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1) The Portland Thanksgiving Strategy Luncheon. 

Many thanks to all who attended the First Annual Portland Thanksgiving Strategy Luncheon, whose repartee, give and take, and wide-ranging debate made the event well worth the trip from Fog City. I always take in more from these events than I dish out, which is why I do so many. Talking to local businessmen about conditions gives me a leading economic indicator to rival the Fed’s, and there is always that hard core trader who has picked up a third derivative angle with an options play that I have somehow missed. Kudos to Paul, who won the prize for the greatest distance traveled, 385 miles from Coeur d’Alene, Idaho. Please spend your newly acquired Zimbabwean dollars freely.

Of course, I nearly froze wearing my summer suit to the soggy Pacific Northwest. It was so cold I received a free upgrade on my car rental to a fire engine red Dodge Charger, as the car wash was frozen solid, so only dirty cars were available. I feel sorry for the drunk who was tossed out of a downtown Portland bar, only to be found frozen to death in the adjacent ally the next morning.

An attempt by a Somali terrorist to explode a car bomb at Frontier Square during the Christmas tree lighting that night was an unwelcome development, even if it was a dud, provided courtesy of the FBI. This is the second time I experienced a near miss this year. My May New York Strategy Luncheon found a real car bomb parked in front of my hotel on Times Square, which was fortunately diffused in time. Was it something I said?

See you all next year, when hopefully, I shall have to rent the Grand Ballroom to accommodate all the guests. I urge Southern California residents to sign up for the next Los Angeles Strategy Luncheon this Friday,  December 3, where I expect a large contingent of “snow geese” flying down from Alaska. To buy a ticket, please go to my store athttp://www.madhedgefundtrader.com/store , and click on “EVENTS”. Terrorists are not invited, not even the Eskimo kind.

My Portland Strategy Luncheon Crasher

Fiat Lux,

John Thomas

The Mad Hedge Fund Trader

 

Air raid drills are back. The last time the Koreas were shelling and bombing each others’ population, I was in elementary school in Manhattan and we “took cover” under our desks to shelter against nuclear fallout.

So this is a trip down memory lane for me. Yesterday we learned that Pyongyang is developing its ability to build a nuclear bomb. But instead of waiting for the weapon to go live, the masters of the north have started another hot war, marking the Fin de Regime.

The shooting war over the inhabited Yongpyeong Island in South Korea will not lead to another global conflict in the Hermit Kingdom. China will remove King Kim Song-Il rather than supporting the monarchy, as it did for his father. That’s my fearless forecast for today.

Michael Kurtz of Macquarie Securities (of Australia) writes: Asian investors could be forgiven for not exactly embracing risk Tuesday — with MSCI Asia-Pacific ex-Japan Index down 2.3% on the day — given such diverse and headline-grabbing eruptions as a new cross-border military provocation between the Koreas; an FBI raid on three US funds with assets under management of more than $7 bn (raising at least the possibility of their liquidation and/or stricter regulation of the US investment industry); and escalating drama over Ireland’s sovereign debt problem (and all this while the implications of a sterner Chinese anti-inflation posture continue to sink in).

Yet we suspect that much of the risk aversion working itself into Asian equity valuations over the last 24 hours will prove relatively short-lived, offering a tactical buying opportunity for the level-headed and opportunistic.

Thai GNP in Q3 rose by 6.7%, well off sequentially from the 9.2% growth rate chalked up the in the prior quarter. Thailand’s PTT Exploration & Production, a state-controlled entity hitherto in my sights because it runs a gas pipeline in Burma (another one), anncouned that for $2.28 bn it will take a 40% stake in the Alberta Canada oilsands project of Statoil, of Norway, Kai Kos Dehsek. Thais are being tied into the rest of the world. China is also increasingly integrated into the system. That is why I expect a deal to dump the Kims.

What this means for our portfolio below along with some other news of fertilizers, software, supermarkets, telcos, hearing aids, gold mines, and pharmaceuticals and biotech. Life and investing go on:

*Both Korea Fund and Posco Steel are buys at today’s panic prices, all about political risk which is always high in Korea. PKX has commission a new blast furnace producing 4 mn tonnes/yr, uppping its capacity by 50%. That will help industrialize the barren north when the two Koreas become one. Unlike the German unification saga, there is little to recuperate in the Communist part of Korea.

*A note from PW, our biotech maven follows. In the present market CGEN is a good buy too: The Compugen proteins subject of validation by Northwestern U are recombinant fusion proteins similar to Enbrel. Wyeth developed Enbrel, an injectable drug being used with and without methotrexate to treat rheumatoid arthritis (RA).

There are currently about 258 clinical trials involving Enbrel and 78 are seeking new volunteers. The diseases targeted by these trials range beyond RA to lupus, psoriasis, kawasaki disease, Alzheimers, five different cancers (including breast and prostate), and pneumonia. The identified pathway is the one which the Compugen model represents, indicated as activated in many of the above diseases and others. Disease progress can be affected by attacking the pathway, thereby preventing continued “growth” or reversing the course of the disease.

Identifying a way to target pathways with pre-clinical trial drugs (even pre-animal trials), is hugely important. Computer modeling is a powerful tool. Selecting pathways has tremendous implications in many disease processes we already know about. Where it will go from here is anyone’s guess. The number of trials identified with this Enbrel pathway alone is remarkable. The number of trials for arimidex are over 100, and similarly for rituxan. These are just a couple of drugs currently on the market identified with this pathway (protein fusion and monoclonal antibody drugs). Probably many others exist (some may not even be associated with this exact pathway as an understood mode of action).

CGEN has tremendous value, and I am confident that this mechanism will be desired for future research. Protein research and pathway activation for cell growth is the rage, producing cures and treatments for many diseases. While I am not positive it is Enbrel which they referenced, it is an RA drug, and a recombinant fusion protein, so it fits.

These pathways have healthcare implications beyond what many credit, For example, I learned that Enbrel users have a significantly lower incidence than similar populations for Alzheimers. This is why current clinical trials are starting AzD patients on Enbrel to see if it will prevent or arrest Alzheimers. The pathway identified as implicated is our old friend B7/CD28.

CD28 is the receptor site. When it is bound by an alternative protein or monoclonal antibody, the action of the cell changes or is interrupted, and the disease process is affected. You are blocking one link implicated in the disease.

Translating this to profit is what the market is waiting for. We don’t know who has approached CGEN for collaboration or what agreements have been proposed, but I expect some discussions must be going on. Each announcement like this one from CGEN is just a hint as to the possibilities. That the investment community doesn’t see a value in CGEN is not surprising. When you look at biotechs in general most do not rocket up until there is a product announcement, partnership, or buyout. Financial analysts are not scientists, and they don’t book gains from science they don’t understand.

*Dr Reddy is buying the oral penicillin plant of Britain’s GlaxoSmithKline in Bristol (TN, not Palin). Price was not disclosed. GSK will continue to produce the antibiotic outside the US protecting by non-compete clauses from genenrics maker RDY, of India.

*Sonova, the Swiss hearing aid firm, which expensively bought Advanced Bionics, maker of implanted aids a year ago, is now recalling Hi Resolution 90K impants which malfunctioned. Sonova is a Global Investing Pro pick.

*Israel Chemicals reported Q3 sales up 4% to $1.39 bn, mainly because of a recovery in fertilizer demand. Despite 11% higher operating income, also fed by new demand for bromine from the Dead Sea, its net fell marginally to $243 mn because of higher taxes. ISCHF. Meanwhile K&S of Germany bought a small Sakatchewan firm, Potash One, for C$434 mn, showing that the curse of BHP is not shared.

*Britain’s Investor’s Chronicle reported today that 2/3 of Tesco’s grocery shelves are now outside the UK, mostly in Asia. It plans to quadruple China sales from GBP 600 bn now over the next 5 years and also has important holdings is South Korea. That is a good reason to buy TSCDY if the share falls over the war threat.

*Bank of Nova Scotia, BNS, is buying the remaining 82% of Dundee Wealth it doesn’t already own for C$3.2 bn, amounting to C$21/sh with cash, shares, and prefered share options to lure different constitunencies. Being a bank, the complexities do not cost it much.

*Goldfields settled the strinke at Deep South Mine in South Africa. GFI.

*IAM Gold is doing exploratory drilling at a new find in Tanlouka, Burkiana Faso. IAG is Canadian.

*Vance Info Technology plans a 2.53 mn ADR secondary issue at $36.15/sh. VIT, a Chinese IT firm tipped by its ex-employee, Fei Chen, was rising to nosebleed levels and while we both sold half we still loved the stock. That price was set before Korea erupted and the Chinese firm may cut its price. IT was all too good to be true.

*BCE is said to be threatened by the terms of the next Canada auction of frequency spectrum, along with all the other incumbents.

The attack bears surrounding Ben Bernanke are not serious currency forecasters. They are a bunch of tea-party Fed-haters, Republicans hoping that gridlock will sustain the Great Contraction long enough to defeat Obama in 2012, Chinese trying to deflect criticism of their weak renminbi by yelling about US policy, and Germans trying to deflect criticism of their smug unhelpfulness to fellow-Europeans over the risks of the common currency.

However, since I went long the Greenback on Nov. 4, the dollar has risen, fed by continued euro bailouts and the Chinese need to tackle inflation. This has hurt the euro and commodity currencies like the C$ and the A$ and boosted the US$.

According to Bloomberg, “strategist forecasts for the dollar to weaken have all but ceased.” The service today says that its most recent survey of 38 analysts show they expect the dollar to strenghten to euros 1.36 by the next year, from 1.3673 now.

Bloomberg cited analysts with “a good record” at Wells Fargo as being more bullish on the US currency, expected it to be worth 1.38 euros by year end.

China is seriously worried about the price of food leading to social unrest. Beijing’s food focus led China Daily News to write today: “Road tolls for vehicles carrying fresh produce will be scrapped from December 1, and local authorities will have to ensure energy and transport prices for fertilizer producers are reduced.” CDN is the main state media mouthpiece. More for paid subscribers on how to play China veggies and dollar strength and news from Canada, Israel, Thailand, Germany, and Brazil follows:

*Our play on dollar recovery is Powershares DB US Dollar Index Trust Bull, UUP for short.

*Our China veggies stock Le Gaga will report its Q2 earnings at 8 am on Nov. 29. Your GAGA editor will cover it, gaga because of the time of day.

*Compugen of Israel studies proteins in the lab to find new interesting molecules for treating diseases. It recently licensed Prof. Stephen Miller of Northwestern U to extensively validate a drug find, CGEN 15001 against multiple sclerosis, one of nine new molecules in the B7/CD28 family which regulate the immune response found by CGEN scientists. Now the other 8 are also being turned over to him. They all involve inhibition of reactive T lympacytes.

This reflects CGEN’s new strategy of taking its finds closer to market before licensing them to drug majors. It is a high risk way to move from in silico drug discovery to get closer to the market.

*Fellow Israeli Kosher food distributor G. Willi International reported Q3 sales up 16% to NIS 79.7 mn ($21.7 mn). While not strictly comparable, WILC net profit came in at NIS 7.8 mn or $2.1mn, 15 cents/sh, up 7.4%. The non-comparability was because of an acqusition in 2009 Q3. Selling expenses nipped the profits too.

*Another Israeli, Elbit Imaging, will spin off its Elbit Medical in Tel Aviv via a shell company. That means US EMITF shareholders will probably not be allowed to participate because the new stock will not be registered with the SEC. (See below.)

*One of the first Israeli stocks I tipped was ECI Telecom which is now being shopped by its latest owner to Dmitri Medvedev, the Russian president. I hung up on ECIL ages ago.

*Another takeover bid will help our portfolio, according to Business Week. It reports that One Equity Partners LLC, a JP Morgan entity owning half the shares, is shopping Sued Chemie, our recently acquired German “green” chemicals producer, only a quarter of whose shares trade publicly. The purchase had to be made in Germany and as you can read below caused some subscribers to cancel. SUC.GY had euros 1.2 bn of sales. Early next year Morgan will decide between listing its stake or selling. If it sells, the buyer under German law must make an offer for the whole company, meaning us. SUC:Deutschland

*Brazil’s Cosan is buying Brazilian listed shares, not those of our offshore entity, listed as CZZ.

*Saneamento Basico de Sao Paulo will borrow Reais 600 mn ($350 mn or so) for 18 months on the local market.SBS

Lots of changes in our funds portfolio.

*Our Canadian switch is to take place Dec. 11 when BAM.M:CA Brookfield Asset Management preferred M stock goes ex-dividend. At Martin Ferera’s advice, we will then buy the higher-yielding Brookfield Infrastructure Fund, which will go into the funds portfolio, BRPFF. It has the advantage of being quoted in the USA as well as in Canada. Brookfield is the Bronfman family investment vehicle which they have graciously allowed the rest of the world to invest in alongside the Mishpochah. Family investors’ needs set investments in the US, Australia, Europe, China, plus Canada.

*I have more confidence in Canadian family-controlled companies than ones from further afield: the Bombardiers, the Morgans (of Third Canadian) and the increasingly respectable Bronfmans, even if they did get their start running liquor across the border during Prohibition. I also believe in Power Corp, PWCDF, another Canada family enterprise.

*Big Rock and Cineplex Galaxy are both converting from tax-exempt Investment Trusts into standard corporations by year end when the tax advantage ends. There will be new ticker symbols from the current BR_UN:CA and CGX_UN:CA.

*The dividend on MFD, Macquarie FirstTrust Global, has gone up by 50%. MFD had been reclassified as a World Equity Fund rather than an Income Fund in Barron’s. Unless they change it back.

*Deutsche-Bank-managed Dreman RREEF World Real Estate is merging. Our closed-end fund, DRP, will be merged into another Dreman open-end fund with a similar investment strategiy. That means it will be dropped from out portfolio as we do not cover open-end funds. This will happen in Q1 2011.

*Finally a piece of rotten news, S&T System Integration and Technology, the Austrian speculative IT company operating all over Eastern Europe, which was due to be re-financed by an Austrian group after reporting a money losing Q3, saw the refinancing cancelled. It is now in the process of restructuring. We are selling after a decade in the share, marginally ahead. The idea of outsourcing to Bulgaria enchanted me, perhaps excessively. It fell by half last week. Gevalt. Its ADR barely trades (STSQY) and I am selling in Vienna, SNT-World. Fidelity just sent me stale quotes and no news and on Sunday it stopped providing a quote. (On Friday it did still.) So much for a faithful broker….

*A dialogue with Paul Renaud of Phuket (Thailand) follows. His comments are bold/italics, and mine normal:

I do occasionally recommend direct purchases in foreign markets on the pages of Global Investing, and then I get criticized by the readership for making things complicated for them. Some people cancel their subscriptions because an occasional foreign-only idea cannot be bought easily. That happened last summer when I recommended Sued Chemie of Munich.

Understood. It’s like eating…you can go to McDonalds and eat in 10 minutes, or you can spend lots of time preparing a nutritious meal. The difference is in quality of food and your health! I understand the Amercians (generalizing) have little patience in such things.

My readers are not all as sophisticated or rich as the ones who subscribed to thaistocks.com, and many are only dipping their toes into international waters. My job is to encourage them, not scare them off.

True enough, capice.

Global-Investing.com currently recommends stocks trading only in major foreign markets, all much more accessible from the USA than Thailand. I do not think that is the result of US imperialism or taxation or regulation. And naturally that makes it easier for you to outperform in your niche. Bangkok is not as accessible as, say, Switzerland or Canada. That’s a fact.

But if you own foreign securities and bank accounts, you become a “Person of Interest”, and so profiled by the IRS. The effect is alike regardless where you invest outside the US! That is what I am talking about! Most US people don’t want that hassle, so opt out. As IE just did. (IE is a reader who subscribered to both of our publications. I have no idea if Paul is right about IRS targets, but I do get audited every year myself.)

If you are a US resident tax-payer you have a responsibility to report on your foreign capital gains and dividend income. That caused my problems with boom.com, and that is what IE was referring to in his note to you. It is easier if you go through a USA brokerage that works out your basis, capital gains, and dividends in US dollars.

Exactly, and the effect is that most Amercians stay home and use only US institutions! Hurray for them. That is the whole point Vivian, the laws discourage direct foreign ownership of shares, and so [are] imperialistic in effect. Not you, US laws!

Also you are wrong that foreign directly listed companies pay higher dividends than the corresponding ADRs. Shareholders are treated alike if we are talking about open foreign markets without exchange controls.

I was not talking about ADR’s, my dear. I was talking about US security laws, which allow for different classes of US listed shares. This is an abusive practice not allowed in Thailand! There have been many abuses in your land so its no longer the great standard.

As for the price of trading ADRs, it depends on the liquidity and the market. Obviously, the MAI shares (Thai secondary market) are more expensive to deal with from the USA than from Bangkok. Again, you should enjoy your ability to offer something most people cannot compete with. To blame the US because the MAI firms are too small to undertake the listing process seems to be putting things in the wrong order. It is interesting that Singaporean and Chinese smaller companies are tapping into the ADR market, and I expect that Thai firms will be coming too.

ADRs are very expensive to undertake. It’s a rich man’s club reserved for the biggest non-US companies, often overvalued. Hence, these often do not represent a good take on foreign markets. In Thailand well over 2/3 of our GDP is made up of smaller companies, the real Thailand, not ADR’s.

A regulatory problem arises when there are in-kind distributions not registered in the USA. Then the banks sell the rights and you may wind up behind the locals. I wrote ofter and early against the SEC barring rights distributions to Americans because they are not registered since I started Global Investing. I have fought hard against ADR fees imposed by the depositaries. The fact that I took a lead in these matters is known in this country, to the SEC, the IRS, the DTC, to my competitors in the newsletter business, to brokers, to my readers. Just as you criticized Swiss practices which harm shareholders, I have criticized those of the USA.

Good for you and your followers, because there are many abusive tactics….just another reason why one should try to own shares here directly, even if it means tabulating the capital gains. No big deal if you don’t trade all the time. Realize too,[US} buying and selling commissions are near 10 times as high than using a local broker. Surely this savings then pays for a bookkeeping fee at home.

Your editor retains her Thai stocks picked by Paul, at least for now. IE made about 20% net when he sold out. I would not because I used US brokers.

There are cautionary lessons to be drawn from the Irish crisis. The current optimism over the euro’s future is misplaced, since there has really been no resolution to the EU dilemma over deficits and surpluses within the common currency group.

Despite the Irish bankruptcy, it has good companies whose shareholders can make money. Like Ryanair whose CEO stated bluntly that his country is bankrupt. The contagion is spreading to good Irish companies and ones across the Irish Sea, in Britain, also under a shadow.

Low taxation is not the solution. Ireland, the former Celtic tiger, famously taxes corporations at 12.5%, one of the lowest levels in the world. It exempts creative folks (like newsletter writers operating in Eire) from personal taxes. It offers tax holidays and incentives to encourage businesses in favored sectors like drug research and computers.

To keep those cheap rates and holidays in place despite the government deficit (from the decision to bail out the Irish banks), Ireland last year cut services to its citizens: a 10% budget cut; reducing civil servant numbers and wage levels; a cutback on funding for eduction and teachers; limiting access to its state health-care system; firing nurses, social workers, and home help.

That was not enough. Low taxes cannot provide capital or make an economy grow, despite what the current crop of novice Tea Party economic pundits around Ms. Sarah Palin are saying.

Ireland had one of Europe’s most exuberant real estate markets for two decades. Banks lent with reckless abandon even though there was no FNMA or even a functional CDO market, two elements blamed for excessive lending in the US. Ireland over-lent without them. It did not need the US mechanisms which went wrong to lend stupidly. Its banks attracted “hot” money from venture capital and hedge funds for ever-more excessively generous property loans.

Sure there was corruption. Cheap loans attract politicians like honey to a bear. And the decision to bail out not only depositors at the Big Three Irish banks, but also bondholders, was tainted by the need to return favors.

But stupidity messed things up too. Anglo-Irish Bank was totally nationalized, and both Allied Irish Bank and Bank of Ireland (only 90% state-owned) are on life support from Dublin. The Irish coalition government faces running out of cash soon. Nobody has any idea how Ireland can continue to tap financial markets. That is the cause of the current crisis. Knowing a money crunch is coming next year, hedge funds and counterparites have pushed up the Irish cost of borrowing. It’s now 9%.

More stupidity. Now-nationalized Anglo owns a portfolio of defaulted property throughout Europe and America. Even in my city, a few blocks from the site of the Twin Towers of the World Trade Center, at 225 Rector Place, (just a bit further than the controversial mosque site). An auction of the condominium plus retailing building yesterday produced no bids. So Dublin continues to own the nearly-empty edifice. Condo owners moved out; the subsidized renters which got the project a tax break live on in ever-increasing squalor.

The developer, Yair Levy, (probably not a son of the Auld Sod), defaulted on his taxes and Anglo repossessed the building. Now The Irish Republic owns 225 Rector Place because it owns 100% of Anglo. And there are 36 children in Irish 1st grade classes because the teachers have been fired and you have to wait 10 months for a hernia operation.

Now Ireland awaits an EU-IMF refinancing package worth tens of billions of euros. QE2 will finance our share; but the Brits and Europeans will have to bleed to pay their part.

New from our companies in Ireland, Korea, China, Canada, Britain, and Brazil follows.

*It is hard to trade because of counterparty risk in Ireland, but Paddy Power is going from strength to strength. In a crisis it helps to take a flutter and it offers also a chance to do speculative spread-betting on financial instruments on the cheap. PDYPY>

*Martin Ferera writes about a yield stock switch to prepare to take when our current holding goes ex-dividend:

Recently the Brookfield series M preferred share ran up and now yield around 5.6% (going ex-dividend in early Dec.) Canadian corporations like Brookfield are exploiting the huge demand for yield and are tapping markets for cheap money. Two weeks ago Brookfield raised a further $250m preferred at 4.5% for the first 5 yrs, thereafter at Canada 5-yr bond rate plus 2.3%.

Whilst our M preferred series is still well below par ($25) and yielding significantly more than the most recent issues (5.6%), an opportune time is coming to switch into one of Brookfield’s key underlying assets, Brookfield Renewable Power Income Fund (BRC.UN in Canada, BRPFF in the US.) Switch after BAM goes ex-dividend Dec.

BRPFF currently yields 6.4% and unlike the M, its annual dividend has increased by 2.5%/yr since its inception a decade ago. The share price rose 15%/yr. BRPFF is 34% owned by Brookfield Asset Management, with the rest publicly-held. It owns 42 hydroelectric generating plants producing over 1600 mW capacity plus 190 mW installed wind power capacity in Ontario. Some 97% of generated power is hydro, with plants in British Columbia, Ontario, Quebec, and New England. All have long-term purchase agreements with an average duration of 13.4 years with an average price of $65/mW/h and built-in inflation adjustments. Ontario’s Electricity Board forecast average rates in that province of $48/mW/h for 2010.

The market value of BRPFF is almost $2.2bn, with investment grade (BBB) debt of $1.5bn. Last week BRPFF said it will add a new wind farm to its portfolio, the 166mW Comber Wind Project (with turbines from Siemens) for $567mn, , $300 mn financed by debt and the rest provided by Brookfield ,probably by issuing of new shares. Comber will commence operation late next year and has a 20 yr supply agreement with Ontario Power. BRPFF expects Comber to be financially accretive and will seek further acquisitions.

Last year the dividend payout ratio was 80% of distributable cash, although this has been over 100% in the two recent quarters owing to “hydrology problems” (drought) in Ontario and Quebec cutting hydro-generation An insurance payment of $10m is coming for this. Rservoirs are now being replenished. Ironically whilst climate change has helped promote the development of BRPFF, the weather has undermined its short-term performance. Ontario promotes an aggressive renewable energy policy, resulting in much higher electricity prices for consumers and a possible consumer backlash at the next provincial election. Nevertheless, the regulatory regime is stable, unlike California in 2000 when, following de-regulation, prices briefly reached $3000/mWh.

A double dip recession would also cut demand. After initially announcing that it would convert to a corporation, BRPFF management reversed its stance and now plans to continue in its current form at least for 2011.

CIBC estimates that in 2011 sales will be $452m and distributable cash (after maintenance capex etc.) about $210 mn or C$1.93/sh (after issue of additional shares for Comber Wind Farm). Given a current dividend of $1.30 per share, this would represent a payout ratio next year of around 67%. While BRPFF currently pays dividends monthly (ex.date 26 Nov) it will switch to quarterly next year.

CIBC says “BRPFF represents a relatively safe way to play the renewable energy sector. The strong dividend payout ratio offered downside protection throughout the market downturn in late 2008 and early 2009.” Sell Brookfield Preferred M and buy BRPFF.

I await word from Martin on when our existing share goes ex-div and when we are supposed to make the switch. He has done so already but I am greedy.

*Posco announed that it has develped a sodium sulphar rechargable battery with 3x the density of existing lithium ion electric storage batteries and also cheaper to make. PKX plans to capture some of the current $10 bn/yr energy storage battery market expected by 2020. The current market, mainly because of problems producing batteries, is only $450 mn/yr. The new battery will be launched on the market in 2015. This is a huge potential winner for the South Korean steelmaker, which has patented the device suitable for large scale storage, which will become a component of systems using wind, hydro, and solar to make electricity which is not always available when and where it is needed. PKX is a technology company.

*Intertek Group revenues were up 15% in Q3 and organic growth was 9.4% and, according to management, “market conditions strengthened across many parts of its business in 2H”. Guidance is for 2010 organic growth to be at the high end of mid-single digits growth. It expects the rate to continue into 2011 (ie 6.5%), although this looks low relative to its 9% performance May-Oct. IKTSF indicated that 2010 margins will be slightly below 2009, perhaps the reason for the fall in the share price today. But revenue and organic growth may lead to upgrades in coming days.

*Reader SR sent me a message about a Motley Fool article about nested corporations from China (without the article) writing: “They do NOT say categorically don’t buy, but they did issue a strong warning and mentioned GAGA in particular. They said “we very, very strongly believe in investing carefully. If you take nothing else away from this article, please keep this statement from recently IPOed vegetable producer Le Gaga (Nasdaq: GAGA) in mind.” The article, he said, then quoted from the prospectus for Le Gaga:

“Your ability to bring an action against us or against our directors and officers, or to enforce a judgment against us or them, will be limited because we are incorporated in the Cayman Islands, because we conduct substantially all of our operations in China and Hong Kong and because all of our directors and officers reside outside of the United States.”

SR added: “I have been leery of stocks in non-open countries because of things like this.” I replied:

The warning is lawyerly boilerplate. There is nothing particularly odd about the fact that GAGA is Cayman Islands incorporated. Many mid- and small-cap entrepreneurial Chinese companies find it impossible to deal with China’s bureaucrats to create companies. Among the firms we currently own or owned in the past with a Cayman registration are Suntech and Xinjiang. XIN started out as a Cayman company and then reincorporated in China. GAGA is a speculation as is XIN.

There have been some scandals recently about PRC shell companies (like Rino International, a flue gas, sludge, and water treatment firm whose trading has been suspended because of apparently fraudulent accounting) which won a Nasdaq listing by buying out a defunct corporation, as American Dairy did (we are out of that stock). GAGA was a direct listing and it had all the usual Wall Street biggies on board as underwriters and depositary. It is not using a shell. It was a new listing. Underwriters were BofA Merrill and UBS; co-book-runners were Piper Jaffrey and Oppenheimer; depositary was Citibank.These are good references.

A fact: US shareholder protection laws do not apply extraterritorially, and most ADRs have officers residing outside the USA. Our most horrible recent ADR disaster was with Alcon, a company with a majority of shareholders on Wall Street which was incorporated in…. Switzerland. Swiss are less protective of minority shareholders than the Caymans.

Featured Trades:  (FXY), (YCS), (FXE), (EUO), (UUP), (FXA), (FXC), (CYB)
Currency Shares Japanese Yen Trust ETF
ProShares Ultra Short Yen ETF
Currency Shares Euro Trust ETF
ProShares Ultra Short Euro ETF
PowerShares DB US Dollar Index Fund ETF
Currency Shares Australian Dollar Trust ETF
Currency Shares Canadian Dollar Trust ETF
Wisdom Tree Dreyfus Chinese Yuan Fund ETF

The Collapse of the Yen: The Party Has Started.

“Oh, how I despise the yen, let me count the ways.” I’m sure Shakespeare would have come up with this line of iambic pentameter if he were a foreign exchange trader. I firmly believe that a short position in the yen (FXY) should be at the core of any hedged portfolio for the next decade.

To remind you why you should hate the Japanese currency, I’ll refresh your memory with this short list:

* With the world’s weakest major economy, Japan is certain to be the last country to raise interest rates.

* This is inciting big hedge funds to borrow yen and sell it to finance longs in every other corner of the financial markets.

* Japan has the world’s worst demographic outlook that assures its problems will only get worse. They’re not making Japanese any more.

* The sovereign debt crisis in Europe is prompting investors to scan the horizon for the next troubled country. With gross debt approaching 200% of GDP, or 100% when you net out inter agency crossholdings, Japan is at the top of the list.

* The Japanese long bond market, with a yield of a scant 1%, is a disaster waiting to happen.

* You have two willing co-conspirators in this trade, the Ministry of Finance and the Bank of Japan, who will move Mount Fuji if they must to get the yen down and bail out the country’s beleaguered exporters.

When the big turn is inevitably confirmed, we’re going from ¥83 to the initial target of ¥85, then ¥90, ¥100, ¥120, eventually ¥150 (remember to think in inverse terms). That means that the 200% short play on the yen (YCS), could soar from $16 today to as high as $40, a potential gain of 250%. But it might take a few years to get there. The Japanese government has come on my side with this trade, not that this is any great comfort. Four intervention attempts have so been able to weaken the Japanese currency only for a few nanoseconds.

If you think this is extreme, let me remind you that when I first went to Japan in the early seventies, the yen was trading at ¥305, and had just been revalued from the Peace Treaty Dodge line rate of ¥360. To me, the ¥83 I see on my screen today is unbelievable.  If the recent high print of 80.20 is the top of the current move, then we have just made a neat 15 year double top on the charts, a technical analysts dream come true. Sell the yen on rallies, with a ¥79.40 stop for insurance.

It’s Looking Like It’s Game Over for the Yen

Has The Euro Turned?

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The Fat Lady is Singing for the  Euro

Follow Wayne Gretzky’s Advice on Where to Aim

Why I’m Singing “Waltzing Mathilda” in the Shower.

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My Favorite Australian

Another Favorite Australian

The Loonie Takes Flight.

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My Favorite Canadian

Another Favorite Canadian

Play China’s Yuan From the Long Side.

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Ready for a Long Term Relationship With China?

Fiat Lux,
John Thomas
The Mad Hedge Fund Trader

P.S. If you’d like to sit side by side with me and let me help you multiply your portfolio like a winning hedge-fund manager then I’m happy to mentor you and share my specific trades as I make them just click here to get details on my breakthrough Macro Millionaire coaching program & trading service

Yesterday I got a lot of attention, being quoted first on Seeking Alpha.com, which picked up my overall blog with the note by Dr. Max Golt on how currency trading is becoming more restricted, and my quoting Michael Kurtz on China inflation sectoral predictions. I was also interviewed on his hedgefund radio program by John Thomas, of  themadhedgefundtrader.com

I was thinking a bit about the latter chat today. As old-time readers know, I share a birthday with a Burmese “twin” Aung San Suu Kyi AKA The Lady. She was released from house arrest over the weekend. The question is whether there is any way to invest in Myanmar to celebrate with The Lady. The answer is: no. The SLORC, or whatever the military junta call themselves now, do not allow businesses, except Army businesses (like timber cutting, rubies, and oil exploration) they run for their own corrupt profit.

Every market in the world is not necessarily worth investing in. Vietnam is another. About 18 years ago Mark Mobius of the Templeton Group launched a closed-end Vietnam Fund which I and my readers bought. But Mark, an old Asia hand (his first job after getting his PhD from MIT was selling Tiger Milk in northern Thailand) could not find ‘Nam companies to invest in. So fund holders were given their money back or a chance (which I took) to buy into the Templeton open-end Emerging Markets Fund without paying the 8.25% fee then charged.

Just because Mount Everest is there, you don’t have to climb it, unlike Sir Edmund Hillary. And just because a frontier economy is appearing on the radar screen, you don’t have to venture to invest in it.

Meanwhile perfectly respectable stocks from western countries deep in disaster, like Greece, Portugal, Ireland, and Japan are doing well for our subscribers. In serious economies with problems, often investment vehicles caverride the problems.

*In Portugual, we gain from the continued international expansion of Portugal Telephone PT, the telco, which is in the process of redeploying its cash into Brazilian cellphone operator Oi.

*In Greece we gain from the good performance of Coca Cola Hellenic,
CCH,which is Greek only in its site of incorporation, as it operates across great swarths of Europe, from Northern Ireland to the Caucasus, and in sound markets like northern Itlay and Switzerland, as well as the Greece the controlling family hark from. We also gain from the National Bank of Greece preferred shares I like, which are still paying a double digit return despite the share outperforming most of the yield portfolio.

*In Ireland our Paddy Power, operators of bookie and spread-betting shops, mainly in Britain, are doing just fine. Despite those heavy losses, a handful of Irish stocks have recovered to  hit fresh highs, along with some others that strategists see as  potential winners, among them PDYPY. Of course it’s business is not really Irish said Stephen Taylor, equity strategist at Dolmen Securities.

*Sharing glory with Chris Loew, momentum-players smarTrend identified an Uptrend for Makita (MKTAY) on Sept. 20, at $30.65. In 2 months, Makita returned 17.4%. In the past year, they write:” MKTAY traded between a low of $25.55 and a high of $39.65 and are now at $36, 41% above that low price. Makita is currently above its 50-day moving average of $32.73 and above its 200-day moving average of $31.06. “ This was a Chris-Vivian find.

*The metal du jour is not an easy call. Gold continues to puzzle hedge funds. George Soros, who called gold “the ultimate bubble” cut his holdings of Streettrackers Gold, GLD, by 1 mn shares. Eton Park topped Soros by cutting its holdigns by twice asd many shares. Meanwhile buyers included Chris Shemagy, Dan Loeb, and Highfield Capital. John Paulson, the man who broke the bank of mortgage securities (as Soros broke the Bank of England) kept his gold stakes constant. I am not able to sell a million shares so I am keeping my stake as it is. But this is no time to buy more GLD.

*With everyone bailing out of Chinese property it had to happen. Your editor’s stubborn liking for Xinjiang Real Estate today was shared by Thomson Gradient analysts who raised XIN to buy from hold.

*Nuclear worries can never be laid to rest, but the Greenwich University-led British campaign against Areva has crashed: The British Nuclear Regulator stated in a joint letter addressed to AREVA and

EDF that both companies have “addressed satisfactorily” its concerns regarding the EPR™ reactor’s digital Instrumentation and Control system. The letter was issued as part of the Generic Design Assessment. There no longer are any showstoppers for the reactor to successfully complete the asssessment process. Areva will cooperated with constructors and British safety authorities,by providing input, helping the Regulator complete a meaningful assessment of the EPR™ by the June 2011 target. The EPR™ reactor is the world’s most powerful reactor and meets the highest safety standards. It is currently being built in Finland, France and China and US certification is underway.

Yestgerday it was revealed that last month the CLP-Guangdong Nuclear Invesment Co nuclear plant in Daya Bay, China leaked but operations and public safety were not affected. The leak was rated level one, the lowest level on the International Atomic Energy Agency’s Nuclear and Radiological Event Scale. The facility has been operating since 1994 and uses older French technology to generate 10bn kWh/yr.

*Posco aims to sign a contract to build a 450,000 tonne Guangdong steel galvanization plant in China to match the one it already is building in India, same size, same purpose (auto bodies.) Govt permits are pending. It alrady makes stainless in China at the rate of 1 mn tonnes/yr and has a 230,000 tonne cold rolled steelproducts plant. (A tonne is a metric ton.) PKX is South Korean and has some of the best steel tech in the world. Besides us, Warren Buffett is a shareholder.

*Mellanox took aim in two directions today announcing a next-generation infiniband bandwith connection system for supercomputers and mega data-warehouses (at the top end of the market in capacity and price). But at the same time it also announced 8- and 10-point small connection switches for smaller applications. MLNX is Israeli.

*AstraZeneca, facing a 2011-4 decline in sales after losing patent protection on two blockbuster drugs, Nexium and Seroquel, has figured out how to raise cash for buying startup drugs. It will sell its Swedish non-core unit making denatal implants and medial devices, Astra Tech, for 3.4x sales. This is about $2 bn. JP Morgan is the advisor. It will also sell its US Aptium Oncology outpatient centers on the market, for anoterh half billion dollars. AstraZeneca needs to generate $4-6 bn in new products to meet its 5-yr sales target range of $28-34 bn. AZN>

*Sonova being Swiss does not do quarterlies, only semiannual. Its sales in HI (FY to Mar. 31) hit a new record of SwFr 832 mn boosted 17.2% in Swiss money and 8.2% in constant currencies from organic sales. Pretax profits jumped 5.3% to 204 mn francs and after tax income to 170.5 mn. The company makes hearing aids. Just under 12% of the sales growth came from acquisitions like Advanced Bionics (hearing implants) and InSound Medical. And 81% of sales came from products less than 2-years old. Last month SNVKF luanched a new innovative line using its “spice” platform. Sonova, a Global Investing Pro share traded only aborad expects organic growth to hit 8-10% for the rest of the year and to post a pre-tax margin of 26% or so. In H1 gross margins rose sequentially to 70.1% from 69.4%.

*Today is crunch day at the US FDA for GSK’s Benlysta against lupus. Its advisory panel was quite worried about side effects, and usually the main body follows the advisors.

*Eli Lilly got its patent on cancer treatment Alimta confirmed by a US Federal Court, , which will protect against generic competition from, among others, Teva, until mid-2016. TEVA also lost in another federal court case which upheld the U.S. patent for the blockbuster antipsychotic Abilify, made by Otsuka Pharma and Bristol-Myers Squibb until 2015.

Despite these setbacks in the courts, TEVA was reiterated at Buy by UBS and the target raised to $64.

*Hyflux of Singapore signed a contract to build a $100 mn water treatment plant in Libya. HYFXF.

*Also in Singapore, RIG is buying a new $195 mn high-tech jackup from PPL able to drill in 30,000 fet deep offshore sites. Transocean of Switzerland has to upgrade its rig fleet part of which is currently idel by adding more sophisticated deep-water products able to compete with Seadrill and Dryships.

*Exane BNP analysts rate Intertek as outperform with a GBP 26 target. The company today announced that it will be testing the safety of WindTamer Corp.’s 8 gigaton wind turbines which are novel and big and American. IKTSF.

*Our poshest stock, Wendel & Cie, also from the GlobalInvesting Pro stable, reported a 23% rise in Q3 sales to €1,463.3 mn. WNDLF says it is firing on all cyclinders. It sold its Stallergenes 46% stake generating a capital gain of €300 mn which shareholders in STLEF, including PP and me, will join in when the mop-up takes place. WNDLF made 35x its investment in STLEF; we didn’t do that well, but I am up 606% on what is now only trading as GENP:FR (not STLEF). WNDLF is using its payback after 17 years to cut debt.

*ICAP plc (IAPLY) announced expansion of base metals broking business by addition of a London Metal Exchange desk in Hong Kong, and the hire of former Citigroup trader Jason Dobson.
*JPMorgan raised G4S the security firm to attractive. GFSFY.

Dividend news: Aberdeen Pacific Income Fund continues to pay 3 ½ cents/month. FAX.

Stable-mate Aberdeen Global Income Fund pays 7 cents/mo. FCO. Both are relatively light on the emerging markets bond markets, which is reassuring.