On Weds. I will be defending my skepticism, boosted by Grant's Interest Rate Observer, on indexed Exchange Traded Funds at the Qwafafew club of Quant analysts some of whom created the whole idea of country fund ETFs. I was mistaken when I said Grant's has an ownership link with Horizon Kinetics whose “Alice in Indexland” research it promoted in confabs and publications. HK was merely a contractor for Grant's. I will go into the lion's den to listen the CEM Group, CBOE, and FTSE Russell equity index suppliers and if I am truly brave express my skepticism about robo-indexation.

I will start by tackling the completely out-of-date daily high and low figures for European markets published by the Financial Times, co-manager of FTSE Russell. This is only updated weekly at best and the FT blames Reuters for the lapse. Surely they would do better not to publish this trash data at all?

The Neue Zuericher Zeitung revealed another aspect of the Swiss National Bank investment in what it thinks is the total US market. In fact, we have argued that it is buying any share traded in the US, including lots of Canadian shares and plenty from the Far East and Europe—and even Switzerland! The purpose of the black box index buying is to stop the Swiss franc from rising against the dollar and wiping out exporters. But the SNB in fact is buying lots on non-US stocks according to its careless reports to the US SEC, which effectively are indirectly weakening the dollar. But there is a good side to this according to the NZZ:

“In Q3 the Schweizerische Nationalbank had a further SwFr 7.4 billion gain in the book value of its stock portfolio which reached 28.7 Swiss francs” the daily blog write [my translation]. “With holdings of over 720 billion Swissies, the smallest change in valuations and interest rates can lead to billions in rises or falls in its portfolio. In H1 this year the stated gain was SwFr 21.2 bn vs a loss the year before of 49.9 bn francs.

“With the exchange rate against the euro virtually unchanged in Q3 and the price of gold high and also unchanged [in Swiss francs], the rise was entirely from prices and dividends from its stock positions.”

What this program has allowed the Berne CB to do is to stop flight capital moving into Swiss francs from currencies with negative interest rates, like the euro. The total of Swissie bond issues outstanding was flat year to year.

The badly programmed robot investor of course can again suffer a stock holding loss as it did in 2015. But the fascinating fact that the bank wound up buying euro-denominated and Canadian stock which happens to have American Depository Receipts or other stock trading here still shows up the idiocy of indexation.

Swiss reader JH writes to tell me what we really should do is buy shares of the bank on the Zürich Stock Market. Each of the 26 Swiss cantons has a sharehold and the returns from that are very important for some cantons.

I believe that Brexit cannot happen without a new general election in Britain is now seen as likely by John Llewellyn of www.llewellyn-consulting.com with which we trade issues. He wrote after the Nissan (NSANY) deal with PM Theresa May to give it access to the European Union market no matter what happens in the talks on a fine deal “put her head in a noose”. The former deputy chief economist of the Organisation for Economic Cooperation & Development, whom I know from Paris, writes:

“Industries in a similar situation to Nissan will clamour for similar treatment while dissimilar industries will demand to know why they are being discriminated against. The matter may well end up having to be decided in Parliament, if not by a general election fought largely on this issue.” I agree.

More today on the auto industry, oil services, drugs, finance, and a few other sectors.

Autos and Fuel

*As shareholders in Tata Motors (TTM), we are desperate to get the same assurances from the UK government as were given to Nissan. Given that he is helping Britain over Tata Steel by sacking his heir apparent, Ratan Tata, the chairman of Tata Sons, might make a lightening visit to 10 Downing Street soon.

*Because of their auto links we refused to sell out of Autoliv, ALV of Sweden. And we stick with our Orocobre Australian miner of lithium for car batteries. OROCF was up 16% on heavy volumes

*GE (GE) taking control of the Baker Hughes (BHI) oil and gas portfolio is clearly targeting Schlumberger Ltd. (SLB) But the strategic combine will not be up and running in competition with the Dutch Antilles wellhead services leader until the regulators are satisfied, and then the hard business of stitching the two firms together looms.

Software

*I sold Ituran at $26.60. ITRN is now a Latin stock and not an Israel defense one. It makes tracking software for rental cars and trucks.

*For some reason Gemalto was down over 5% in Europe.

*SAP of Germany released a new enterprise routine productivity software system which helps deal with deliveries and the supply chain for companies using machine learning and pattern recognition to get human beings away from this boring process.

Banks and Insurance

*Among the first trades signaled which closed was our exit from Shinhan Financial, the Korean bank, at $38.17. We continue our holding in Korea Fund,a managed closed-end fund. One reason I felt lonely going solo in Seoul is that I miscalculated the impact of the dangerous humidifier sterilizing product from Reckitt-Benckiser on its overall sales there. South Koreans are quick to take action against those who fail to respect them.

*Harry Geisel writes that “reinsurance has been a poor business this year because too much capital leads companies to compete by lowering premiums. However Bermuda's Validus Q3 results show that it never takes on unprofitable business under CEO Ed Noonan. So premiums (sales) fell but net income soared to $1.02 from 77 cents/sh ar year earlier. Investment income also took off and reached $41.1 mn, up by over a third from 2015. VR doesn't buy storm modeling from industry advisors to pick its rates for flood and hurricane reinsurance but does it in-house. That means its claims for Louisiana flooding recently were half the level of the National Flood Insurance Program.

Noonan's “underwriting caution benefits shareholders. He said a slight shift in Hurricane Matthew's path 'saved the insurance industry from the most expensive storm in history, a warning roughly equivalent to quadruple bypass surgery. It will be interesting to see if it gives up the pizza and cigarettes.'”

This should reassure reader JS who was worried the SNB would exit VR. It will not exit any of its holdings denominated at source in US$s. The risk is to the stupid buys not VR.

Drugs

*Novo Nordisk's (NVO) selloff is as tempting as a Danish can be. Its sales in Q3 rose 6% in constant currencies and 4% in krone. US sales rose 6% in dollars (up against the krone) and accounted for 44% of total sales. US insulin sales by NVO account for 37% of the total here.

International rest-of-the-world sales rose 13% and those to China rose 11% in local currencies. Tresiba hit a growth rate of 187% in local currencies and 33% of growth.

Adjusted net operating profit rose 7% in CC to DKK 127.5 bn and 3% in DKK; operating profits rose 4% to DKK 12.8 bn or $1.8 bn and diluted eps (after removing the impact of the part sale of NNIT) rose 22% to DKK 11.5/sh.

What's not to like? First the Danish firm cut its sales and profit growth in local currencies (but not in DKK) to 5-6% and 5-7% for the full year. It also forecast single-digit growth in 2017. The main reason appears to be US sales slowing down from prior 10% annual growth, caused by new US regulations including the limits of drug coverage in corporate plans when covering diabetics.

So it is scrapping its operating profit growth target of 10% set in Feb. 2016” for the current year.

While its insulin franchise is facing plenty of competition, it has an oral version of its semaglutide (a glucagon-like peptide or protein hormone which stimulates the body to produce insulin) coming. This also has other health benefits like reducing heart disease risk and weight gain, associated with diabetes but also scourges in their own right.

I want to gobble up NVO stock in the present panic which all by itself cut Danish GNP by nearly 8% and then use semaglutide to control the weight gain. It mostly is because incremental improvements in NVO oral insulin will be marketed less aggressively, with delays.

A main reason for the selloff is that there is not much else in the Danish index besides NVO, which accounts for most of it. Sanofi, SNY, its leading Euroland competition, has raised its full year guidance and set up a buyback, which made NVO look bad in comparison. SNY has lots of quivers for its drug system whereas NVO is mostly insulin making by long tradition.

However the NVO warning had a second purpose, Lars Rebien Sorensen clearing the decks for the new CEO who takes over Jan. 1 and wants to show what he can do. And it also puts front forward its new research aiming at other peptides for other diseases: NASH or non-alcoholic steato-hepatitis , diabetes-linked kidney failure, and heart disease. Diabetes had been the 80% earner for NVO since it was formed and it is changing course.

*Teva (TEVA) was upped to outperform by Crédit Suisse analysts with a target price cut from $59 to 52, a way to hedge your bets. The CS analyst wrote that “most of the risk around Copaxone and the US generics market is priced into the shares.” TEVA has submitted paperwork to the US FDA demonstration the differences between its original Copaxone multiple sclerosis treatment and the generic version which Momenta-Sandozapplied to market here. TEVA aims to delay launch of a 40 mg generic version of Copaxone. Poalim IBI analyst Steven Tepper, after analyzing the document, told GlobesIsrael website that he thinks it is likely to undermine the confidence of FDA officials in the copycat drug, delaying its approval. Neither Sandoz, which is Swiss, and Teva which is Israeli, are owned by the SNB.

Teva advanced Activis' move to an ANDA from our FDA for its generic doxubicin hcl chemotherapy drug. The drug currently has annual US sales of $600 mn and is sold by Johnson & Johnson (JNJ) as Doxil.

Teva reports Nov. 15 at 7 am NY time with a cc at 8 am. I would love a volunteer across the pond.

*To reader NY GT: Danish Novozymes is not part of our portfolio but we own it indirectly through NVO which is the largest shareholder in NVZMY, a biotech firm making enzymes for food, feed, and production of drugs, which bought German Merck's Crop Bioscience arm in 2011. It never was recommended in www.global-investing.com

*Our other drug-maker Dane, Bavarian Nordic, is up because Danes have to put their DKKs somewhere.

*Roche RHHBY early next year is closing its Toluca drug plant in Mexico, writes Eduardo Garcia. This is part of its switch to biological drugs and these will not be produced south of the border. Instead, he writes in www.sentidocomun.com.mx, the RHHBY biotech products will be made in the US, Switzerland, and Germany. Roche also sold its glioblastoma multiforme brain cancer rights to Australian drug startup Novogen for up to $5 mn. We used to own NVGN. Our Swiss reader JH likes Roche stock too but is puzzled about why its trading is OTC.

*I puzzled over CFO Bart Filius's explanations of how inflows from Gilead somehow plopped down to the bottom line at Galapagos because they are in accounting income rather than cash [GILD] up-fronts.

“We recognized over the 9 mos euros 17.6 mn out of the euros 300 mn [GILD] up fronts.And the additional euros 39 mn that was the premium to the share subscription. So a signification portion is still to be recognized over the next 3-4 years. The remainder is cash-based fee-for-service income increasing to euros 6 mn; milestones of euros 18 mn; cost reimbursements from our partners AbbVie (ABBVABBV) and Gilead (GILD) of euros 9 mn; and finally euros 50 mn grants and tax incentives from the French and Belgian govt.” All I can say is none of the analysts on the conference call hauled up Filius on this matter, all staring google-eyed at the drug pipeline. Belgium famously allows fiddles on accounting.

*Other sales. Barrick Gold (ABX) was upped to a hold from a sell by Mackie, Canadian analysts. So I am reconsidering my sell which did not get done at the price I wanted and now has been removed. ABX.

I did sell Autoliv at $26.60. And Alkermes as $50.60. And Stada Artzneimittel at $51. Others are pending a stock price rise.