Technology Investor

Harry Newton's In Search of The Perfect Investment, Technology Investor. Harry Newton

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9:00 AM ET, Tuesday, December 15, 2009: I played singles tennis for two hours yesterday. I thought to myself, "This is grossly self-indulgent. I could spend the two hours researching great investment opportunities." But the last time I spent too much time, I lost too much money. Anyway, what is the pleasure of money if it's not to play tennis and feel good from the exercise? Half my friends are croaking from new diseases. The other half are carrying too much weight (and too little exercise) and soon will be croaking from new diseases.

Lessons learned: Patience is good. Saying you'll pay no more is good. Sometimes, it actually drops to your price. It did yesterday on one item.

This is me after Friday's bike accident: A vital screw holding handlebars to the handlepost snapped. And I hit the pavement face first. Not a pretty site. (Both me and the pavement.)

The screw was 1/8" in diameter. It should have been at least 1/4." and it should have been hardened. It was a serious manufacturer defect. But I never figured it out, until it was too late. The only lesson is that black swan events always happen. And somehow -- with cash, patience, good health and a helmet -- you'd better be prepared.

The world today reeks of black swans -- from Greece to Britain, Ireland, Greece, Spain, Dubai and now Austria. Commercial real estate ails are being blithely ignored by investors as they rush to re-capitalize our banks, allowing them to repay TARP and themselves hefty bonuses.

Australia's opposition finance spokesman Barnaby Joyce said publicly he believes the United States government could default on its debt, triggering an ''economic Armageddon'' which will make the recent global financial crisis pale into insignificance.

Last September, Tim Backshall, chief strategist at Credit Derivatives Research, noted “the price (of credit default swaps implies) that the US was more likely to default on its obligations than Japan, Germany, France, Quebec, the Netherlands and several Scandinavian countries.”

Read more on Crikey.

Cash and gold remain king. There are places to put cash that don't pay nothing. But you got to kiss a lot of frogs. I'm being enigmatic deliberately.

When they saw my new face, everyone asked "What happened to you?"

My usual response was "My wife hit me with a golf club."

My optometrist responded with a question, "She waited all these years?"


Back to gold. Yesterday Nouriel said it was fool's stuff. Today Richard Russell says there's a place for it. I agree with Russell. There is a place for it:

December 14, 2009 -- Since the start of 2000, China's official gold reserves have grown by 167% to 1,054 tonnes, now the world's fifth largest central-bank hoard. That contrasts with the US Treasury sitting pat at 8,133 tonnes (the world's largest single hoard) and Western European banks selling around one-fifth of their "legacy" holdings so far this decade, (now down below 12,016 tonnes). Courtesy of the

Noriel Roubini is one of the very few economists who predicted the world meltdown. That call made Roubini famous. In the magazine, GQ, a full-length article about Roubinin appears. (It's not available online -- Harry.) Quote -- "Roubini is talking about a complete rebalancing of the global economy, something that hasn't happened since 1945. Second, his hopefulness pertains to the world economy as a whole rather than to the US specifically, for Americans. Roubini imagines a future of weak recovery and increasing thrift -- of tight credit, high unemployment, and of oil prices rising while overall growth remains weak, possibly "70s-style stagflation."

Russell Comment: This sounds very much like PIMCO's Bill Gross's description of the coming (or perhaps already upon us) "new normal."

Gold Thoughts -- Buying and accumulating gold must be seen as a LONG-TERM proposition. I can tell you that gold is going much higher, but I can't tell you when. I can tell you what to buy -- gold bullion coins -- but I can't tell you when it's going to go into its bubble phase. By the same token, I can tell you that the dollar will go into its "water fall phase," but I can't tell you when.

Don't buy gold to "make a killing." Buy gold as a permanent store of wealth, and one that can't go bankrupt. Rich people understand that.

Bull markets eventually come to a boil, but the time of the boiling is never obvious. Apply that thinking to the gold bull market.

China is now the leading gold miner and producer in the world. China is actively encouraging its people to buy and accumulate gold. And I wonder how long it will be before the US government imitates China. Yes, I foresee the time when the US government (as stupid as it's been, so far) will do a reverse and encourage the American people to buy and accumulate gold.

China, Russia and most of the Asian central banks still have only a small percentage of their reserves in gold. All of these nations want to increase the gold percentage of their reserves. There was an announcement over the weekend that the Russian central bank was adding to its gold reserves.

US mutual funds are now adding small quantities (percentages) of gold to their portfolios. In most cases, the funds are buying gold for insurance. They will hold small quantities of gold over the long term.

Leading spokesmen and oft-quoted men like Warren Buffett and Bill Gross will never mention investing in gold. This is because buying gold is seen as unpatriotic. After all, buying gold implies that you are abandoning the US dollar or at least hedging against dollars and all fiat currency.

The Fed and the Treasury must have some secret strategy for paying off America's fantastic liabilities (debt) but nobody knows what it is. Many scenarios are now being bandied about and some advisories claim to know "Bernanke's secret plan." The unfunded liabilities are now so huge (far above $50 trillion) that rumors of an eventual reneging on our debts are being seriously talked about. After all, the US reneged on settling its debts in gold, much to France's anger (France was calling in our gold as fast as it could) when President Nixon shut the gold window. The US will no longer part with any of its (our) gold.


Like the Chinese, I'm a learner. Over the weekend I talked to a lot of people, and I read a lot. Following are some of the things I learned.

(1) Nobody's got any cash. Everybody I talk to needs cash. The Fed has spewed out trillions of Federal Reserve Notes (we call them dollars), but where in hell are these dollars? Joe the plumber doesn't have any. In fact, the poor guy can hardly pay his bills. So who's got the blasted cash?

(2) The banks have the cash, over a trillion dollars of it. And they aren't lending it out. The banks don't want to mark their toxic mortgage loans to market -- rather the banks are trying to build up cash reserves to ensure that they will stay alive.

(3) In hard times, nobody trusts anyone. And these are hard times. The banks don't trust prospective borrowers, so the banks don't lend. At the same time, nobody trusts the banks. Big time savers no longer trust overseas tax havens like Switzerland (whose secrecy laws have become a joke) so they've cut back on sending money overseas.

(4) Billionaires are trying to store assets outside "the system" meaning the tax system, so they are buying gems and objects of art and storing them where? I don't know, you tell me.

(5) The stores don't want to lay out money. So they're taking more and more expensive items in on consignment. The wholesalers and manufacturers are expected to hold and finance the merchandise.

(6) Wealthy people are moving out of the state of California. It's becoming an exodus. California is broke, and the state's taxes are killing the people with any means or income. If you want to start a business in California, don't do it. Rather think Nevada or Texas.

(7) The American people have developed a deep hatred for Wall Street and for Washington. Americans are furious when they hear about the salaries and bonuses being handed out by Wall Street. Goldman Sachs is seen as a greedy, unprincipled monster. The talk radio hosts are livid, they want to throw both the Democrats and Republicans out of the Congress and the Senate. The greedy banks are trying to get out of from under the control of TARP (they want to give the borrowed money back) so they can hand out big bonuses to their people again.

(8) Rents are too high and "out of reality" for most small retail shops and for most small businesses. The landlords are "out of it," and they're living in the past. We're heading for a collapse in commercial rents and commercial real estate prices. The store tenants are experiencing a dramatic drop in traffic, and the high rents are killing them. The tenants are moving or going out of business.

(9) Eating out has become a luxury and a discretionary past-time. The new conservatism is hurting most of the restaurants badly with many across the nation seeing their revenue off as much as 40%. The fast food chains are cutting prices to survive. McDonalds has a new $1.00 breakfast sandwich.

(10) Nobody seems to know what Obama-health plan is all about. It's too complicated. Most people (including doctors) are highly suspicious of the government taking over America's health. Include me in that group.

(11) Doubts are building about Obama's Afghanistan policy. Most people are afraid that we're getting into another Vietnam.

(12) When auction companies have truly expensive items to sell (large diamonds, masterpiece paintings), they now skip New York. The big money auctions are now taking place where the big money is -- in Hong Kong or Switzerland. The middle and wealthy classes are growing very rapidly in China. Chinese buying of gems and jade is surging. The Chinese understand intrinsic wealth as do Indians. In India it's said there's billions in gold in private hands.

(13) China's $580 billion stimulus plan has sent China's economy into super-high gear. The result is a glut of new factories and an overall state of over-capacity. The over-capacity is a force for deflation as China's production capabilities explode.


The silver/gold ratio is now way out of whack (I wrote this over the weekend and I noticed that the Wall Street Journal had a piece on it this morning). Silver is far too cheap in relation to gold. One ounce of gold now buys over 60 ounces of silver. Nevertheless, as the chart below shows, gold continues to climb in relative strength against silver. Many silver experts believe that ultimately owners of silver will make a killing. Very possibly (I like silver), but I prefer holding gold. No central banks holds silver. The monetary metal of the current period is gold, although it was not always so.

This is the "great invisible crash." Below we see the broad Wilshire 500 index compared (ratio) with gold. Gold is the time-honored standard, and the Wilshire (a proxy for all US stocks) is collapsing in relation to gold. It's ominous and it's definitely deflationary. Almost everything in the world that is tradeable is declining against gold.

Below we see a long-term perspective of the S&P Composite. Note the V-shaped bottom in 2009. This V-shape reversal pattern is typical of the start of a correction in a primary bear market rather than the start of a new bull market. Bear market bottoms usually take the form of sideways movements in the averages lasting for a few months or more. Note that the S&P has crossed below its rising trendline. This is suggestive of a top forming, but the top will take time. The top of a corrective rally is usually accompanied by good news, the kind of news that tends to lure amateurs into the market.

Holiday Gift Guide. Covers books, home, DVDs, video games, electronics, music, theater, style and travel. From the New York Times. I just bought my wife a Samsung LN32B650. That's a small 32" LCD. But it fit her chosen space beautifully. It's a gorgeous TV. Bought for $800 from Abt.

I bought the Canon Powershot SD1200 for Susan for $149 also from Abt.

The SD1200 weighs five ounces. My beloved Canon G10 weighs 15 ounces. The SD1200 doesn't have all the bells and whistles of the G10, but it has a lot of them (like 10 megapixels versus 14.7 for the G10) and takes perfectly fine photos. The G10 costs $470.

More Tiger Woods "humor".
It is near the Christmas break of the school year. The students have turned in all their work and there is really nothing more to do. All the children are restless and the teacher decides to have an early dismissal.

Teacher: "Whoever answers the questions I ask, first and correctly can leave early today."

Teacher: "Who said 'Four Score and Seven Years Ago'?"

Before Johnny can open his mouth, Susie says, "Abraham Lincoln."

Teacher: "That's right Susie, you can go home."

Teacher: "Who said 'I Have a Dream'?"

Before Johnny can open his mouth, Mary says, "Martin Luther King."

Teacher: "That's right Mary, you can go."

Johnny is even madder than before.

Teacher: "Who said 'Ask not, what your country can do for you'?"

Before Johnny can open his mouth, Nancy says, "John F. Kennedy."

Teacher: "That's right Nancy, you may also leave."

Johnny is boiling mad that he has not been able to answer to any of the questions.

When the teacher turns her back Johnny says, "I wish these bitches would keep their mouths shut!"

The teacher turns : "Who said that?"

Johnny: "Tiger Woods. Can I go now?"

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 any, though some look interesting. If you click on a link, Google may send me money. Please note I'm not suggesting you do. Read more about Google AdSense, click here and here.