bad news from Japan from our Chris Loew:

Japan's GDP figures today showed the economy shrank an annualized 1.6% in the July-Sept. FY Q2 when economists' median forecast was for a 2.47% rise. Moreover Q1 decline revised downward from minus 7.1% to minus 7.3%.

Two quarters of decline mean Japan officially is in recession.

There should be bargain-hunting opportunities soon. PM Abe is expected to call a snap election to get a new term before his popularity slumps. The additional tax hike (to 10%) will probably be scrapped.

Consumer spending has shrunk because of inflation and higher taxes which wages have not kept up with. It is hard for Japanese workers to switch jobs mid-career, so they have little recourse when their employer decides to build cash reserves for future expansion rather than share the wealth. Japanese unions are also passive and rarely strike.

Front loading of purchases before the hike in the consumption tax was expected, as was the subsequent pull-back in spending. However, the effects are lingering. Japan's tax is not like US state sales taxes as it applies on food and medicine, business-to-business transactions, and utility bills. Consumers are already paying higher electric bills because of the nuclear shut-down.

Realistically, a 5% tax rise should prompt a 5% spending cut, with the earning power lost to inflation adding more belt tightening. You can't squeeze blood from a stone. Workers have no money.

More from Spain, Finland, Panama, Canada, Britain, India, China, Hong Kong, Japan, Switzerland, France, and Israel.

Bankster Stocks?

*The failure of trading desks to make big volume gains is ominous because their contributions to bank bottom lines is needed to pay all the fines being imposed for fiddles and cartels in foreign exchange, interest rates, and front-running stock and bond orders. This is an argument for focusing on banks which do not depend for their profits on hot-shot gangs of colluding gonifs, an argument for Santander which operates mostly as a commercial bank. SAN.

*It also applies money-manager and trade finance funder Banco Latino which, being a small player, with hefty government ownership and oversight, is not a trading bankster. BLX.

*Bank of Nova Scotia was part of the London gold fixing cartel. But I think Canada is due for a revaluation against its southern neighbor. So we are sticking with BNS which has the advantage of not depending on the overheaded local housing market as much as its rivals, thanks to its huge Latin American presence. Stick with BNS but verify. The way to cut costs is to cut branch networks and get rid of irrelevant operations, which BNS is doing.

Honkers & Shankers; Hollywood, Not Bollywood

*Our Hang Seng loser, Anton Oilfield Services, ATONY, which I wrote up Friday, may yet recover because of the Honkers & Shankers linkup. (Honkers and Shankers is the nickname of HSBC and was used by the late Wendy Wasserstein in her play, The Sisters Rosensweig.)

*From India, Abhimanyu Sisodia writes on Infosys in Hollywood (not Bollywood) and Silicon Valley:

Busy INFY entered a strategic partnership to supply DreamWorks Animation (DWA) with new engineering solutions in cloud, big data, Java, and open source platforms. INFY also will examine DWA movie-making tech for making movies seeking new ways to commercialize it. A major focus is DWA's “Apollo private cloud production technology” linking its multi-core CPUs. INFY will also look at DWA's other animation tools.
Meanwhile INFY's 5-mo old sub Edgeverve is an emerging competitor to Amazon and Google, in salaries. It benchmarks salaries to 21 IT giants including Microsoft, SAP,and Salesforce. This is probably indicates good times ahead for Edgeverve, and not just its 600 employees. The sub was hived off for INFY's products, platforms and solutions division where salary structures would have to be more generous than for its services division, which includes outsourcing. Edgeverve currently contributes 1.5% of INFY's revenues but INFY plans to raise that to 33% but is looking for partners. Paying talent should mean good Edgeverve revenues, and good dividends for INFY. [Ed: Both Chris and Abhimanyu are clearly asking me for a raise but given the exchange rate trends I am resisting this. Our dollars are worth more in India and particularly Japan than before.]

*Pure Technologies is partnering with Britain's WRc plc to offer water pipeline management and inspection in new markets, the UK and Ireland. Its partner is a global innovation consultancy and will give PPEHF access to sale of water, environment, waste, and gas markets.

Indivior Investors

*Reckitt Benckiser appears to plan an ADR for its spun out pharmaceutical sub, Indivior, but has applied for exemption from SEC registration of the issue, according to Martin Ferera's close reading of the prospectus. That means US and Canadian retail investors will not be able to buy more of the share until the ADR facility is established, while trading by institutional investors can go forward. The RB pharma sub makes an off-patent sublingual opioid addiction treatment called Suboxone which is losing sales and profits.

You should keep the Individior shares until the dust settles. RBGLY did not find a corporate buyer ready to pay its asking price but for us it is still a bonus dividend or better still a takeover currency. Since the deal was announced there have been new blockages of tax-saving acquisitions not just from the US but also from the European Union. We are getting our London 1:1 spunout shares in time for Xmas, Dec. 23, if we back the deal on Dec. 11 in a proxy vote. Valuing Indivior is tough. RBGLY wanted over GBP 4 bn but the offers came in around GBP 1 bn. The current valuation is around GBP 2 bn-plus. Last summer the new skeleton management of Indivior failed to follow through on a bid for Merck's consumer health division. RBGLY was added to the stocks covered by Liberum Capital today, with a buy rating and a target price of GBP58.6 ($91.90 or so.)

*Also from Britain, a reformed GlaxoSmithKline is the top pharma firm boosting developing country medical needs. The Dutch Access to Medicines Foundation, funded by the Gates Foundation, ranked GSK the best drug company in developing affordable drugs for emerging markets. As we have been reporting GSK is among the leaders in working on a jab against Ebola virus, but this is not its only good deed. It is also offering tiered pricing for drugs and working on a cost-plus malaria vaccine.

Nokia Oij, Oij, Oij

*Nokia Day in London Friday appears to have flopped. Despite presenting itself as among the lead players in providing 4G exchanges thanks to its NSN operations, NOK scared off investors. Today Raymond James, a brokerage, cut NOK to underperform from market perform citing the Investor Day as its reason. NOK thinks 4G results in much more smartphone usage which should feed to its bottom line in higher sales to telcos. But of course telcos are mostly short of cash. Also downrating NOK was Canaccord, but it did not blame the Investor Day.

However David Einhorn's Greenlight Capital bought back into Nokia in Q3 and owned nearly 8 mn shares at the end of Q3. The trouble is, Einhorn is not an eternal investor, having owned NOK in Q1 he sold in Q2 before buying back the stock last quarter. NOK fell 4.8% today in London trading.

*The telco not short of cash of course is Vodafone which got a huge sum fromVerizon which it is spending buying Kabel Deutschland in Germany and cutting its debt levels. It apparently still has $23 bn of the treasure trove left. VOD growth in Q3 was mainly from the developing countries, which is why we bought into VOD in the first place: Africa, India, Romania. I would like to see VOD buying some NOK technology. VOD rose 1.7% today in UK trading.

*Frida Ghitis weighed in on Spain's Abengoa, which I recommended as the stock crashed on Friday (after she had already logged off for the weekend in Europe where she now is). It rose to $11.40 so far today, up ~25% from my telegram to buy Friday afternoon. Frida writes:

Abengoa shares are recovering from last week's stomach-turning drop, but remain well below earlier levels. I would not sell. The drop is a sign of market nervousness and mistrust. The debacle came when ABGB said $600 mn+ worth of so-called "green bonds" were non-recourse debt, meaning they much less safe than investors thought. Analysts decided its debt level was risky. Now ABGB is telling investors the green bonds while classified as non-recourse, have a full guarantee. The incident left buyers with a case of financial PTSD. The silver lining is that ABGB is now under the microscope. If there was any fuzzing or fudging accountants will have to button up and double check every figure, every classification. I'm with Vivian on this. It's a buying opportunity.

A southern California subscriber writes:
“Thank you for the timely buy recommendation. I scooped up a bunch around $9.15 on Friday. When you first recommended I didn't have $$ and then it moved a bit and I try to resist chasing, so I am doubly rewarded...or at least about 25%.”

ABGB 5-yr credit default swaps rose 128% last Friday on the bungled green bond which it said it would not count in corporate leverage. As Frida wrote, this has now been retracted part way. ABGB is not related to the construction company owned by the improbably named Spanish Sisters Poplowitz which was bailed out by George Soros last week which was another reason for selling Fri.

*Another Frida stock, Ecopetrol, the oil company of Colombia, was hit by flowback from the vast mess at fellow-state-sector oil co. Petrobras. It fell 3.6% but I think the assumption that all Latinos are alike is wrong. EC is naturally also affected by the declining oil price but is not treated as a piggybank by the ruling party as is done by the PT in Brazil with PBR. It is also being hurt by the merger of Halliburton and Baker-Hughes which are feared to plan price hikes when they stop competing.

*A new challenger to Copaxone, Teva's multiple sclerosis jab, will come fromSanofi which got US FDA approval for Lemtrada which will be marketed with a hefty price and a black-box warning. The monoclonal antibody may cause cancers. It joins Rebif (Merck KgA), and Aubagio, also from SNY, in US markets.

UnAmerican

*Alcon, now a sub of Novartis, won US FDA approval for its 'AcrySof IQ ReStore Multifocal Toric' interocular lens for patients undergoing cataract surgery. The ACL lens treats near- and farsightedness caused by lens abnormalities, or astigmatism. We were bought out of ACL by the evil former management of NVS which colluded with its large Swiss owner to underpay for the US listed shares. The FDA has no institutional memory. Anything with a name like that is unAmerican. Frida picked ALC way back when.

Graham and Other Tests

*While Chris Loew is looking for bargain Japanese shares, I continue to smirk about my longterm holding in robotics, Fanuc. I asked Chris to look into re-purchasing Toray Industries, a former holding, which has patents for carbon-fiber (cf) manufacture. With lower oil prices boosting the air carrier industry, there will be less demand for saving airplane weight, but more money to pay for it. Toray today contracted to supply $2.6 bn more cf to Boeing for its newest 777 jetliner, to be made in the US. TRYIY has a deep moat as other supplier comes close to its capacity or intellectual property. A deep moat is a Graham-Dodd test for stock picking.

*Would Ben Graham buy Global Logistics Properties asks Motley Fool writer Adam Kuo? He thinks not until the dividend is raised from its current 1.6%. Deep moats are a Ben Graham value investing test but trying to fit 21^st century metrics to an investing system invented during the Great Depression is anachronistic. With current low interest rates neither the payout rise Mr Kuo seeks nor the risk of too much debt he scares us with are valid. GBTZF.

*I will work on our performance tables today. One of our shares, Gemalto, picked by Harry Geisel to play the need for more security in credit cards and other documents, has regained its losses. GTOMY is Franco-Dutch.

*Also Franco-Dutch is Schlumberger Ltd which is the only share in our portfolio included in the analysis by Mark Hulbert of how fund managers game the system by switching to large caps as the year rolls to a close. If the manager is ahead of the index, he will get more bonus money for the year if he holds on to it until the year closes. Small caps are at greater risk of crashing at any time, but it would really spoil the holidays if one of them fell in the tail-end of 2014. So the managers are selling the smaller company shares to buy big kahunas like SLB. In Jan the process is reversed. SLB is rated buy by 6 advisors who have beaten a buy-and-hold strategy in the past 15 years as tracked by Hulbert's Financial Digest, a Dow-Jones service which also rated my newsletter. It is the only non-US stock in the listing and rated ex acqueo third. Mark calls this flight to safety the December Effect.