The Chinese are creating a link between Shanghai and Hong Kong stock exchanges but Alibaba would not list in Hong Kong because it was not willing to accept HK corporate governance rules and a requirement that there be a single stock class. Some Chinese friends of Jack Ma are definitely among those who benefit from the special class deals he was protecting. So, according to today's Wall Street Journal, are some “quiet winners” who subscribed convertible preferred shares in a private placement two years ago.

Despite what Bloomberg is writing from China, it is not Chinese exchange controls and use of special rules for qualified investors that is the cause for the impossibility for its customers to buy BABA. Hong Kong will only list a single-share single-vote class of shares. The New York Stock Exchange allows different classes of shares, allowing stock to be issued without diluting insider control of a company.

It is because of the Hong Kong rule on shares classes that the Chinese public cannot buy Alibaba, because the rules meant it had to be listed elsewhere. The reasons is that the company founders, starting with the charismatic Jack Ma, who took over Alipay without compensating Alibaba and who earlier gave special deals to bigshots in China and on Wall Street had to deny IPO buyers control of the BABA stock. Alibaba is to be listed on Thursday without the buyers getting pro-rated voting rights comparable to what is being kept by the founders and their 40 friends. Or 40 Thieves.

This matters, according to Mohamed El-Arian, former chief of equities at Pimco, also writing in today's Bloomberg:

“At a possible $22 bn to $24 bn, it could well be the largest IPO in history. So it really matters how investors fund their purchase of Alibaba shares.

“The broader market would be least affected if the incremental funds came from a healthy and sustainable increase in borrowing, associated with a greater willingness (and ability) on the part of investors to assume risk. The deployment of idle cash would also have minimal effect on the rest of the market. Although both will occur to some extent, they are unlikely to be the main drivers.

“This leaves plenty of potential for downward market pressure as investors sell existing holdings in order to make room for their Alibaba purchases. Given that most investors don’t know as yet how many shares they will receive, most of the selling wouldn't materialize until quite far into the IPO process. “The combined effect could be quite significant.”

Adrian Ash, head of research at our advertiser www.bullionvault.com writes from London about one of the assets likely to be sold off to buy into Alibaba:

"Last week was a bad week for gold prices, but a good week for gold buyers. Down 2.7% against the Dollar, gold's worst drop since May saw BullionVault users continue to add metal to their holdings as a group. Silver also got bought on its drop.

"Bargain-hunters might get a better chance this week too, according to Wall Street and City analysts. You [can] expect more violent swings, we think, whether or not gold gets back to 2013's low of $1180 per ounce.

"[Today] the world's most important central bank, the US Federal Reserve, will announce its next policy statement. The financial world will be watching for one word: "considerable". That's the length of time the Fed has promised to keep interest rates unchanged ever since its QE [quantitative easing] money-printing scheme reached its peak in late 2012.

"Now several big-name economists think that, with QE set to end this month or next with the final 'tapering', that word will go as well.

"Does it matter? Back in 2003, then-Fed chairman Alan Greenspan used the words 'considerable time' when promising to keep rates at 1% after the DotCom stockmarket crash. One Fed research paper said it clearly pushed down longer-term interest rates on 10-year US Treasury bonds. That let the government borrow more cheaply and reflated asset prices, most notably US housing, with a flood of cheap money.

"Here in 2014, dropping the word 'considerable' from Wednesday's statement would be dramatic at least for economists and the trigger-happy financial markets. And especially with the Dollar's No.1 competitor as world currency, the Euro, facing a new QE-style deluge of its own when the European Central Bank starts running its printing press on Thursday this week.

"But another key word this week however is 'No'. Or maybe 'Yes' from voters in Scotland's independence referendum on Thursday. The big risk here is to Sterling. Knocked lower by surveys pointing to a dead-heat, it could rally very fast, knocking gold prices for UK investors much lower,if Scotland in fact votes to stay in the Union.

"But if Scotland splits? As we told The Sunday Times, BullionVault has seen Scotland-based users (as a proportion of all active clients on the Order Board) swell by over 40% so far this month compared to the previous 2014 average.

"A little insurance looks wise. Because while the UK authorities are only now preparing for a "Yes" vote, their likely response to capital flight from Scotland is obvious. Owning physical gold or silver in a secure, foreign vault, ready for instant sale if you need the cash, would at least keep some wealth far away from [possible] 'emergency' controls on domestic [British] bank accounts.

[While] price-risk is plainly an issue with gold right now, there are other reasons to buy physical bullion and own it, outright, in a safe place beyond your own borders."

*Harry writes:

The reinsurance industry, both buyers and sellers, has just concluded its annual conference in Monte Carlo. Mother Nature has lately been quite sparing with her natural disasters and combined ratios (claims divided by premiums paid) have been below 100% (lower is better for the insurers). Result: The industry is crying its eyes out.

The tears are because well-financed companies from outside the insurance industry see fat profits outside their usual business cycles and compete with established insurers by writing policies with lower premiums. Wholesale insurance is quite generic; customers love to pay lower premiums to policy writers that have solid assets backing up policies.

Then, just like Lucy in "Peanuts," Mother Nature yanks away the football by creating a few terrible storms. The inexperienced insurers write big checks to pay their losses and get out of insurance. The smart insuers then smile and raise premiums to more "realistic" (their favorite adjective) levels and the cycle begins anew.

Figuring out how much to charge for insuring a risk and how much of that risk is held versus laid off on other insurers is called "underwriting." Good underwriting can result in immense profits. Warren Buffett asks Berkshire Hathaway shareholders to "bow deeply" to Ajit Jain, its head of insurance operations, because he has made Berkshire billions in underwriting profits.

Validus Group (VR on the NYSE), a re-insurer, insurer and writer of insurance-linked securities, is a young player in the game, having been founded in 2005 albeit by some of the sharpest people in the business. Unusually, it has been profitable every year since then. In fact, during those eight years, it has bought back 40% of its shares. Its combined ratio for Q2 2014 was a striking 68.6%. [Ed: a combined ratio is the level of earnings from premiums and investments vs expenses and losses. A CR of under 100% means the re-insurer is making money, and one at 68.6% means it is making an incredible 31.4%.]

VR's forward p/e is ~7, its dividend is 3.05% and its current price is about equal to book value/share.

Actually, such 'cheap' metrics are not unusual for a sector in current investor disfavor like insurance except that the dividend is higher than average. However, disasters will return and interest rates will rise as well as insurance premiums. Then Validius may no longer be "cheap."

Vivian adds: NYSE-VR trades now at $39.28. It operates through its own management and also via sub AlphaCat Mgrs Ltd, in insurance linked securities. These are a financial instrument whose value depends on losses from natural catastrophes and as they do not correlate to the general market, are appealing to capital investors. Catastrophe bonds are a type of ILS and AlphaCAt provides collateralized catastrophe reinsurance and also retrocession, both investing in such transactions and issuing catastrophe bonds of its own. That is a key factor which differentiates VR from other re-insurers.

Like them it is also an underwriter at Lloyds of London via Talbot Syndicate 1183bought 7 years ago, a contracted reinsurer for its insurance operations.

Validus writes marine and offshore energy insurance of up to $15 mn to any program, lower than its directly sold property & casualty insurance (P&C is limited to $25 mn per program). It also insures aviation and space lines, bloodstock and livestock, and has opened a terrorism reinsurance line. These are done on an excess of loss reinsurance basis, meaning that they only come into effect when the initial insurance has been paid out and there is no money left for the rest of the loss. Again the limit is $15 mn for terrorism, marine war, and aviation war risk.

Validus Re is rated A, stable by insurance rating agency AM Best.It will report on Q3 results Oct 30. Its next dividend payment Sept. 29 will not go to new investors, but the rate is appealing, as Harry noted. The stock is not only recommended by our insurance guru. It is rated positive by Thomson-Reuters and better rated than other insurance stocks); called a long by Marketedge 2^nd Opinion; and a buy bySmartConsensus which raised it from a hold in July. Despite all this VR is down YTD. One reason may be that Thmson in its most recent report warned about a negative earnings outlook and the risk of missed consensus estimates and earnings surprises.

*BCE is reportedly among the potential bidders for the spinoff of up to $20 bn in assets by Carlos Slim's America Movil group according to CNBC. Mexican competition regulators are requiring that AMX divest enough cell and land telephone assets to bring its market share below 50%. Other potential buyers include AT&T from the US and Japan's acquisitive Softbank.

*While attention is focused on the buyback by Banco Santander of enough shares of its Brazilian sub to reconsolidate this into its accounts, there is a nearer-by Portuguese entity that may tempt SAN, the state-owned good bank relic of bankruptBanco Espirito Santo, now called Novo Banco, which the Portuguese govt and Portugal's banks are desperate to sell quickly. That may mean cheaply, which would have certainly lured in the new chairperson's late father. Is Ana Patricia Botin a bold chip off the old block? Among the other potential bidders are France's Crédit Agricole, which is a shareholder in BN along with a Brazilian investment group. All banks operating in Portugal, including Banco Totta which belongs to SAN, are on the hook if the present round-robin fund-raising proves insufficient. The Lisbon government will not take on a full bailout.

Meanwhile SAN is buying Carfinco, a Canadian car finance lender for C$300 mn, a 1/3 premium over its YTD average price.

*Investment Digest of Canada has reduced Computer Modelling from buy to hold on valuation grounds. The small cap firm which sells software and services in reservoir modelling for oil and gas companies trades at over 40x lagging earnings. However it is a takeover candidate despite its convoluted structure with its pension plan a major shareholder.

*Novartis is losing its edge at home. The Swiss healthcare system wants to cut the prices it pays for drugs to lower levels than apply elsewhere in Europe and the Vereinigung Pharamfirmen in der Schweiz, VIPS, an industry lobby, is trying to stop the new regulations apply starting Jan. 1. The main fear is that other countries will use Swiss prices as a way to cut their own refunds for drugs. However it turns out that Swiss prices currently are about 5% higher than those in the EU. The leading Swiss drug firms are NVS and Roche. The latter refused to cut the price of Perjeta, a cancer drug, as a result of which it was removed from the formulary allowing it to be prescribed. NVS is hiding behind the industry grouping because it is already so unpopular in its homeland over oversized benefits to its former CEO at the expense of patients and Swiss researchers.

*GlaxoSmithKline exercised its option to a muscle-disease target from Five Prime Therapeutics for $1.5 mn up front and up to $122.5 mn in milestones. The name of the disease was not released but they have been working together since 2010 on skeletal muscle diseases.

GSK faces generic competition now to its Advair Diskus from Mylan which is in phase III trials of its version.

*Paddy Power is among the UK bookies which are setting up a voluntary gambling addiction watchdog program to stave off further government measures, now supported by both the Tories and Labour in Britain. PDYPF.

*CAE showed how its simulation devices can help doctors place a catheder in human hearts using ultra-sound. The system was presented in Washington at the Transcatheter Cardiovascular Therapeutics conference by CAE and Abiomed with which it developed the Impella heart pump training program. Our biotech maven recommended CAE whose main business is flight simulation because it is diversify into medical simulation.

*Nokia hit a 52-wk high in London trading at the equivalent of $8.64. I shall stop worrying about NOK.

*Reckitt Benckiser hit another 52 week high in London trading at £54.65 this morning. I think there is something more at work than its non-sterling earnings appeal, perhaps a last-minute stock inversion deal.

*Schlumberger rose 2.51% pre-market trading today over its chances to landing contracts in Brazil.

*So did Cosan which recovered to $12.66, also because of Brazil, in this case politics. With scandal erupting over Petrobras mensalão payments to parliamentarians (again) another energy source looks appealing. CZZ makes ethylene from sugar cane.

*Royal Bank of Scotland has fired its entire 10-person team specializing in East European and other emerging debt markets, giving an opportunity to hire the lot to RBS's competitor banks. We own its preferred shares, not its common, and therefore win from any cost-saving measure, however stupid.

*Naibu's Reuters writeup remains un-updated but it provides a reality check to the sell-off induced by its downrating to hold by brokerage firm Daniel Stewart last week. No point looking at the now cancelled dividend. But please be aware of the following statistics (all from reputable UK auditors checked by the service) gross margins, 27.77%; operating margins, 21.63%; net margins 15.96%. The too return on equity is 27.42%, return on assets 23.12%, and return on investment 27.21%. Its assets are over 6x its liabilities. We aren't selling but I may average down if this keeps up.

*Portugal Telecom is already in the black in my IRA, up 7%+ today at $2.28%. Of course I want to sell the IRA stock last because it is least taxed, and most of my PT stock is directly held and was bought before the crisis over its private placement with an Espirito Santo Luxembourg vehicle.