JERSEY CITY, N.J., Dec. 10 (UPI) -- Christmas is coming, meaning it's time for investors to adjust their portfolios, and for us to review and update some recent predictions.
RUSSIAN RULE-ETTE
On April 27, in "Russian Rule-ette," Bottom Line issued a warning about spillover from the huge back-tax payments Kremlin officials were imposing on oil giant Yukos. What if Moscow applied this approach to other Russian companies?
We singled out two firms, Tatneft (which trades in New York as TNT) and Vimpel (VIP in New York) as especially vulnerable. This fall, in "Russian for the exits," Bottom Line repeated the general Russia warning.
This week, the Russian taxman put the hammer and sickle down on Vimpel, imposing a $158 million tax charge for 2001. That's more than 80 percent of the company's current cash, and, of course, leaves 2002, 2003, and 2004 open for speculation. Appropriately, Vimpel shares are down 20 percent on the week in dollar terms, and more than 30 percent of their highs from spring and fall.
It's worth noting that the ruling relates to some of the very issues applied to Yukos, involving special tax breaks for subsidiaries. A reliable Russian trader says that the word in Moscow is, Vladimir Putin wants to punish Western investors because of U.S. and European interference in the Ukraine. Vimpel not only has large ownership by Westerners, as does what's left of Yukos; corporate officials apparently did some preparatory meddling of their own with Western European diplomats.
There's a little bounce in the Russian markets today, but it's not time to cover yet. Still, this is a situation that changes daily, and these articles only come out once a week -- so if you're making the play, you need to do your own bottom-line assessment and monitoring as time goes by.
OIL'S WELL THAT ENDS WELL
As oil spiked into the $50s, Bottom Line issued a two-part prediction: 1. Yes, the price might reach $55, but would return to the mid-$40s, and 2. The U.S. and other global stock markets would take cheer from a mere flattening of the oil price, whether it dropped significantly or not. ("Oil's well that ends well," August 14.)
So far, so good. U.S. and world markets began to rise as oil leveled off in the low $50s, and now, oil is threatening to break into the $30s. Oil, in fact, is now a buy, as are international energy stocks, which have suffered the correction they needed. But we still like global equities, particularly if one is properly hedge in the currencies. Which brings us to:
SNOWED-UNDER DOLLARS
On November 4, "Fed-less, Treasury-less, Dollar:less," we sensed that the dollar was about to bottom and encouraged investors to start covering their greenback short positions against the Euro, while going long the dollar against the yen and gold. Bottom Line also did a rate bit of editorializing, praising John Snow's use of the tools he's been given and advising the White House to hurry up and name a replacement -- if indeed the loyal and unspectacularly competent secretary was headed for the egress.
This week's White House announcement that Mr. Snow will be staying on coincides with the dollar's rebound. It's no accident. Europeans had been hoping against hope that the U.S. would replace Snow with a Wall Street Name whose mere appointment would bring a dollar rebound. Sorry, Messr. Trichet: No such luck.
Snow's re-appointment also ends weeks of the most clumsy, and downright ungrateful, insider putsch efforts against a cabinet secretary since the days of Alexander Haig and the Reagan troika. This alone gave the dollar a little boost.
The threat two weeks ago to raise interest rates by European Central Bankers were the last gasp of a defeated Frenchman. Europe will have to intervene to defend the dollar if its slide resumes, and the fundamentals point to a stronger dollar anyway over 4-6 months. This puts a floor under the dollar, should any weakness resume.
Bottom Line still thinks we may reach 1.35 on the Euro. But we'll see 1.20 Euro before we see 1.40. And the yen is unlikely to crack below 100. It's a good time to start nibbling some Euro shorts, and buy more if there's one last dollar dip.
Yen shorts, hold onto. Gold shorts, take profits; the world is still in an easing mode, with negative real U.S. rates and Europe likely to be forced to keep pace, especially if there's no revaluation of China's yuan.
BOTTOM LINE DOWN-SIDES
Nobody's perfect. Bottom Line recommended shorts in Chinese mining stocks are still in the red from the spring, but don't give up on them yet -- especially companies like China Aluminum. Chinese miners are getting restless under the country's scandalous lack of investment in basic safety equipment.
We've also been short Argentina and Brazil, losing a bit on those positions since summer, and on a recent Israel short recommended in combination with buying Turkish equities -- both positions in the red, but not by much.
Our long call on Indonesia took a spike down this week, but we'd be buying more at these levels: President Susilo's anti-corruption drive will cause short-term concern, but is a key to lifting the country from it's ratings near the bottom of international levels of transparency in markets. And his phase-out of absurd energy subsidies (gasoline at less than $1.50 a gallon) are a long-term boost to efficiency, and reduced government spending that can fuel tax cuts. Stay in.
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Gregory Fossedal manages international investment strategy for Emerging Markets Group. His clients may (and usually do) hold long and short positions in many of the investment securities and opportunities mentioned in his reports. "The Bottom Line" is compiled from sources we believe to be reliable, but no representation is made that they are necessarily accurate or complete. Investors should perform their own due diligence and consult their own professional advisor before buying or selling any securities. Mr. Fossedal's opinions are entirely his own, and are not necessarily those of UPI or EMG. Furthermore, they are subject to change without notice.
