The New Yorker in its current issue suggests that we all join in applauding a performance of Beethoven's Fidelio at the Met with its stirring Liberty march:

“Nicht laenger knieet schlavisch nieder / Tyrannenstrenge sey mir fern”.

In English (by me): We've stopped slavishly kneeling / so the tyrant's strength is reeling.”

The magazine's target is Pres. Trump but I personally think it should be internet service providers using your data for gain without consideration of your privacy.

Markets are broody and depressed, suffering from a what may have been a terrorist attack in St. Peterburg, Russia, which killed people on the subway system (metro) there. On past form this may have been a fake attack to boost the position of Putin and his buddies against the anti-corruption demos of the past 2 weekends. The haven currency, the US$, is up, resulting in a drop for all non-US stocks we own, because the US conversion of the local price has dropped. This can be a buy opportunity but the situation with Russia and with China, makes me cautious.

Fundamentals

Activist fund of fund investors City of London have invested another 2.84% in closed-end Mexican Equity and Income Fund, taking their stake to 40.77% of the shares outstanding. The UK CoL outfit run by Barry Olliff, invests on behalf of US pension plans and institutional investors, and therefore reports to the US SEC. When funds buy chunks of closed-end funds their impact tends to reduce the discount from NAV, in part because of the hefty volumes they buy, and in part because other investors (funds and folks) follow in their wake. Activists like Olliff also something agitate for fund managers to undertake buy backs or other measures to cut the discount. So while they are looking after their own interests they also help us, particularly old-timers like Olliff who is a savvy long-term CEF investor from Britain. MXE is up 1.23% on the news.

Activists Saba of Grand Cayman bought another $992,000 in shares of closed-end Advent Claymore Global Convertible Fund (CEF) in which it now owns ~11.5%. AGC pays most of its dividend in the form of return on capital but it pays out well over 10%, making it a good pick for income.

It trades at a juicy 13%+ discount from the positions in its portfolio, the NAV. That means you get $1.13 working for you for every dollar you invest in AGC. The fund is managed by an analyst team specializing in valuing convertible stocks and bonds, common stocks, and straight (non-convertible bonds) assembled by the man Bloomberg called “the king of convertibles” F. Barry Nelson, formerly with Value Line Convertible newsletter who still is on its board but has now retired from active management. The fund chief is F. Barrie Martland IV who with staff have been trying to match Saba buys, but who are not as flush.

The team can quickly work out valuations and premiums between different instruments from the same company: convertible bonds or shares, common stock, and straight bonds. They do it in-house rather than waiting for rating agencies. That means they can cover smaller issues outside the US which often are unrated.

They arbitrage by buying and selling different instruments to cut risks. The better performance and foreign convertible arbitrage pays off better than domestic.

In a period when interest rates are rising, convertibles appeal as their eventual value goes up with the common shares they convert into. That keeps them from losing value the way straight bonds do in a higher-yield environment. On the other hand, when stocks are selling off, the yield part of a convertible offers some protection on the downside.

As interest rate trends change, the portfolio can shift its macro position, to be long shares or long bonds. Convertibles are an asset class that swings both ways.

But you don't get 10% yields without risk. The biggest is that AGC mostly pays back in the form of non-taxable return of capital. Arbitraging accounts for most of the non-dividend non-interest return but some of it is really return of capital.

Insider Boaz Weinstein of Saba now reports his buys directly to the SEC. He manages the Saba Offshore Feeder Fund which invests Canadian Federal Employees' pension money. Saba is being sued for allegedly manipulating asset prices of its holdings by overpaying to buy them. The Canadians want to cash out of Saba.

Its May 2016 buy was the first time a Saba offshore purchase was reported to the SEC rather than to fund trackers, a result of the Canada lawsuit. Earlier we only learned that insiders were buying the fund. If Boaz Weinstein has to cash out to repay the Canadian pension plan, it may push AGC's price even lower against its NAV. However, as a closed-end fund, it doesn't have to sell holdings if Saba sells, because its shares are traded like any other stock, based on the market rather than NAV. Open-end mutual funds and exchange-traded funds do not offer a discount from NAV. If the share falls over Saba, I can buy more at a bigger discount from NAV.

A higher risk in my view is from its 42%+ leveraging to boost the return on its wide-ranging portfolio. This boosts its expense ratio (for the interest on its borrowed money) to over 2%. Before the stock market weakened last summer, it was nearly 77% leveraged and its expense ratio was even higher, at 3.2%, so it has pulled back. Leverage can hit the fund if the team misjudges markets. AGC is at least 50% invested in foreign securities, why it is in our portfolio, also required under its by-laws. AGC paid its dividend last week.

For some inexplicable reason our fund with the biggest Russia risk, Central European & Russia Fund, CEE, was actually up yesterday.

Less surprisingly, Canadian General Investments Ltd, CGRIF, gained 1.44% in US trading, probably because of the huge discount from NAV, on mini-volume.

SPDR Gold, GLD, was up because a bombing in the metro system of former Leningrad is scary to the world.

A US operator of a fund for high-net worth US investors, EIG Global Energy Partners, has won a ruling in the DC Federal Court against Petroleo Brasileiro (Petrobras) over the Lava Jato bribery plot to fund the government under former president Llua. We don't own EIG Fund XIV or XV but think this is a good precedent. The funds will seek to collect for an off-balance sheet investment in Petrobras's Sete drillship fleet, to recover the initial investment, plus punitive damages.

Drug Stocks

Teva is engaged in an incredibly complex asset swap with Clal Biotechnology Industries. CBI is a sub of Clal Industries, a major Israeli player controlled by Len Blavatnik's Access Industries. Its details are complex: Teva will sell its share of Gamida Cell, a cancer research startup, to CBI in return for more shares of CBI. Gamida is doing well in phase III trials and may IPO its stock by 2018. Teva's sale will give CBI 24% of Gamida, so it will be right behind another Israeli group, Elbit Medical Technologies, listed in Tel Aviv as EMTC, which owns 25%. CBI will then be owned somewhere between 17.5 and 21% by Teva. This will challenge its dominant shareholder, Swiss Novartis, which owns 20% of Gamida and has tried to take control in the past. NVS now agrees to maintain its 20% stake and to invest another $10 mn in Gamida. 

Separately, Teva won FDA approval for Austerdo (deutetraenazine tablets) to treat chorea associated with Huntington's disease, the area where Teva's chief scientist has worked during most of his career. 

Bavarian Nordic send a notification on its April 25 shareholder meeting which indicates that the board wants a vote to increase the BAVA share capital with a new issue of stock and warrants worth up to DKK 31.4 mn. Its attempt at a US listing went wrong in 2015 and it wants to raise cash for continued work on vaccines against plagues. The stock fell 1.8% presumably in reaction. Unlike some small caps discussed below this one is covered and rated buy by Maxim Group and Cowen & Co. Piper Jaffrey rates it neutral but the PJ analyst is not as good at BVNRY as the other two. So which one will get the mandate for selling more shares and warrants?

Benitech Biopharma of Oz reported that the respected Nature Communications (scientific journal) reported on the results of its oculapharygeal muscular dystrophy (OPMD) studies. These show that DNA-directed RNA interference, the company's key tech, can silence and replace the mutant poly(A)-binding protein nuclear 1 gene which causes the progressive muscle-wasting rare disease which causes drooping eyelids, difficulty swallowing, and weak limbs. The studies were in mice in a lab, but they were sufficient to win for BNTC (and its BNTCW warrants) a designation as the orphan drug developer for OPMD by the European Union in Jan. The work is being done in London's Royal Holloway Hospital. BNTC is up 3.34% to $2.852 although it earlier hit $3 and BNTCW is flat. I recommended buying the warrants when we sold the stock from the model portfolio but because trading was so thin I never added it to the model portfolio. I recommend buying the common stock at $2.81 if you are not threatened with a wash sale penalty. The common is trading at a considerable volume. The warrants are a better deal at 40 cents US ask but there was no trading yesterday. I bought the warrants at 40 cents but the price then rose to 50 cents.

Technology

Canadian Pure Technologies, PPEHF here and PUR in Toronto whose systems check on the integrity of pipelines, has developed a machine learning app for the District of Columbia's water pipelines which will be presented at the Analytics 2017 conference in DC Sept. 18-20. This is a big breakthrough from acoustic and magnetic fiber-optic inspection software sold by contract or with updates, to say nothing of managing physical inspection, PUR's previous major line of business. It also inspects bridges, multistory parking garages, and buildings and even oil and gas pipelines.

This is one of our Canadian small caps out of Calgary, and one of the few found by me rather than our reporting team. In honor of this find I am wearing my Canadian small-tech t-shirt. Nobody follows it but us.

Renishaw, British, gained 4.75% hitting a new 12-mo high of $38.60. RNSHF makes calibration and metrology tools for surgery and dental implants but its main business is checking on the dimensions of products which have fine tolerances used for auto and aerospace production, construction, mining, and power generation.

Insider and Vice-President Anjani Kumar sold C$87,500 worth of Calgary small cap Computer Modelling, which makes simulation systems for extracting the max from oil and gas wells. CMDXF is Canadian and the US stock didn't budge despite the news and its nearly 35x p/e ratio. It is largely owned by institutions, who hold over 56% of the shares. Of course sales have lagged as the oil patch suffered from lower prices. It paid a dividend of 10 loony cents/sh last month and now it looks like its payout exceeded earnings at 138%. However getting a yield at all from a software firm is unique. The dividend has been flat since its 2015 FY (March 2015).

BAE Systems of Britain landed a contract worth $11.2 mn to support continued functionality of the US Army's M88A1 and 2 recovery vehicles over the next 4 years. However the good news was undermined by insider Alan Garwood, the firm's group business development director who specializes in peddling arms to the Middle East, having sold £141,000 of UK-style BAESY shares, as reported to our SEC so the stock lost 1.5%. Non Britons own just over half the shares, 51.07%.

Industrials and Autos

British BP plc (BP) has sold its Forties North Sea pipeline system to Ineos, a petrochemical firm, for $125 mn up front and another $125 mn over the next 7 years with an earn-out arrangement. This field, between Scotland and Norway, was where British North Sea drilling first spudded a wildcat.

A rare big gainer is Orocobre, the Australian company which produces lithium in Argentina, and whose nearest serious listing is in Canada. It gained 3.6%. In the US it initially only rose 0.93% however. But now the US price is also up 3.26%. Arbitrage can pay. OROCF reported that it has recovered another $6.7 mn (US) from Value Added Taxes imported on its Salas de Jujuy site by Argentina. That brings the refund total to $12.7 mn with another $1.2 mn approved but not yet received. It further has a claim for $4.8 mn still outstanding for charges imposed last winter.

Fellow lithium producer Soquimich of Chile, however, fell 0.44% but is still among the top performers in Q1.

So too miner Barrick Gold, ABX, up 0.74%.

In Brazil, Cosan (refiner of sugar and producer of ethylene) gained 2.34%. CZZ supplies cars with alternative fuel.

However, Autoliv, of Sweden, just across the Baltic from St Petersburg, is off 2.4% to under $100/sh. ALV makes car safety devices and software.

Fiat Chrysler crashed 4.7% in European trading yesterday, FCAU was sold over a year ago. It is higher than what we got then but one reason for selling was to simplify the tax reporting over its Ferrari (RACE) spin off. If NAFTA is left untouched it will gain because its parts and sales cross borders both north and south of the USA. It is formally incorporated not in Italy where Fiat comes from, but in The Netherlands, and for now is run from London.