Thursday, August 28, 2014

Medtronic's Deal Is About More Than Taxes

Medtronic’s proposed $42.9 billion cash and stock acquisition of Covidien may amount to a “synthetic repatriation” of funds trapped offshore, which is addressed through a relocation of corporate offices to lower tax domiciles.  However, the fundamental issues behind this move, in our opinion, are strategic and product oriented. Medtronic’s growth rate has been lackluster for some time, despite their robust R&D spend. Meaningful new products outside their core electrophysiology/stimulation technologies have been disappointing.  Despite the CEOs coming in on a theme of building the future on emerging markets, that is a long grind, and it won't be as profitable or as protected as business in developed markets like the U.S. and Europe.  

With the acquisition of Covidien’s interventional and surgical products, the combined entity becomes much more important to large medical systems.  Opportunities for facilities, sales force and administrative rationalization abound. Combine these economic factors with the cash tax benefits and now there's something to consider for fundamental investors.

Higher topline growth and profitability with the Medtronic equity multiple can create significant value.  Integration risks and increased scrutiny by tax authorities, however, do pose real risks and additional costs.  Our point is that mega-cap companies which are already paying below statutory effective tax rates have every incentive to continue leveraging this situation, but the driving force, besides cash, is the search for higher revenue growth and profits to justify maintenance or expansion of a high P/E multiple

Now, there are protests from all sides.  Covidien shareholders say the bid is too low, while Medtronic shareholders say it is too high. All this is normal, and can go away. The Obama administration is protesting: the election campaign and campaign contributions will settle this issue.

It is important to remember that shareholders always want profitable growth, and they prefer it now to later. 

Emerging Markets Revisited

Here's a short piece I wrote for a financial executives professional group on emerging markets.  Since I did quite a bit of research beyond this, you'll see more on this topic in the coming weeks.  Incidentally, there has been a problem with hijackers taking control of the referring website function for this blog. It has been reported to Google, so we'll see where this goes.  

Emerging market equities (“EME”) belong in an investor’s broadly diversified portfolio because they offer higher prospective returns albeit with higher expected volatility. Going forward, we believe that a selective approach to ownership, meaning active management, may be superior to one hewing closely to a broad, EM index. 

The economic case for EME centers on several themes: higher GDP growth rates; younger populations; increasing investment and efficiencies from infrastructure development; maturing financial services companies; export growth, and growing middle class discretionary spending. Ruchir Sharma, Head of EM at Morgan Stanley, makes this case well in a readable book.

In order to translate these into growth in corporate earnings and portfolio returns, investors need: political stability, strong respect for property rights, effective dispute resolution, a predictable regulatory and tax regime, a positive foreign investment climate, efficient markets, strong corporate governance, reliable corporate auditing and financial reporting, ethical managements, transparent corporate structures, and economies balanced between exports and internal consumption. Divining the strengths and weaknesses of an EM in these areas can only be done by active management, with experience in the markets, boots on the ground and a disciplined investment process. 

From 2000-2010, the annualized return on the MSCI Emerging Markets Index was 10.9% vs. 1.3% for the MSCI World Index of developed markets.  Since then, performance across the MSCI index universe of 21 EM and 24 frontier markets has been uneven and disappointing, with volatilities up to 50% higher than developed markets, and high correlations.  In recent times, it has mattered greatly what an investor owned and didn’t own. 

What went wrong?  What can investors do moving forward with their EME sleeves of their portfolio?

Some EM countries like Brazil and Russia are heavily tied to commodity exports, from oil and gas to soybeans and minerals.  In the case of Russia, demographics aren’t favorable, and political issues don’t point to stability going forward.  China’s planners are working hard to swing their export juggernaut more towards producing for domestic consumption. This requires more access for multinationals, but they are coming under scrutiny for breaking price regulations, which serve as a form of non-tariff barrier to growth. 

A CFA Institute paper suggests that historical exposure to India and South Africa, while excluding Russia and Brazilian holdings, can generate incremental portfolio return and perhaps reduce overall portfolio risk.  Selectivity in EM portfolio structuring seems to be better for portfolio risk management.

Indian equities, according to Morgan Stanley, are up 33% YTD (7/31) compared to the diversified EM index up only 8%.  This market offers rising middle class consumption, a growing financial services sector and a relatively balanced economy, among other attributes.  On traditional portfolio metrics, EM markets are not cheap, but investors must make their decisions on a longer-term horizon in order to reap their expected returns.  Morgan Stanley’s Lisa Shalett writes that Mexico offers similarly attractive features in the current environment.  Taking a long view, a selective EM portfolio, with the right countries and some more small and midcap exposure, will probably yield superior returns to broad indexing.

Tuesday, August 26, 2014

America's Naive Foreign Policy Created ISIS

As we romanticized the so called "Arab Spring," which we saw engulfing Libya and Syria, leaders of the Syrian Orthodox Church and other Christian leaders pleaded with the Obama administration that toppling Assad would produce something far worse for their congregations and indeed for all Syrians.  We're all for helping minorities, provided they fit with our political and social narratives, which unfortunately wasn't the case here: so we ignored them and blundered ahead.  Now, we talk about bigger air strikes, which will further inflame and empower the extremists and inflict more pain and suffering on innocent refugees.

Professor Brahma Chlellaney writing in the Japan Times says,
"It is beyond dispute that the Islamic State militia — formerly the Islamic State of Iraq and the Levant — emerged from the Syrian civil war, which began indigenously as a localized revolt against state brutality under President Bashar Assad before being fueled with externally supplied funds and weapons. From CIA-training centers in Turkey and Jordan, the rebels set up a Free Syrian Army (FSA), launching attacks on government forces, as a U.S.-backed information war demonized Assad and encouraged military officers and soldiers to switch sides.
But the members of the U.S.-led coalition were never on the same page because some allies had dual agendas. While the three spearheads of the anti-Assad crusade — the U.S., Britain and France — focused on aiding the FSA, the radical Islamist sheikdoms such as Saudi Arabia, Qatar, Kuwait and the United Arab Emirates as well as the Islamist-leaning government in Turkey channeled their weapons and funds to more overtly Islamist groups. This splintered the Syrian opposition, marginalizing the FSA and paving the way for the Islamic State’s rise.
The anti-Assad coalition indeed started off on the wrong foot by trying to speciously distinguish between “moderate” and “radical” jihadists. The line separating the two is just too blurred. Indeed, the term “moderate jihadists” is an oxymoron: Those waging jihad by gun can never be moderate."
 All the academic fodder from think tanks like Harvard's Belfer Center and other says we should and can distinguish between moderates and radicals, even though they are both expert in speaking in the language the academics like to hear.   We saw it in Libya, Egypt and now in Syria.  Nothing like making the same mistakes over and over.

For most of the world, people are always trying to balance among competing evils in order to live their lives as they choose.  We, on the other hand, believe that we have the wisdom, sensitivity, and cultural understanding to know what is better from them, namely democracy and simply throwing off the yokes of leaders we see as oppressors, since we don't have to live with the consequences.

The British writer, William Dalrymple tells of his visits to the Christianity of the pre-Byzantium Middle East in his 1996 book, "From The Holy Mountain: A Journey in the Shadow of Byzantium." Visiting the Syrian Orthodox Metropolitan Yohannas Gregorios Ibrahim in Aleppo he writes,
"Christians are better off in Syria than anywhere else in the Middle East....In Syria, there is no enmity between Christian and Muslim.  If Syria were not here, we would be finished. Really. It is a place of sanctuary, a haven for all the Christians: for the Nestorians and Chaldeans driven out of Iraq, the Syrian Orthodox and the Armenians driven out of Turkey, even some Palestinian Christians driven out of the Holy Land by the Israelis. Talk to people here: you will find out later that what I say is true...
The only problem with all of this (the degree of Christian acceptance and autonomy), as far as the Christians are concerned, is the creeping realization that they are likely to expect another, perhaps far more savage, backlash when Assad dies or when his regime eventually crumbles."

Turning back to Professor Chellaney, an Indian academic with an audience in Japan he concludes.
Make no mistake: Like al-Qaida, the Islamic State is a monster inadvertently spawned by the policies of those now in the lead to combat it. The question is whether anything substantive will be learned from this experience, unlike the forgotten lessons of America’s anti-Soviet struggle in Afghanistan. At a time when jihadist groups are gaining ground from Mali to Malaysia, Obama’s current effort to strike a Faustian bargain with the Taliban, for example, gives little hope that any lesson will be learned." 

Warren Buffett: Gimme Breakfast With My Burger King

The poet and essayist Ralph Waldo Emerson wrote, "A foolish consistency is the hobgoblin of little minds." For poetry, this aphorism is most apt.  For all those politicians and other n'eer-do-wells who have used it, I am not sure. That won't stop me from using it, tongue in cheek, for Warren Buffett's offer to finance 3G Capital Partner's buyout of Tim Hortons.

Tim Hortons, owned by Wendy's, was used side-by-side with a Wendy's, as a way of adding a bigger breakfast day part to Wendy's and adding some real estate synergy to the combined menu offerings of the two restaurants.  It didn't seem to work, and now it's for sale.

We've written in this blog about Buffett's long relationship with Brazilian-led 3G Capital Partners which was behind its stepping up to help finance the purchase of Heinz, and about how that relationship would be a new model for Berkshire going forward, i.e. partnering with private equity to do bigger, better, and faster returning deals than BRK's working on its own.  Here is an example in this deal, and it sounds like it should work out well for the preferred holder, as that instrument has borne much fruit recently, as exemplified by the Goldman deal.

What is rather funny is the philosophical inconsistency being shown by the Oracle of Omaha.  Standing ideologically cheek-by-jowl with President Obama, we heard much puffery about not minding paying more taxes, his secretary's paying more than Mr. Buffett, yada-yada.

Now BRK will help 3G and itself to make a productive investment via a tax inversion to our Canadian neighbors to the north.  The PR firms will all make the mild outrage go away.  President Obama will call Omaha, ask for a bigger campaign contribution, and say he expressed his displeasure to Mr. Buffett.  What could be more consistent?

Monday, August 25, 2014

Where To From Here for HP?

HP reported results for Q3 FY14, and there were some things to like, and some weaknesses, but questions about the future still remain.  No one doubts that the company is on stable footing, and that CEO Meg Whitman has done a great job of convincing customers that their need for a reliable stable  of 'full service' IT providers will include an HP committed to providing the products and services their CTOs need in a world of complex and rapidly changing corporate demands.  This is no small achievement, and the stock price appreciation from the lows recognizes this.

However, what about the future beyond the next quarter?  What does HP want to be, and what is the future business model going forward?  Based on this quarter, it is more incrementalism, balance sheet management, and repeated references to acquisitions.  But the same issues have been on the table, in our mind, since 2012.

 "The new CEO says that the number one question she faced when going out and talking to customers, partners and investors was "What is HP?"   She characterized the company as being No. 1 or No. 2 in all of its operating business segments.  Based on the performance of the segments and on their outlook, this statement seems inaccurate.  There was talk about how smoothly the Autonomy acquisition was going, with the companies "exchanging hundreds of sales leads," and yet the acquisition seemingly has no impact on EPS in 2012, but without any detailed guidance, this isn't easy to tease out.  Autonomy's website claims the company has 25,000 customers worldwide, many of which must be small and scattered across a variety of product offerings from social media analytics to eDiscovery."
Before returning to these ideas, let's quickly review Q3 FY14.  Revenues of $27.6 billion were up 1% on a constant currency basis.  64% of revenues come from outside the U.S. which is encouraging because it speaks to the global reach of the company's offerings and to HP's not being tied to U.S. business trends (36% of consolidated revenue came from the U.S. in the quarter) for future growth.

20% of revenues, or $5.6 billion came from the Printing business, which declined 4% y/y.  Printing accounted for 38% of the company's adjusted, non-GAAP operating income of $1,026 million and an operating margin of 18.4%.  Supplies contributed 66% of the business operating income, but sales of supplies increased 4% y/y in constant currency.

Personal Systems sales of $8.6 billion, were 30% of consolidated revenue, and $346 million in non-GAAP operating income amounted to a 4.0% margin rate and 13% of consolidated non-GAAP operating profit--a contribution as opposed to a drag..  Revenue was up 12% y/y!  Commercial sales were up 14% y/y, and unit sales of notebooks were up 18% y/y in units.  There's no doubt that this is encouraging news, along with printing's solid performance, despite its lackluster y/y comparisons.

Enterprise Services continues to look like a boat rowing in circles.  $5.6 billion in revenues were 20% of consolidated revenues, but only 8% of consolidated, non-GAAP operating profit with a paltry 4.1% operating profit margin.  Overall revenues for the segment were down 6% y/y.  The information technology outsourcing business was down 6%, and the systems consulting business was down 5%.  This has been like a broken record for quite a while, and it is a fundamentally flawed business model.

Software contributed was a paltry 3% of consolidated revenue, and something is also amiss in this business, which contributed 7% of consolidated non-GAAP operating profit, at an operating profit margin rate of 21.2%.

Cash flow from operations was $3.7 billion compared to $2.7 billion, increasing 36% compared to the prior year period.  Free cash flow of $2.7 billion compared to $2.0 billion in the prior year period.

YTD FY 14 share repurchases amounted to $1,978 million versus $1,053 million for the comparable period in FY13.

The strength in U.S. sales was encouraging, helped by the rebound in the PC business, especially to corporate customers. Along with the performance of the Enterprise Group, it underlines HP's importance to large corporate buyers.  Foreign sales were also encouraging.  However, there was nothing new on the road ahead.  The easy work has been done, although that might not be the right word.

CEO Meg Whitman needs to freshen her message away from the that of the days when HP had a loaded gun to its head.  She has taken that away, moved the patient off the respirator, and instilled some confidence and discipline into the business. However, a turnaround like this can still go awry when the ship really has to go off in search of a New, New World.  Does the ship have the right crew?  Are they all on board?

The Autonomy fiasco still lingers.  Documents filed in the action by former Autonomy CFO Sushovan Hussain have some interesting passages.  They reveal that HP was preparing to buy Autonomy for $11 billion in 2011, HP CFO Cathy Lesjak said the price was too high and that HP was not prepared to integrate the organization.  Her adamant opposition was steam rollered by former CEP Apotheker, and by board member Lane and others.

The UK Serious Fraud Office has not moved forward at all in investigating HP's charges made after the $8.3 billion write off, and now HP has made a 'settlement" that really calls into question why it is looking to save face for its directors and previous management instead of 'fessing up to the incompetence and value-destroying behavior.

This company is clearly incapable of valuing, making and integrating large acquisitions to add value.  Witness EDS and Autonomy.  Therefore, why make the argument now that acquisitions are essential?  There's no reason to think anything has changed.  We've said before, the board should  be flushed out in one way or another before shareholders can have faith in an acquisition-driven strategy going forward.

Wednesday, August 20, 2014

Microsoft's Ballmer Turns to Roundball

Former Microsoft CEO and board member Steve Ballmer took the predictably heavily scripted step of resigning from Microsoft's board to devote his energies to running the Los Angeles Clippers.

CEO Satya Nadella must have been assured that he had free rein to put his stamp on the company, without having to feel beholden to the legacy of Mr. Ballmer, including his restructuring plan and appointing his chief strategy officer before the CEO change.  This move is graceful for everybody involved, and it confirms to the outside world what hopefully was know inside, all along. Good news.

The Wall Street Journal has an interesting article about the new HTC phone with Windows.  It confirms what we wrote about recently, namely Windows Phone 8 (forget that my phone hasn't got the upgrade yet) even in the most basic Nokia smartphone works quite well, fairly intuitively, and comes ready to go, not with every social media app in creation, but with LinkedIn and Facebook ready to go.

So, the schizophrenic market of journalists and self-proclaimed pundits, cry for a "third smartphone ecosystem," while at the same time decrying the Windows Phone effort.  I would understand this if, like other Microsoft ventures, Windows Phone was klugey, bloated, and a resource hog with a UI designed by engineers.  However, it is nothing of the kind. I can use it out of the box, and my phone has the barest bones of a resource base, but Windows Phone 8.0 works just fine, and the Nokia Here maps, which are free, are wonderful because they are downloaded to your phone.  So, what's the deal?

"So, why don't more people give Windows Phone a go? At this point it has very little to do with how good of a smartphone platform it has become, and everything to do with the rule of the masses: It's hard to go one way when everybody else is going another."  I've always enjoyed being out of step with the lemmings, whether in the financial markets or personal technology.  It's cheaper, yields better returns, and exerts less wear and tear on the psyche.  

Sharp, meanwhile, has announced that they are going to develop their own operating system.  Microsoft used to have a "late to the party" monopoly, but really a Sharp mobile operating system?  Maybe Microsoft partnership/business development folks are trying to talk them out of this foolish decision.  

Thursday, August 14, 2014

Cisco's 4Q FY'14: Low Quality Earnings Concerns

Cisco reported a heavily financially engineered 4Q FY'14.  Revenue of $12,357 million was down 0.5% from $12,417 million a year ago. The gross margin rate of 61.8% declined 30 bp from 62.1% in 4Q FY'13. Operating expenses as a percent of revenue decline 10 bp to 33.8% on $4,181 million. Net income of $2,835 million compared to $2,847 million, translating into GAAP diluted EPS of $0.43 versus $0.42 in the prior year period, an increase of 2.4%. Full year GAAP diluted EPS for FY'14 of 1.49 compared to $1.86,  a decline of 20%.

To get to the non-GAAP EPS for the full year, there were $3,998 million in adjustments to GAAP pre-tax income, compared to $2,486 million in adjustments to GAAP pre-tax income in FY'13, an increase of 61%. For the fourth quarter of FY14, non-GAAP diluted EPS of $0.55 compared to $0.52 in the prior year period, an increase of 6%. For the full year FY'14, non-GAAP diluted EPS was a 'record' $2.06 per share compared to an adjusted $2.02 in the prior year, an increase of 2%, and above internal expectations.

The shareholders were returned $2.5 billion in 4Q FY'14, through $1.5 billion in repurchases (average price of $25.11), and $1.0 billion in dividends, comprising 69% of the quarterly CFO of $3.6 billion, above the economically meaningless target of 50%.  For the full year FY'14, CFO amounted to $12.3 billion and $13.3 billion was returned to shareholders, comprised of $9.5 billion in repurchases ($22.71 per share) and $3.8 billion in dividends.  Since inception, the average price per share repurchased was $20.63.

Somehow expectations were met, cash was returned, and the analysts on the call seemed chloroformed.

CEO John Chambers noted orders were up 1%, book-to-bill ratio was up 1%, and the backlog was $5.4 billion.  The company, which knew in 2011 about the coming tsunami of change in the way IT services were bought and deployed, during this call talked about "significant risks" to the business.  It also announced that it was reducing its work force by 6,000, or 8% of the force. Pre-tax charges of FY'15 income will be up to $700 million, or an astonishing average of $117k per headcount reduced. Non-GAAP diluted EPS will benefit over GAAP diluted EPS to the tune of $0.14-$0.18 per share.

If the company is so far ahead of the curve, why is it seemingly reacting reflexively after the fact to the increased pace of change in IT?  Someone asked the question, "Why now?"  I can't remember what was said. because it was meaningless.

Domestic U.S. business was up 5%, with Government business up 6%.  In the U.S. orders larger than $1 million increased by 22%. This was about the only real, meaningful ray of light in what was called a "solid" quarter that decidedly "mixed," at best.

EMEA in the quarter grew by 2%, with the U.K. being the strongest at 8%.  Russian business declined by 35%, and excluding Russia, the EMEA region's sales would have increased by 4%.  Looking at a half-empty glass through 3D glasses makes it seem like two half empty glasses, which is a full one!  The BRICs were assigned a dire outlook for the indefinite future: we'll let you know when we think things are getting better. As off handed as this sounded, all of the Tech Troika (IBM, HP, Cisco) are in the same boat, but it does make Cisco's ability to grow beyond non-GAAP adjustments questionable.

Collaboration declined by 4%, and TelePresence sales also declined, which seems odd since it was one of the subjects of a WSJ article ahead of the earnings report.

The big question investors have about Cisco is the effect of software defined networking (SDN) on gross margins, as hardware components (switches are 30% of revenue) become commodity products.  How will Cisco manage the declines without growing the total revenue base at mid to high single digits?  No answer was forthcoming, but the CEO blew lots of sunshine up the analysts' kilts.

Cisco will be the leader in SDN, said the CEO, without saying by when, by what measure, or how.  There was the announcement of a mind-numbing collaboration with Microsoft, but I couldn't understand what it meant.  The CEO assured investors that SDN will not drive gross margins down for Cisco, again without any elaboration or explanation, simply an assertion. No analyst had the energy to challenge the salesman/cheerleader CEO.

The network will be at the heart of the corporate future, and Cisco will be at the core.  I don't know what this means.  The example of a taxi company was cited, but it wasn't clear if it was Uber, Lyft, or a new competitor.

The CEO referenced three recent acquisitions: Tail-f Systems ( cloud virtualization), ThreatGRID (Internet security), and Assemblage (collaboration on mobile platforms). In reality, nobody knows how well Cisco has done with its huge number of acquisitions over CEO John Chambers' tenure. Amortization of purchased intangibles from acquisitions is a perennial feature of adjustments to GAAP income in Cisco's results.

Cisco's sales force and channel partners make for a complex distribution system, requiring inventory management which is hampered by the terms required to compete for strong channel partners who are also competitors of the company, in some product areas.  I suspect Cisco's sales force needs some rationalization, particularly as the company shifts to more software-oriented sales. Leadership changes were referred to several times on the earnings call by the CEO.

All in all, the numbers were made, but like other tech companies driven largely by financial engineering, including share buybacks.  It's hard to see how this company can be valued outside of a range of $20-$25, given the magnitude and quality of the Q4 FY'14 numbers and the lackluster guidance from the perennially optimistic management. Perhaps there is little downside risk, but there is also no compelling case for owning the stock now either.

Wednesday, August 6, 2014

Sayonara to T-Mobile

We've always thought that Masayoshi Son was a breath of fresh air for the U.S. wireless industry. However, we had doubts about what he paid for Sprint and about the potential for a disruptive model in domestic wireless.  Then came the announcement of a proposed deal for T-Mobile, which surely had to attract regulatory scrutiny, not so much for its own merits, but probably because of regulatory "regret" about their having let the U.S. industry evolve into a classic duopoly, with higher priced plans than would emerge from more competition.

What Mr. Son hasn't done is to really "white board" the Sprint business model.  Now that our regulators have put the kibosh on the Sprint/T-Mobile deal, this is precisely what he should do.  Putting some billionaire in place as CEO is going to have investors scratching their heads.   Making a face saving announcement about regulators reconsidering won't make his Japanese shareholders happy, since Mr. Son's full time PR blitzkrieg in pursuit of the merger has distracted him from the core business in Japan.

Meanwhile, T-Mobile has attracted another billionaire, this time from France, who has made a merger proposal which looks long on words and short on both money and value-enhancing strategy.  With T-Mobile itself finally starting to grow its postpaid customer base again, the last thing it needs is another distraction for management and employees.

Wireless pricing continues its irrational ways, with T-Mobile recently announcing that it will allow data-hog users to stream music continuously without counting against their plan data limits. Now, it's possible that there's incremental revenue from the streaming services paid to T-Mobile for serving up their customers, but I'd like to understand the economics of this deal.

Until later, sayonara to T-Mobile from SoftBank.

Friday, August 1, 2014

Market Winds Stall

From the Wall Street Journal, we see that the market has given back seven months of gains in a day. Well, a day does not a correction make, but at least some cautious sentiment is taking hold.  Looking back at some recent points, what still looks concerning?
  • According to Fed presidents, the labor markets remain weak, unhealthy, in flux or whatever euphemism is acceptable to the Yellen regime. [Despite the recent job numbers, and the trend of a few months nobody is willing to declare victory yet]
  • The housing "recovery" has stalled, weakened, sputtered.[No change here.]
  • The Fed won't tie monetary policy to rules, but some Fed Presidents feel that rates may rise sooner rather than later. [The confusion and dissonance among Presidents continues]
  • Our larger, more concentrated banking sector is shelling out billions in shareholder equity to the government without admitting any crime they've committed.  Meanwhile, their fundamental businesses, with some lending growth, are lackluster.[Still in place: look at Bank of America]
  • Trading revenue continues to flounder for the investment banks.[Bank of America excepted: probably a timing issue]
  • Top line revenue continues to be hard to come by, and earnings gains continue to be of low quality, especially in the tech sector, where retirement plan commitments are excluded from "normal" earnings.[IBM's ninth consecutive quarter of declining revenue from core businesses and low quality EPS; the $20 per share "earnings road map" number has been dismissed as meaningless as a barometer of fundamental future prospects]
In Europe, all our points remain in place and some look worse on recent news:
  • Germany's Chancellor getting ready to impose sanctions.
  • Elysee Palace will impose sanctions and export restrictions, but they will not impact the export of Mistral systems to Russia.
  • Sanctions will take some time to gain traction.
  • Is Britain part of Europe? Jury still out.
  • Daily operations at Banco Espirito Santo even worse than anyone expected.  Board and management were unaware of assets and balance sheet commitments. Inquiries underway. 
  • Europe was 'cheap' and getting 'cheaper.'
The Middle East will be descending into a more complex maelstrom, which the U.S. does not understand. Israel must complete whatever action it is contemplating against Hamas soon. Sentiments pro-Israeli military action and pro-Hamas are both increasing: not a stable outlook.