Thanks to Canadian reader KH, I learned about how the sneaky Tories may yet get out of their commitment to exit the European Union, from an article which appeared while I was praying on Oct. 3 in The Globe and Mail by pundit David A. Welch of Balsillie School for International Affairs.

When article 50 is triggered next March to begin negotiations on the terms of its exit, Britain's leaders will have no idea what terms they will wind up with. He suggests that PM Theresa May may have an ace up her sleeve, in spite of having said she will follow the expressed will of UK voters and find a way for Britain to Brexit.

He writes: “If Ms May is preparing the groundwork to stay, she is doing it brilliantly. By stretching out the timetable as long as possible without raising anyone's suspicions, she has given ample time to let Brexdit buyer's remorse gel. Bankers and major foreign investors such as Nissan have begun to singal their readiness to leave. Local councils are beginning to tally EU funds they will lose. Scottish nationalists are stirring.

“Moreover Ms May has set up key Tory Brexit supports to fail by giving them thankless cabinet assignments: Boris Johnson (Foreign Secretary); David Davis (EU Exit Secy); and Liam Fox (International Trade.) It will become increasingly clear than none can deliver what they promised in June.

“Don't be surprised in March if instead of triggering Article 50, Ms May calls a snap election asking for a mandate to be released from her Brexit obligation., She could persuasively argue that there is no good Brexit deal to be had and that Brexit voters, sold a bill of good, voted in June on the basis of incomplete and inaccurate information and have a right to sober second thought. She could avoid the risk of a second Brexit referendum by correctly noting that a general election is the tradition means by which British governments seek mandates from the electorate. And she might be able to offer up a sweetener in the form of 'a better deal' from Brussels than [former PM David] Cameron was able to muster.

“As a result of these maneuvers, Ms May would win a massive majority, preside over what could well prove to be Britain's largest postwar economic boom, and go down in history as the greatest prime minister since Winston Churchill for having saved both Britain and the EU from almost certain disaster.”

The Balsillie School is a graduate school for global governance and international public policy studies in Waterloo, Ont., Canada.

Reuters published an exposé on how F-Prime Capital, the private capital arm of the controlling Johnson family and Fidelity Investment's top analysts invested in pre-IPO bio and tech start-ups in direct competition with the investors in its managed funds, making huge gains at ordinary fund-buyers' expense. Under SEC regs, if F-Prime bought into a stock, the public funds could not do so too. So in ten cases tracked by Reuters, the private arm made triple and quadruple digit gains by buying early—at the expense of the public shareholders. The worst example is the 6101% gain from very early buying of Alibaba (BABA), years before the BABA ipo, and with biotechs Adaptimmune and Ultragenyx where F-Prime made 2428% and 996% respectively compared to the Fidelity funds. Fidelity and its CEO Abigail Johnson refused to comment. The Johnson family owns FMR LLC which controls the fund manager and brokerage Fidelity firm.

The revelation adds to the impetus of investors to move away from actively-managed funds to ones tracking the overall market or segments. This will not give retail investors access to pre-IPO prices, but at least the ETF managers are not undercutting retail investors' interests by their own trades. Fido's

Stock-pickers now face another regulatory pitfall with the new program to boost liquidity in thinly traded low-capitalization stocks. Rather than pricing trades in these shares in pennies, the new minimum price differential in some shares trading at under $2 each has been raised to a nickel. For the moment, a pilot test allows market-makers to use nickel prices between bid and ask levels for only 10 small cap shares.

However, if the pilot program achieves the desired level of liquidity, eventually as many as 1000 different companies' shares will be nickel-priced. For pink sheet American Depository Receipts, none of which are in the pilot ten, entry and exit costs can become prohibitive. While these shares are often thinly traded, the market-maker does not bear heavy risks because offsetting trades can be placed in the home market of the ADRs to unwind the US ones. The SEC, charged by Congress with the pilot test, should exclude ADRs trading 1:1 based on foreign prices (with ticker symbols ending in an F) from the nickel pricing gap even if their share prices are under $2. 

*Teva Pharma (TEVA) announced that it has agreed to sell assets and operations of Actavis Generics in the UK and Ireland to the Accord Healthcare sub of Intas Pharmaceuticals Ltd for £603 mn, subject to final approval from the European Commission. The divestiture was required by the Commission to approve the Actavis (ACT) buy earlier this year. The sale will include a portfolio of generic medicines plus a manufacturing plant in Barnstaple. Teva will retain some non-overlapping Actavis generics, specialty medicines, and over-the-counter products, added to Teva's existing lines. The deal is expected to close by year-end.

I hope Teva sold the sterling it will receive from Intas forward given the plummeting pound.

*Leerink Swann put an outperform rating on Alkermes plc (ALKS) of Ireland with a $57 target price, 20%+ above its current price.

*It's a long shot but the US FDA requirement that hepatitis C drugs sport a black-box label warning that they increase the risk of a re-infection with hepatitis B. This may yet help our worst performing share of all, Australian Benitec Biopharma (BNTC) which has switched its gene silencing technology to working on hep B rather than overcrowded hep C. Moreover the regulators in Europe and Japan are also reportedly concerned that curing hep C will open patient livers to a recurrence of hep B if they had a problem with it in the past. BNTC is listed, beaten down, and ripe for a takeover by one of the dozen makers of hep C drugs.

Heavy Industry

*BAE Systems (BAESY) was rated a “bull” as it “reasserts its price uptrend” by investorsintelligence. I picked BAESY at the start of this year after I examined defense stocks given the mounting east-west tensions. Moreover the sterling price of BAE started rising in the wake of the Brexit vote, and the chartist tip is based on the fact that it hasn't yet hit the level of early Sept.

*Investopedia chartists predicts a “breakout” by CRH plc after the Irish cement and aggregates firm gained sharply in July and August before moving sideways last month. Mechanistic chartists make your editor wince.

*Scotiabank analysts after the Veresen (VSN) investor day became “more positive on the growth potential for its midstream business and proving financial situation.” Their C$ target price was raised $1 to $13 helped by FCGYF expanding its business of processing 3rd-party gas to boost its cashflow. BNS also made an attempt to improve the data on Veresen's free cash flow with its Alliance pipeline which it says is understated in the accounts and should add 23 loony cents/sh to the overall cash flow.

*Is anyone listening? I admit our earlier 2016 Japan small cap plays were poor picks, but the long-term stock performance of Chris Loew in Japan is exemplary. So why did nobody follow him into Kubota? I waited until near the close to put in her order at $73.25, and there was no volume reported. Yesterday the share gained $2.25.

*Eduardo Garcia writes about a price hike:

Cemex (CX) increased its Mexican gray cement prices by an average of 7.5% with effect Oct. 1 from 3,240 pesos per metric tonne ($62, including value added tax) and the price of a 50 kilo bag to 167 pesos ($8.68) according to information from distributors. CX spokesman Jorge Perez told Reforma (newspaper) that the price rises reflect inflation in its costs. This is the 3^rd price hike this calendar year, after a March rise of 9-10% and a July one of 10-12%, bringing the YTD total to 28.9%-32.4%. Competitor Holcim rasied its prices by ~7% last month.

Abhimanyu Sisodia writes about another. Tata Motors (TTM) just raised prices across all Indian lines because of an increase in input costs, including for the best-selling Tiago hatchback. TTM has not raised its prices for a long time to penetrate markets even at a cost to profits.

TTM took on another 3.2% in US trading yesterday, so the price hike seems to appeal to the market.

The Indian central bank has just cut its key interest rate, which should help TTM impose its price hike, whereas the Bank of Mexico has raised its interest rates, which may make it harder for CX to maintain its sales momentum. But a key takeaway is that emerging markets are facing cost inflation. As Adrian Ash wrote, the message is “G-O-L-D”.

*Barrick Gold (ABX) in Canada announced that its Argentina mine had recovered from an outage and production has resumed. ABX stock then was hit by an 11% drop in Canada and a 12% drop here (because of loony weakness.) I hate to have to say this again and again but now is not the time to sell gold shares.,

*Cosan of Brazil hit a new 52-wk high today rising 2.5% to $7.50/sh. CZZ refines sugar and makes ethylene fuel.

*Vale (VALE) however is tacking lower. VALE is an iron ore miner dependent of China sales.

*Ecopetrol (EC) was a victim of the Colombian referendum result against peace with the FARC but its price recovered a bit yesterday. It trades at 11x earnings.

Funds

*Editor David Jennett of The Investment Letter has finally succumbed to the lure of foreign investment outside the USA and Western Europe, and has just tipped GlobalX MSCI Argentina ETF at $24 because Latin America is enjoying more success than developed country markets, and to diversify. His letter (out of Holliston MA) was written up in www.wallstreetsbest.com yesterday.

*Canadian General Investments, CGIRF, reported on its top positions as of the Sept close, in order:Dollarama 6%; Franco-Nevada Corp 4.2%; CCL Industries, Open Text Corp, and Bank of Montreal 3.4%;Canadian Pacific Rail 3.3%; Royal Bank of Canada and First Quantum Minerals, 2.8%; Enbridge and Amazon (of the USA) 2.7%. The latter is a new position.

The fund trades at an irresistible 31.65% discount to its net asset value. It is allowed to own 20% of its portfolio in US shares. Manager D. Greg Eckel picks stocks by fundamental analysis and likes oil for the longer term. The fund is leveraged with C$75 mn of preferred shares and C$75 of bank debt, according to a report by UK-based Edison Investment Research on the closed-end fund published last month. The management group, Morgan Meighen & Associates of Toronto also manages private investment and runs a second closed-end fund, Canadian World Fund, also listed in London as well as Toronto.