Harry Newton's In Search of The Perfect Investment
Technology Investor. Harry Newton
AM EST, Friday, August 21, 2009: You can be depressed, excited or
ignore it all. In backwards order:
This book is superb.
I cannot put it down. Or more correctly, I cannot put my ThinkPad notebook down.
I'm reading the book on it.
You can get Born
to Run from Amazon
in hard cover for $13.72 or $9.99 for your Kindle. Or you can buy the hard
cover for $16.21 or $9.99 for your PC's eReader from Barnes
and Noble. Or you can buy it from your local bookstore for $24.95. Sayonara
I bought the $9.99
version for my PC's eReader and sat on Continental to Denver totally engrossed.
The guy sitting next to me was reading a book on the Kindle. Frankly I think
my typeface and readability was much better, viz:.
The plane from
Newark to Denver arrived 10 minutes early. Shucks. I wish it had been an hour
late, so I could have finished the book. Did Murphy invent that law also?
two: Getting excited: This weekend's Economist
has this leader:
good news: Sticking to your knitting works.
U, V or W for recovery
The world economy has stopped shrinking. Thats the end of the good
IT HAS been
deep and nasty. But the worst global recession since the 1930s may be over.
Led by China, Asias emerging economies have revived fastest, with several
expanding at annualised rates of more than 10% in the second quarter. A few
big rich economies also returned to growth, albeit far more modestly, between
April and June. Japans output rose at an annualised pace of 3.7%, and
both Germany and France notched up annualised growth rates of just over 1%.
In America the housing market has shown signs of stabilising, the pace of
job losses is slowing and the vast majority of forecasters expect output to
expand between July and September. Most economies are still a lot smaller
than they were a year ago. On a quarterly basis, though, they are turning
This is good
news. The first step in any recovery is for output to stop shrinking. But
the more interesting question is what shape the recovery will take. The debate
centres around three scenarios: V, U and W.
A V-shaped recovery would be vigorous, as pent-up demand is unleashed. A U-shaped
one would be feebler and flatter. And in a W-shape, growth would return for
a few quarters, only to peter out once more.
that the scale of the downturn augurs for a strong rebound. Americas
deepest post-war recessions, they point out, were followed by vigorous recoveries.
In the two years after the slump of 1981-82, for instance, output soared at
an average annual rate of almost 6%; and this time round, output has slumped
even further, and for longer, than it did in the early 1980s.
meanwhile, think this downturns origins favour a weak recovery or a
double-dip. Unlike typical post-war recessions this slump was spawned by a
financial bust, not high interest rates, and when overindebted borrowers need
to rebuild their balance-sheets and financial systems need repair, growth
can be weak and easily derailed for years. Japans 1990s banking crisis
left the economy stagnant for a decade; a premature tax increase in 1997 plunged
it back into recession.
Neither of these
parallels is exact, because todays global slump combines several types
of downturn and an unprecedented policy response. In formerly bubble economies,
it is largely a balance-sheet recession. Debt-fuelled consumption has been
felled. But the scale of collapse was broadened and deepened by the freezing
up of the machinery of global finance, a dramatic collapse in confidence and
stock-slashing. It was then countered with the biggest stimulus in history.
The shape of the recovery depends on how these forces interact.
In the short
term that shape could look beguilingly like a V, as stimulus kicks
in and the inventory cycle turns. In emerging Asia, the unfreezing of trade
finance, a turnaround in stocks and hefty fiscal stimulus are powering a rebound.
Government support, especially employment subsidies and incentives to buy
new cars, has cushioned demand in Germany and France. With export orders rising
and confidence growing, the next few months could be surprisingly buoyant.
Even in America, the fiscal stimulus is kicking in, the cash for clunkers
scheme is a big, if temporary, prop to output and firms will, sooner or later,
stop cutting inventories.
Yet a rebound
based on stock adjustments is necessarily temporary, and one based on government
stimulus alone will not last. Beyond those two factors there is little reason
for cheer. Americas housing market may yet lurch down again as foreclosures
rise, high unemployment takes its toll and a temporary home-buyers tax-credit
ends (see article). Even if housing stabilises, consumer spending will stay
weak as households pay down debt. In America and other post-bubble economies,
a real V-shaped bounce seems fanciful. Elsewhere, it will happen only if vigorous
private domestic demand picks up the baton from government stimulus. In Japan
and Germany, where joblessness has further to rise, that seems unlikely any
time soon. The odds are better in emerging economies, especially China. But
even there an array of reforms, from a stronger currency to an overhaul of
subsidies, is needed to boost labour income and encourage consumption. Until
that shift takes place, the global recovery will be fragile and probably quite
feeble. A gloomy U with a long, flat bottom of weak growth is the likeliest
shape of the next few years.
Profit More Than Doubles, Driven by Folgers
J.M. Smucker Co.'s fiscal first-quarter earnings more than doubled, driven
by its Folgers acquisition and volume increases at its U.S. retail businesses,
exceeding Wall Street expectations.
said fiscal-year earnings are more likely to be at the higher end of its June
estimate for $3.65 to $3.80 a share, which was above analysts' estimates at
the time. It affirmed its fiscal-year revenue forecast.
Smucker -- which
makes jams, jellies and Jif peanut butter, as well as Crisco oils and Jif
-- has bought up a series of food and consumer brands, many of which were
dumped by larger competitors.
good news. I had dinner last night in Boulder, Colorado. The restaurants
were full. There were lines of eager eaters. The town is loaded with new houses
and new shopping centers. The town is spotless. Happy people walk the streets
at night and watch the fire-eating performers. If there's a recession out there,
don't tell it to the folks in Boulder. They ain't feeling it. And what a gorgeous
location for the town -- at the foothills of the Rockies.
Boulder, Colorado. Booming with Fed government agencies and college parties.
three: Getting depressed: How goes commercial
real estate? Not well. From my friend, the guru:
in real estate. People are desperate to believe that the worst is over. They
devour any positive news; but the reality is, we've got a long way to go.
Commercial real estate hasn't yet paid the piper. Too many buildings are still
getting by with legacy leases at rental rates that they won't be able to duplicate.
When those leases end, either because their terms are up or the tenants can
no longer pay the rents, we'll start to see massive failures in that industry.
Sorry I can't be more positive.
The failures will
hurt the banks and cause a second massive round of bank failures. Lesson for
all of us: Don't have more than $250,000 in any one bank. God knows where the
FDIC will get the money from... Ooops. I know. We'll print more. Fortunately,
it costs less to print a $100 note than $100. Now why aren't I in that business?
Here's the second piece of depressing news:
believe Google is going still higher. Google
is a gigantic money machine that delivers for all my entrepreneurial friends who've
dropped their newspaper and magazine advertising for Google.
Today's chart illustrates how the recent plunge in earnings has impacted the
current valuation of the stock market as measured by the price to earnings
ratio (PE ratio). Generally speaking, when the PE ratio is high, stocks are
considered to be expensive. When the PE ratio is low, stocks are considered
to be inexpensive. From 1936 into the late 1980s, the PE ratio tended to peak
in the low 20s (red line) and trough somewhere around seven (green line).
The price investors
were willing to pay for a dollar of earnings increased during the dot-com
boom (late 1990s) and the dot-com bust (early 2000s). As a result of the recent
plunge in earnings and recent stock market rally, the PE ratio spiked and
just peaked at 144 a record high. Currently, with 97% of US corporations
having reported for Q2 2009, the PE ratio now stands at a lofty 129.
New Yorker cartoons:
in Colorado for a wedding and to fulfill my 93-year old father-in-law's lifelong
dream to see the Rockies. We're off to buy oxygen this morning. I hear serving
tennis balls at 9,000 feet is awesome.
This column is about my personal search for the perfect
investment. I don't give investment advice. For that you have to be registered
with regulatory authorities, which I am not. I am a reporter and an investor.
I make my daily column -- Monday through Friday -- freely available for three
reasons: Writing is good for sorting things out in my brain. Second, the column
is research for a book I'm writing called "In Search of the Perfect
Investment." Third, I encourage my readers to send me their ideas,
concerns and experiences. That way we can all learn together. My email address
is . You can't
click on my email address. You have to re-type it . This protects me from software
scanning the Internet for email addresses to spam. I have no role in choosing
the Google ads on this site. Thus I cannot endorse, though some look interesting.
If you click on a link, Google may send me money. Please note I'm not suggesting
you do. That money, if there is any, may help pay Michael's business school
tuition. Read more about Google AdSense, click
here and here.