Euro Trade

    Having long argued that there is no such thing as BRIC markets, since the quartet of large emerging markets are very different critturs, I am not going to follow up my analysis of China (Weds.) and India (Thurs.) with reports on Russia and Brazil.

        However, for the record, I would like to tip my hat to Torrey Clark and Henry Dennis of Bloomberg   who wrote yesterday about Vladimer Putin's revenge. Having had to tolerate the oligarchs who came on board when he gave no-action guarantees to succeed Boris Yeltsin, the Russian premier has long cherished a desire for revenge on the Russian mafia of illicitly enriched new men, many of whom have moved themselves and their money outside its borders.

    Now, with the financial crisis exposing these highly-leveraged parvenus to margin calls, P.M. Putin has an interest in taking his time to bail them out.

     *Visiting advisor Dan McCabe, CEO of Next Investments, is a specialist in designing products for mutual and exchange traded funds. His firm created the SPDR Gold shares (GLD) which we own, along with currency ETFs for Euros, C$, Yen, Mexican pesos, Swedish krona, Swiss Francs, Australian dollars, and British pounds sterling. These are bought with a normal brokerage account and are very liquid.

    Today he tells how to use ETFs in markets which are under siege. He writes:

    "There has never been a failure among demand-deposit accounts in the U.S. All of the CurrencyShares assets are held by in trust by JP Morgan Chase, with Bank of New York as trustee.
 
     "Although the dollar has gained strength against other currencies in recent weeks, most advisors recommend diversifying dollar-held assets to hedge against the inevitable turn of global events that has rocked financial markets. 
 
     "If the recent gyrations have taught us anything, it's not to put all your dollars into dollars - or indeed any single currency. And one certain byproduct of all the money being pumped into the system by the world's central banks will be a rise in inflation, which only increases the need to own a basket of currencies as a hedge of being overexposed to any one country - including the U.S.

    "Currency ETFs are actual demand-deposit equities traded on the New York Stock Exchange. Each individual currency pays overnight rates - investors have the assurance of inter-day liquidity and virtually no counter-party risk. They aren't swaps or derivatives, they're not leveraged - for the average investor, they are meant to be held as a means of asset diversification.
 
    "At the same time, CurrencyShares are the only currency ETFs with options available for trading, allowing investors a chance to more actively hedge their currency holdings.
 
     "Example: an investor buys 100 shares of FXE (the Rydex euro ETF) at a price of around $134.60 given the [Friday] conversion rates. Simultaneously, the same investor sells a November 138 call option at $2.00.
 
     "By this scenario, you would receive 38 cents in dividends before the November 22 expiration, along with the $2.00 from the sale of a single call - protecting you to $132.22 on the downside. (Editor's note: Mr. McCabe subtracted the 4 cents/mo management fee from the 42.27 cents of monthly dividend.) 
 
     "If the FXE trades up to 138 or higher by its expiration date, you make $5.78 for each share, which represents a 52% annualized return.  Given what's happening right now, with banking bailouts on both sides of the Atlantic, it's not at all hard to imagine the euro going back up to 138 over the next month."

      Vivian adds: You are protected to $132.22 if FXE falls.

      The trade outlined sounds much more interesting than just holding the European stock ETF, EZU, and we advise switching.

     *A further note to show that the Sino-Brazilian negotiations over iron ore pellet prices we reported on yesterday are not reflective of the real economy is news that Posco is buying (with Japanese partners) from CSN of Brazil the Nacional Mineiros S.A. (Naminsa) iron mine. PCX and partners are paying 400 billion yen, about $3.9 bn.

      *The OAO Gazprom deal to buy out the Kovytka mine from TNK-BP (a fatal combo of oligarchs and a British firm owning 63% of a Russian resource) will be abrogated if the license is not renewed next week.) OGZPY.PK would then presumably be able to buy the license directly from its controlling shareholder, Russia.

      *Crucell with its partner Aeraas Global TB Vaccine Foundation, will begin phase II testing of their vaccine, Aera402/CrucellAd35 in Africa. The TB vaccine uses PER.C6 manufactuign technology and a vaccine vector from CRUX and if this pans out the shot can more into large-cale manufacturing. The rests will take place in Kisumu in western Kenya among healthy people and in Cape Town among people exposed to TB.

      *Raymond James today issued a strong buy on Sun Tech Power which we have also been enthusiastic about. STP is the oldest, largest, and wisest of the Chinese solar ADRs.

      *Areva, the French nuclear powerhouse, is facing a few hurdles. First of all, its buddy, EdF, pulled out of the bidding for Constellation Energy (MD), leaving Berkshire Hathaway in control. The two companies have a joint venture to develop a U.S. standard nuclear power station based on ARVCF.PK models in wide use in France.

     Secondly, Finnish licensing delays mean that the Olkiluro nuclear power plant there will not be commissioned until 2012. The plant is being built with Siemens, and is the first of a new generation of nuclear electricity generators. The Franco-German partners have also called for arbitration of the contract because of approval delays which are costing them money. The delays have nothing to do with safety, because all standards are being met; they are about NIMBY.

     *Yara reported a very strong Q3 today, with net at NOK 3.36 bn ($455 mn or NOK 11.55/sh or $1.76/sh) double year-earlier levels. The company benefited from higher fertilizer prices which overcame higer oil costs. The figures exclude the impact of acquisition of Kemira Grow How early this year. Sales however were down because of lags in Brazil and Asia. YARIY.Q warns that financial turmoil may have unpredictable effects and orders may be delayed because of the credit crunch going forward. However, it also points out that demand for food is pretty inelastic.

    Mes excuses for the blog being late. I spent hours fighting with the blogsite today.