We have two reports in our El Buen Fin Series, starting with my favorite yield play.

People seeking high yields should buy foreign bank preferred shares, issued at $25 per share, NYSE-traded, and relatively liquid, a special class of American depository receipts.

You should buy despite or rather because of the black label warning. The label reads “nc” which doesn't stand for “non-callable.” It means that omitted dividends are not recuperable in subsequent year, and are “non-cumulative”. In fact, the cheapest foreign bank prefs today are ones issued by banks which had to omit dividends, as they are trading below that $25 issue price. So their yields are higher and the eventual yield to maturity, if the bank pays back the prefs, will also be higher. Those foreign banks which didn't interrupt their payouts usually trade above $25 today because of the still generous yield.

Being non-cumulative allows these preferred shares to count toward a bank's capitalization ratio, a key element in allowing it to do more deposit-taking and lending. The banks offer these preferreds which count toward their capital precisely because they can skip payments in a crisis.

The vehicle was invented by Barclays Bank more than 30 years ago, and quickly copied by other banks in the English-speaking world, and later internationally. The initial offering paid a whopping 11.6% because of a now-ended tax break to UK banks. Their IRS, the Inland Revenue Service, allowed BCS to add back the 15% British corporate tax it paid on the preferred dividend, which boosted the yield without costing the bank any money. The tax break was too good to last.

Now banks have had to invent all sorts of complex hybrids between equity and bonds to boost their capitalization ratio, mostly only for institutional players. The old preferreds however remain around. We recommend a whole host of these preferred ADRs yielding between 4.5% and nearly 7.5%.

During the peak of the global financial crisis, two British banks got into deep difficulty and essentially were bailed out by the government. Royal Bank of Scotland, a heavily indebted bank which had grown by buying highly priced foreign lenders, wound up nearly 82% nationalized by the last Labour government to keep it from collapse for lack of capital.

This caused the European Union to block RBS preferred dividend payments for some of the multiple series of dollar-denominated preferreds it had issued in its own name, and also for one of the banks it had acquired, National Westminister. Some prefs, including Nat West C and certain RBS series, were allowed to continue to pay dividends because of the legal terms of their prospectuses. Others were forced to halt payments for 2 years to prevent distortions in the European banking system because of state-subsidies.

RBS's bad name means that its prefs which never missed a payment still trade at a lower price than those of its wholly owned NatWest sub.

The EU action came under Articles 85 and 86 of the Treaty of Rome which set the European countries on a more capitalistic course. After the RBS dividend blockages, the mounting troubles of banks in the EU led its anti-trust regulators to abandon the penalties for state-controlled bank like RBS. But the damage had been done. RBS had failed to pay the preferred share dividends to the American owners for 2 years. The share price reflected that bad credit history.

We loaded up on the affected series, on the argument that the UK government, owner of the bank, was unlikely to really default. And moreover, before it could privatize RBS, as the coalition Tory-Liberal Democrat government very much wants to do, it would have to redeem the preferreds. But the coalition doesn't want to do so by pumping in more money than the Gordon Brown Labour govt had already given RBS. This impasse makes the highest yielding RBS prefs, the once which had missed payments, a real bargain.

We also own some other preferreds which have paid dividends without a break, from British and Spanish banks. Our

The advantage of this investment for yield seekers is that the preferreds trade at about $25 still, and a round lot will cost you a modest $2500 at your friendly local discount brokerage. (Be aware, however, that the spread on these ADRs is relatively high, and you need to compare different series to find the one with the best yield.) Our list includes non-RBS prefereds for diversification

While bonds are the classic way to buy future yields, and while we do cover so-called Yankee bonds, issued in US$ by foreign companies, and also North American bonds, issued in US$s by Canadian companies, the minimum investment typically in 10 bonds, means a price tag around $10,000. Moreover, bonds are even more occultly priced than preferred shares as there are so many of them. And in the current low interest environment, our bonds pay a lower yield (because they have gone up in price since we bought them.)

Neither bonds nor preferred stocks increase their dividends, why you also need to own some high-yielding stocks which do.

Toy Story

Our second note is about objectivity. Your editor has been lambasted by critics on various nasty Internet sites because I am allegedly “too close” to the companies we write about. To the contrary. We keep in touch with recommended share management to judge whether or not to sell their stocks. But we are not in the “investment relations” business, and never will be. This is a scheme whereby a share is promoted in a free newsletter mailing or blast, to build up its subscriber base. The subject of the “issue” is a stock which via an IR company, paid for the promotional letter. We pay for our ads and do not get any money ever from IR firms many of which are engaged in “pump and dump” schemes to sell insider shares just as the readers of the free publication start to buy.

But do not imagine that this is the only distortion afflicted on innocent bystanders by advisors. A fund manager interviewed by a respectable newspaper or magazine will “talk his own book”. That means telling the world via the pressabout the appeal of stocks and bonds he already owns, sometimes in terrifying volumes. (One Templeton bond fund owns more than half the Ukrainian bonds ever issued.)

And as The Wall Street Journal reported on Dec. 12 (today) big banks produce “glowing” research reports on stocks to win mandates for underwriting a capital increase or initial public offering (IPO) of shares.

A total of over $43 mn in fines was paid by Citigroup, Goldman Sachs, Bain Capital, KKR, and six smaller securities firms, the WSJ reported, over the IPO of Toys 'R' Us to land the deal. Their analysts wrote favorabe sales pitches so their firm would get the share issue mandate. The fines wer eimposed by the Financial Industry Regulatory Authority. That is one stock. There have been many IPOs associated with similar misdeeds.

Thank you to one of our Danish subscribers, FH, for intervening with Denmark'sTrustpilot which published anonymous attacks on our newsletter from people who never subscribed. (We know because the claim is that we do not give people their money back if they are dissatisfied with the newsletter. We do but have not had a request for repayment for over 4 years because subscribers think our service is worth the money.)

Trustpilot is a free-wheeling consumer protection portal aimed at defending clients cheated by on-line businesses. We don't cheat. But it is hard to deal with anonymous attacks on social media.

I am off to London for my year-end working vacation on Dec. 16, the first night of Chanukah. Thanks to a cut in airfares, I am flying biz class rather than sardine+ on BA, and going not to Heathrow but to London City Airport, a short distance from Mudchute Manor where we stay.

This will keep me from taking part in the webcast that morning by Herb Blank about using exchange-traded funds and unit investment trusts to efficiently own closed-end funds, which often trade inefficiently, meaning at discounts to the assets they own. It will be by Herb Blank, who chairs the QWAFAFEW quantitative analysts' club I belong to, one of the creators of exchange-traded funds when they were new and called “country baskets”.

Herb, who now heads business development at S-Network Global Indexes, will be joined by Closed-end Fund Advisors VP John Cole Scott (of Richmond VA who creates portfolios of closed-end funds and business development corps.) and Kevin Mahn, Prexy of Hennion & Walsh Asset Mgm (issuer of SmartTrust UITs.) I'll tune in to the rebroadcast from London but recommend that others sign in live.

Oy Canada!

*A problem with inflation targetting for the eventual rise in interest rates is being debated in Canada. The lower oil price means inflationary pressures and potential growth in our northern neighbor are lower, which should lead to an interest rate cut. Slack growth and spare industrail capacity will hurt the loony, being another argument for our DLR-Toronto hedge against the currency.

*The deflation risk is a negative for our Bank of Nova Scotia, which otherwise would be a flat-out strong buy at present price levels. It was strongly tipped today by David Rosenberg of Gluskin Sheff who estimates it is at a 30% discount to the Toronto index based in trailing p/e ratio, and also at a significant discount to US banks. We are not playing Canada, however, with RBS, but Latin America, which has its own set of varied risks.

*Overall, shares from our neighbor in the frozen north have dropped like a stone but missed the chimney as the expected Santa Claus rally never took place. Among developed countries, Canada has been a big loser because of its heavy metal (pun intended) and energy sectors, down 5.7% so far in Dec. As I advised earlier, I sold half my Veresen, FCGYF, a Canada gaspatch play, of course with full approval of Martin Ferera who covers the share for us. “Take some money off the table” he wrote. I got $13.22 US per share.

*Ecopetrol, suffering from the low oil price, is replacing CEO Javier Gutierrez, but a successor has not yet been named. EC is controlled by the Colombian govt. SELL HALF at $15.65/

*Galapagos designated a second component for its trials for treating cystic fibrosis (CF), a genetic disease. It is novel corrector GKPG2222 aimed at the delF508 mutation causing some CF. It will move into trials early next year along with a “potentiator”, GLPG1837, also from the Belgian firm.

The potentiator will move into phase 1 trials early next year. GLPYY (or GLPGF; it is hard to track) eventually plans to combine the two molecules in combination therapy. The corrector restores the mutation and the potentiator allows the CF channel to open.

This pairing has shown high efficacy in pre-clinical studies vs other CF drugs. More than 40% of CF cells from patients with the mutation showed restored healthy activity (WT cystic fibrosis transmembrane conductance regulatior or CFTR). The drugs are felt to have good drug-like qualities, the company stated. . The trials like the test-tube studies will combine the 2 GLPGF correctors with are in combo with AbbVie which began working with GLPGF in 2013.

Galapagos has worked on CF since 2005, its search funded by the Cystic Fibrosis Foundation, a charity. This hereditary disease affects the whole body of the victim of bad genes because the protein which regulates sweat, mucus, and digestive juices doesn't work right. Most patients die before they are 30. We had a neighbor in France with a CF-afflicted daughter who died at age 9, why we pounced on this share when our former biotech writer in Italy joined the company and stopped writing for us. About 70,000 people have CF worldwide, most of them of European ancestry. There is no cure. The only treatment now is dosing the child with massive amounts of antibiotics whenever a lung infection occurs. About 70% of CF sufferers have the delF508 mutation.

*Good news also from Novartis whose secukinumab anti-inflammatory injection against the misery of psoriasis beat a rival Johnson & Johnson product in head-to-head phase III trials. It reduced the autoimmune skin disease symptoms by over 90% in the 679 enrolled patients at 16 weeks and also met its secondary endpoint, to cut the symptoms of psoriasis by at least 75% at 4 weeks. Secukinumab which will be marketed as Cosentyx, once FDA and European CHMP approvals are given, blocks an inflammation-related protein, interleukin-17. It looks like becoming the first IL blocker to hit the market and also works against psoriatic arthritis and other inflammations. It can become a blockbuster because the present treatments, injecting tumor necrosis factor (TNF), is unpopular with most of those getting it. It also looks like beating a rival products from Johnson & Johnson (stelera) and ABBV (Humira, a TNF). Again my interest in the drug is based on having a friend suffering the nasty skin eruptions of psoriasis which ruined her life.TNF risks triggering cancer by suppressing apoptosis.

(This result undermines the claims by Dr RSS on www.stockgumshoe.com whose supporters have been posting nasty charges against me, that a stock he likes, Tetralogic Pharma, will have a clear run against psoriasis for its birinapant drug. TLOG of course is down on the news today although birinapant's main use is cancer via secondary mitrochordial activators of caspases or SMAC.)

However NVS's tests in hormone-receptive-positive (HR+) Her-2-neu breast cancers of its Afinitor drug (in addition to HR+ Her02-neu+ cancers for which it is already approved) failed in phase III. Afinitor produced only a 2-week gain in progression free survival in combination with Herceptin (from Roche) and paclitaxel than Herceptin-placlitaxel plus placebo. Afinitor was first approved for kidney cancer and now is used against childhoo brain tumors, pancreatic cancer, and benign tuberous sclerosis tumors. But it has problems of high price in the UK and has failed in liver cancer trials also, according to FiercePharma.com, an on-line newsletters.

Divvies and Insiders

*Banco Latino Americano de Comercio, BLX, upped its dividend by 3.5 cents to 38.5 cents/sh. The Panama-based multinational public-private trade finance and investmetn bank operates and reports in US$, the currency of Panama. The 10% higher dividend will be paid on Jan. 13 to shareholders of record Jan. 5.

*Eaton Vance will announce its dividend on EXG later today, according to John Cole Scott (cf above).

*AMFW is the new ticker for Amec now that it has merged with Foster Wheeler. Its new ADR is with Deutsche Bank as Depositary. Analysts at Deutsche, now that they have the mandate, have downrated AMFW to hold with a target price of GBP 1015 ($15.80) vs a prior 1280 ($19.94.)

*I got the proceeds of a share dividend from Infosys also a DB-depositary ADR. A 2:1 split is why.