The overnight 8.8% drop in the dollar exchange rate of the renminbi Dec.6-7 was not a declaration of war against the US but an example of fat finger currency mistakes. During the night when currency markets are closed and there is not much liquidity things can go wrong, as also happened with sterling in September.

I wrote about the renminbi currency movement yesterday. Despite rumors that Beijing engineered the drop it did not. In fact it is trying to maintain China's currency against risks of higher interest rates and illegal capital flight outflows by corporations and fat cats using foreign investment, Hong Kong insurance, real estate, and other ploys to get their money out of China. Both Donald Trump and Xi Jinping are trying to keep the renminbi up.

Today's blog is being published by talkmarkets.com where presubscribers and newbies can get a taste of how we pick shares at www.global-investing.com. Their site will show what follows below for paid subscribers only as a promotion to help both our blog and their website in which I have invested.

BP plc  (BP) just lost the bidding against other major oil companies for Mexican deepwater concessions. It may have been hindered by memories of the 2010 Deepwater Horizon disaster in US Gulf waters. But in other parts of the globe, notably Russia, BP is sitting pretty. It offered a 4% royalty plus $606 mn while the only other qualified bidder, BHP Billiton of Australia, won the Trion field with a bid of $624 mn.

Making a big bet on both oil and Vladimir Putin’s Russia, Glencore and its shareholder, the Qatari sovereign wealth fund (QSWF), will jointly pay €10.2 bn ($11.3 bn) for a 19.5% stake in Rosneft PJSC, the Russian state-controlled oil company run by a Putin pal which produces more crude than Exxon Mobil. Here BP is in the catbird seat.

Glencore will initially commit €300 mn, and will pay up when it gains the bank finance it needs and gets the QSWF money, after which the deal closes. Glencore clearly is a weak buyer and is getting a cheap price for buying into the world's largest oil company by production—and one priced at ~10% off from what smaller XOM commands. BP paid considerably less net for a marginally larger stake of 19.75% in Rosneft.

Igor Sechin, the Putin pal who is CEO at Rosneft, will book the cash for the cash-strapped company rather than the ostensible seller, the Russian Finance Ministry which currently owns the shares. That is not the only odd thing about this deal. Putin and Rosneft's Sechin met late Wednesday to discuss the terms, and the Kremlin posted a transcript of their talk on its website disclosing them. This was something like a treaty between two powers—in this case Putin and Sechin.

This seeming transparency is a change from earlier dealings by Rosneft which were less than up front. The publication may mark a move by the Kremlin to better control CEO Sechin, who may be viewed as a threat to the government, which is struggling with low oil export receipts which hurt Russian living standards.

Russia has long tried to sell a further stake in Rosneft, beyond the 19.75% which BP snagged in 2010 when Russia was even needier than now. Putin, when he first took office, wanted to gain control of Russian oil and even attempted to buy out BP, which the country couldn't afford to do at the time given the valuation BP worked out. The buy-up was not something Rosneft wanted; it was to give the Kremlin control of Russian oil. That is why Putin named his pal Sechin to head Rosneft. It since then held off on selling more of Rosneft before weak oil prices and a 2-year recession starving the federal budget forced the Kremlin's hand.

Russia is now a key player in the oil price support group it formed with OPEC countries earlier this month. It will have to cut output (along with Saudi and the Gulf states) to make room for Iranian oil coming into the global market after the nuclear deal with the US and the EU countries. The Qatari investment will mark Russia's status as an honorary member of OPEC, whose production-cutting agreement this month was forced through by Putin personally with the Saudis.

BP has a 19.75% stake in Rosneft for which it paid net $1.5 bn. It also has a direct 20% stake in the Taal-Yuryach Neftegaz field in eastern Siberia which it nabbed in mid-2015 which produces 20,000 barrels of oil per day (bbl/d). Rosneft couldn't fund exploration in this promising area for further oil and gas without a foreign partner and Sechin was subject to sanctions over the Russian invasion of Ukraine and seizure of Yalta, so BP was the only partner available.

BP also last summer picked up similar sized stakes in two other Siberian areas, Yermak and Yenisey-Khatanga where exploration permits have now been received, and where work will begin next year. Rosneft will own 51% of these with BP at 49%.

BP also arranged for advanced seismic land search contracts with wellhead exploration giant Schlumberger Ltd  (SLB) for Rosneft sites in the Russian Far East. The two companies also jointly operate refineries and petrochemical plants in Russia and outside it. It also provided help to the Russians with technology for producing from mature fields and learning western management practices.

The BP stake in Rosneft goes back to an alliance formed by its former CEO Lond Brown with TNK about 20 years ago. When Putin decided to take control of the Russian oil industry Rosneft bought out BP's former 50% partners in TNK including Alfa Group, for $27.7 bn. But BP wasn't a seller despite having only invested all of $8 bn in the jv in 2003. The Russians sold up because they feared becoming victims of the Kremlin as had occurred with the head of Yukos, another oil company Rosneft nabbed in 2004. The company chief and its lawyer were hit with tax bills for asset sales which had never occurred and jailed. The lawyer died and CEO Mikhail Khodorkovsky ultimately made a deal to get out of jail and left Russia. Yukos fell to Rosneft.

Given the hardball tactics used to gain control of the oil sector by the Kremlin, BP's defiance was based on cold logic. It risked Kremlin ire by holding onto its stake. The idea was—and is—that Rosneft needs a link to oil industry majors, which shareholder BP is best positioned to provide. So BP demanded a lot of money for exiting TNK, which Rosneft could not afford. Instead, to meet Putin's desire for control Russia paid $12.5 bn to BP for cutting its stake in the TNK-BP jv so Rosneft could buy control. BP was happy to receive money after its ~$20 bn in fines and penalties over the Deepwater-Horizon oil spill in the US Gulf of Mexico waters. Nobody was locked up because Russia couldn't treat BP the rough way it had dealt with Yukos.

CEO Sechin is a part of the Putin kleptocracy but is also viewed warily by the Russian president because of his considerable economic clout. Sechin had been a pal of Putin going back to the good old days in St. Petersburg when it was still called Leningrad. Like Putin, Sechin is a silovik. a former spy, in his case having been posted in Mozambique and Angola when Putin was in Dresden. Angola is a major oil producer and another kleptocracy under the Dos Santos regime, so he learned from a master.

Sechin was a prominent person banned from the US after the annexation of Yalta. During Putin's first two terms, Sechin was his chief of staff-gatekeeper, and then energy advisor. He was "demoted" to deputy prime minister when Putin became president again but also took the reins at Rosneft. You do not want to own Rosneft directly, however cheap its oilfields look compared to rivals. This is Russia and the Czar in place can do what he wants,.

Sechin was also a key player in the link via foreign policy advisor Carter Page to candidate Donald Trump, despite being on the US sanctions list. Unlike Glencore, which has no oil patch savvy, BP is a key player and while you wait for a gusher it pays over 6.6% interest. STRONG BUY.

Ecopetrol (EC) was raised to buy from hold by Deutsche Bank yesterday so naturally the stock price fell. It is a play on oil and on Colombian peace.

An unidentified insider at Veresen sold 20 mn shares at $12.40 this week through a secondary offering with an underwriter group., The VSN stock fell 3.6% when the news was reported in Toronto. This came immediately after FCGYF (as it trades in the US) published its 2017 guidance which expects to payout C$1-1.14/per common share. These mysterious Canadian moves are worrying us and our man north of the border, Martin Ferera is delegated to figure out what is happening. We own FCGYF because we think it will get US regulatory approval for its Jordan Cove, Oregon gas catchment and gas liquefaction complex. It may be that the Army Corp of Engineers re-routing the Dakota Access pipeline to avoid an Indian Reservation is scaring off Canadians despite Trump trumpeting that he wants to let dirty plants back because he doesn't after all believe in global warming.

For whatever it is worth, US trading saw FCGYF up 1.4% today,.

Materials

Agrium hit a new 52-wk high in Toronto today at C$140.25 as it prepares to merge with Potash for which it will become the vendor of plant food and a generator of growth. AGU.

Another 52-wk high was chalked in by Vale today hitting $9.34, over its supposed discipline in keeping capex down to repay debt and deal with lower iron ore prices. I am  unrepentant about selling half our stake earlier at a lower price because of fear of Brasilia interference with VALE management. This share also suffers from government risk but Temer is no Putin.

Banksters

Bank of Nova Scotia will partner with fintech risk capital firm QED Investors of Alexandria (VA) to invest in Latin American markets for its managed funds in what it called the disruptive technologies in emerging Pacific Rim markets (Mexico,Chile, Peru, and Colombia) to build its presence in digital banking by buying stakes in Latin tech firms dealing with the public over banking and spending. The BNS side will be in the form of a venture capital fund to be run by QED.

Separately BNS is being sued for allegedly rigging the price of silver and silver financial instruments together with other banks, after telephone records showed that the daily fixing price was fixed. The charges result from Deutsche Bank settling a silver-fixing case against it in a NY federal court with a payment of $38 mn, and released documents implicating other banks from Britain, France, the US, and Canada.

Banco Santander  (SAN) is up another 3.5% today despite the EU plan to taper its bond buying program, I think because of more upbeat views of Latin American dollar debt. With the greenback rise faltering, the Spanish bank's Latin franchise is looking attractive.
 

Drugs

Novo Nordisk, whose self-imposed promise to keep price rises for its drugs in single digits per year shocked the industry, has now become a bull-rated stock based on trading patterns in the investorsintelligence.com European list, with a 20% higher target price than it now trades at. NVO is Danish.

Fellow Danish drug-maker Bavarian Nordic is introducing warrants (Danish for stock options) to award to its staffers for exercise during the 2020-21 period. BVNRY will issue 450,000 warrants at 54.2 Danish krone while the stock is at 222.5. It also plans to set up a 3-yr incentive program for its top brass in next Jan. for 58,000 shares with an exercise price in 2019 of DKK 260.2. These measures are inappropriate and should be voted on by shareholders, not bullied through by the board on which the CEO sits.

Stada Arneimittel AG is back in play, up 4.8% in trading today. It is still down from our buy price when we went back in after Teva opted not to buy STDAF of Germany.

Teva (TEVA) is investigating a possible case of bribery in Romania where doctors were given commissions fro studies or foreign speeches in return for prescribing Copaxone to patients with multiple sclerosis. The stock, tipped as a bargain by Barrons blog and Trefis yesterday is up 2.6% today.

Mexican Standoff

Mexichem, the Mexican fluoro and chloro chemical multinational, has finally joined more visible Mexican outfits in rising 4.2% in Mexico City today, reported by Eduardo Garcia. We saw good results earlier with more visible Cemex, CX, on the big board while MXCHF is on the pink sheets. I bought more, I think, at $4.44 but maybe the marketmaker pulled the share up before my order went in. See below for my reasons. The stock offer went in at the posted price and then the crooked marketmaker set the bid at $6.45 and the ask at $5.11 despite what had been posted earlier.

CX rose another 2% today.

Funds

Closed-end Mexican Equity & Income Fund and REIT Fibra Uno also have gained. MXE; FBASF.

I was unable to buy shares of Ascendas India Trust at the lowball price posted for the Singapore REIT invested in India by the US marketmaker for ACNDF, the ADR. It must have been a trap for sellers. The stock rose 5.6% the moment I put in my buy order, but there was no US trading.

Barrick Gold Corp (ABX) is the 2^nd largest holding of GoodHaven Fund, the managed outperforming mutual fund which beats indexed ones, according to Dow-Jones. We sold the common but may buy it back next year. Meanwhile the ABX US$ bonds are a key holding for yield.