Border Skirmishes

08/27/2009 10:33 am EST


Igor Greenwald

Chief Investment Strategist, MLP Profits

Globalization has been money for the multinationals: markets expand, costs shrink, profits grow, and grow most rapidly within tax havens. The catch is that it's so much easier these days to run afoul of a foreign regulator.

Microsoft (Nasdaq: MSFT), Intel (Nasdaq: INTC), Apple (Nasdaq: AAPL), Google (Nasdaq: GOOG), and General Electric (NYSE: GE), among others, have been bit by Europe's competition watchdogs, usually giving ground and often paying a hefty fine as well.

Whereas Swiss banking giant UBS (NYSE: UBS; Zurich: UBSN) lost its way on the other side of the Atlantic. First the bank got pantsed in last year's US credit crash. Then the IRS demanded information on its tens of thousands of US clients in order to ferret out tax evasion.

Last week, UBS agreed to hand over details on 4,450 accounts. Days later, the former UBS banker and whistleblower who helped US authorities make the case received a 40-month prison term. And on Monday President Obama was playing golf with his buddy the senior UBS executive.

And while Swiss pride has suffered a blow, so have wealthy Americans who're finding fewer foreign takers for their money. On the plus side, UBS shares are up 12% in a week, and 140% from the low in March, enabling the Swiss government to sell its emergency stake at a nice profit.

If only the trans-Atlantic tussle over bankers' pay could be guaranteed a similarly happy ending. The French government has decreed significant restrictions on its home turf and is now demanding international adoption of something similar rather than porous "guidelines" as Washington and London prefer.

The Germans could side with the French, if only because they've been told not to expect White House help on the pet issue of selling Opel. The General Motors subsidiary, propped up by German government aid, has received several bids, including a Russian-backed one that would preserve the most jobs. But GM's board has rejected that option, and is seen preferring the private-equity bidder who would slash costs but preserve GM's access to Opel's technology and selling platform. Berlin is eager to get Opel into new hands before its own "Cash for Clunkers" runs out, adding to Opel's red ink.

In other German automotive news, Volkswagen's (XETRA: VOW.DE; Pink Sheets: VLKAY.PK ) shares are down 38% in the two weeks since the announcement of its merger with Porsche and yet may still be overinflated by a factor of almost two, according to analysts cited in the The Wall Street Journal.

The maker of the people's car is certainly sporting a luxury valuation. Who's still cheap but also ready to roll? Roger Conrad recommends the Chemtrade Logistics Income Fund (TSX: CHE-U, OTC: CGIFF), a supplier of sulfuric acid and other chemicals with a 14% yield and the business cycle on its side. He also highlights a generator of hydropower with a safe 7% yield and upside from the coming controls on emissions.

And if those deals are still on the table, what does that say about the traditional financial safe havens? Nothing good about the yen, writes Carlton Delfeld, who expects the currency to drop in value as investors chase returns outside Japan.

On the other hand, gold is destined for greater things, writes Lawrence Roulston, who highlights China's new role as the leading gold miner and gold buyer. But gold is the one currency that no government controls, which remains its main attraction.

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