Harry Newton's In Search of The Perfect Investment
Technology Investor. Harry Newton
AM EST, Wednesday, August 5,
2009. You go with the flow, not with the logic. Stay
with me. The stockmarket is going up. It's not "logical" that it's going
up, because earnings suck, employment sucks and the dollar sucks. But you go with
it and make a few shekels. And bonds, too. We're going to have big inflation soon;
interest rates will skyrocket and bonds will plummet in value. So, don't buy bonds.
That's the "logic." But meantime, interest rates keep falling and the
bonds I bought in the past several years are up handsomely. I bought some muni
bonds yesterday. I got 4.40% triple tax-free. That's at least 6.5% effective pretax.
But taxes are going up to pay for health-care, bailouts, stimuli, and pork. (See
below.) So, my bonds will soon be paying 7% and maybe 8%.
IPO and secondary business is heating up. More and more issues are coming to
market. For what's coming today and tomorrow, check out TheFlyOnTheWall.com.
One game here is get in on the IPOs and secondaries, sell when they come. "Some
of my clients are out by 11 AM," one broker told me this morning. With
secondaries, the stock typically falls when the secondary is announced, then
the secondary is priced, then the stock rises. You buy when it falls. (I wrote
about STEC yesterday.) There is risk in IPOs and secondaries. But, in today's
ebullient market, they're a good bet. Secondaries coming today are Evercore
Partners (EVR) priced last night at $20.15, Swift Energy (SFY) priced last night
at $18.50 and Cott Corp (COT) priced last night at $5.35. A IPO coming this
week is Avago Technologies (AVGO). To get in on these, you need relationships
Everyone is surprised
at what's happening in the stockmarket. Here's today's Wall Street Journal piece:
Runs With Aging Bulls
What might be the sequel to the surprise summer hit: The Incredible Rising
the Standard & Poor's 500-stock index is nearly 50% above its March low.
The potency of the surge caught just about everyone off-guard. Yet the rally
shouldn't be that surprising, as stock markets nearly always rebound when
investors see an end to a recession. The big question is what happens after
that initial surge.
current downturn, there have been seven recessions since 1960. In the 12 months
from the midpoints of those contractions, the S&P 500 rose a solid 17%
on average. But in the following 12-month period, gains were harder to come
by, with the S&P 500 adding only an extra 4% on average.
What does this history tell us? If the recession ended in June -- and most
economists predict gross domestic product will grow in the third quarter --
the midpoint of this downturn would be September last year. In the 10 months
since then, the S&P 500 is actually down by around 14%. So it wouldn't
be surprising if the market rallied further from here. And with the Federal
Reserve still intervening heavily to hold down borrowing costs and the government
spending money hand over fist, few want to bet against this bull run.
post-recession period is different, and this one still looks nasty enough
to cause disappointment on fundamentals.
bulls' weakest point is their reliance on the earnings rebound predicted by
Wall Street analysts. The S&P 500 is trading at 16.8 times consensus 2009
earnings, above its level at the market peak in October 2007. That is why
the bull case says investors need to look even further forward, at 2010 forecasts,
which gets the multiple down to 13.3 times.
But that distant-hope
scenario has its shortcomings. Take a stock like Home Depot, trading at 16.8
times consensus fiscal 2011 earnings, very high for a company facing intense
competition and exposed to the troubled housing market
Implicit in the bull case is the belief that the government just has to carry
the economy until private actors are ready to take up the slack. One problem:
The amount of government intervention has been so immense that the private
sector probably can't take over anytime soon.
Of course, the
Fed and the Obama administration can always keep printing and spending, but
those actions in themselves could hurt stocks, as they cause misallocation
of capital and stoke fears about the deficit and inflation.
shouldn't be tossed out. After its bubble burst, the country's stock market
often rallied on recovery hopes, only to fall back hard. That message shouldn't
get lost in translation as investors wonder what's next for U.S. stocks.
will it go next? Richard Russell, guru of the Dow Theory Letters,
Inc. writes yesterday:
One thing I've
learned after 50 years in this business is that a trend will continue in force
until that trend ends -- no further, no less. That's a truism, but unfortunately,
I don't know anyone who can tell us how high a trend will carry or when a
trend will end.
If an "expert"
wants a little publicity, he can make some damn fool statement that can't
be verified. If the statement is bullish and it proves to be wrong, well,
nobody will complain. Wall Street's business is distributing merchandise to
the public, and every optimistic statement or bullish prediction helps. So
the Street never complains when bullish predictions don't pan out. At least
the "expert" ventured a guess, and so what if he proves to be wrong
as he usually will be? Nobody's keeping tabs on him or her.
It's hard to
believe, but "Maestro" Alan "bubbles" Greenspan still
attracts attention when he spouts off one of his opinions during a lucrative
(for him) speech. The Greenie's latest brilliant idea is that the Fed will
not raise rates any time soon. And, of course, that gives the banks "permission"
to follow their most profitable line of business -- the carry trade.
weeks and certainly since the Dow Theory bull signal, the Lowry's statistics
have improved. On July 10 Lowry's Selling Pressure Index stood at 885. Yesterday
that Index stood at 859, down 26 points. On July 10 Lowry's Buying Power Index
stood at 82. Yesterday it stood at 94, up 12 points. What this shows is that
most of the market's upside progress over recent weeks was made by a decline
in Selling Pressure, not by a rise in the urge to buy. If there's a flaw in
this advance, this is it -- the urge to buy is still lacking.
-- Russell, get off it -- what do you really think is going on?
Answer -- We
tend to forget that every move, large or small, in the stock market is entitled
to a correction. I believe that the rise from the March lows is simply a correction
of the huge bear market decline which preceded it.
secondary correction will recoup one-third to two-thirds of the ground lost
during the preceding bear leg. To refresh your memory, the preceding bear
leg carried from 14164.58 on October 9, 2007 to 6547.05 on March 9, 2009 --
a total loss of 7617 points. A one-third correction would carry the Dow to
9083. A two-thirds recoup of the bear market losses could take the Dow back
should know that following the famous 1929 crash which took the Dow from 381
to 198, a correction took the Dow back to 294 in early 1930. That correction
turned the entire investment community bullish. The public piled back into
the market. However, the correction had nothing to do with an improving economy.
In fact, the great 1929-1930 correction was followed by the greatest market
wipe-out and economic depression in history.
If you ask Harry
Newton, "guru," where's it going? I say it goes up, until it goes
down, as it will because this latest increase is too strong, too fast. So stick
with it for now, while it's good. Be prepared to pull out -- Remember our inviolate
15% Stop Loss Rule. If it drops 15% from its recent peak, you're out.
End of story.
impressed with STEC. I listened to yesterday's
conference call. What a joy to have the founder and majority shareholder still
running the company. What a joy to hear they're doing so well and now supply
all the world's key storage makers. More about them tomorrow.
and inverse ETFs are supposed to make a daily move inverse or double of what
the underlying index does, writes my reader friend, Robert Coates.
"Those leveraged and inverse ETFs which you wrote about yesterday are good
-- but only for the one day. They are to be used only for short-term moves of
a day or two. That's it. Of course the brokers didn't understand and thereby
mislead their clients. They didn't understand what they were selling. These
ETFs can be very useful for very short-term traders."
small something for the environment..
Paul McCartney, the former Beatle and vegetarian pop star, has asked fans to
go meatless on Mondays to help slow global warming by reducing the amount
of gaseous emissions from farm animals. Cows, pigs and sheep bred for human
consumption discharge millions of tons of methane, a more potent greenhouse
gas than carbon dioxide. Livestock accounts for about 18 percent of greenhouse
gases, more than all the worlds cars, the United Nations Food and Agriculture
Organization has said.
If you want
to fight climate change, its not only about electricity and coal-fired
power plants: Agriculture is a huge contributor too and meat consumption is
a big problem, Jan van Aken, a biologist and agriculture campaigner for
the Greenpeace environmental group, said. Its mainly burps
and animal flatulence, he said.
If you have
a meat-free Monday and that can reduce our emissions from cattle by 10 to
20 percent, van Aken said.
people are obsessed with planes. All I know
about this is the photo, which I think is neat. I'm following this airplane-morphing
theme from yesterday's house built from a plane. Here's a bus built from a plane.
I'm guessing you can drive it on highways.
P.S. This is not a chick magnet, unless you're after the 75-to-death variety.
Roundabout Theatre Company has consistently the best shows in New York.
We have had a subscription to Roundabout for eons. Last night we saw:
It's a musical
highlighting the wonderful music of Irving Berlin and Scott Joplin. It's the
best Broadway show I've seen in eons. Get yourself tickets before it closes
on September 6. Tickets from Roundabout.
stupid pig jokes. Your kids and grandkids will
How did the pig go on holiday?
The swine flu
Swine flu isn't
a problem for pigs, because they're all going to be cured anyway.
The first sign
of pig flu is you come out in nasty rashers.
This little piggy
went to market,
This little piggy stayed at home,
This little piggy had roast beef,
This little piggy had none.
And this little piggy had influenza A virus subtype hemagglutinin protein 1
neuraminidase protein 1.
What do you call
a pig that does karate?
A pork chop!
There were 5 pigs.
They went to a restaurant. When the waitress took their order, the fifth pig
kept ordering water. On the way out the waitress asked why he kept ordering
He said ,"Well someone had to go we,we, we all the way home."
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
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