Harry Newton's In Search of The Perfect Investment
Technology Investor. Harry Newton
AM EDT, Friday, October 23, 2009: No one knows
where this market is going. But there's no question corporate earnings (this is
earnings season) are remarkably strong and remarkably strong than depressed Wall
Street analysts were predicting. This has been a remarkable run. If you chart
it with daily movements, it looks like it's getting toppy.
If you chart it
on a weekly basis, it looks like it has a long way to go.
What you mustn't
underestimate is how robust the earnings recovery has been. The recession may
gone in history as having a major good points -- like waking many companies
up -- forcing them to clean up their acts -- fire superfluous workers, drop
prices, introduce new products, etc. The usual stuff that gets ignored when
times are good.
Putting the 60% rally into some sort of perspective.
Investor. I don't know what this means, if anything.
financial sites are worth visiting? Contrary
Investor has a neat list, along with explanations of why they like the site, at
something called Link
are up 60% plus. How does this rally stack up with previous ones? Here are
some key criteria of what previous 60% rallies have looked like when analyzed
across 10 different key economic dimensions :
+ Year over
Year Retail Sales: 9.3% average in prior 60% rallies versus -5.3% in the current
+ Consumer Confidence: 95.5 average; 53.1 now
+ Capacity Utilization: 79.9% average; 66.6% now
+ Year over Year Industrial Production: 4.1% average; -10.7% now
+ ISM: 53.9 average; 52.6 now
+ Payroll employment gains over period: 2.2% average; -2.0% now
+ Decline in continued unemployment claims from cycle peak: -26.3 average;
+ Year over Year growth in total credit market debt: 9.3% average; 3.0% now
+ Year over Year growth in household debt: 8.8% average; -0.1% now
+ P/E Multiple: 16.8x average; 20.0x now
electronic reading battle heats up. It's cheaper to read a book electronically
than on paper -- hardcover or paperback. Electronically you have two choices
-- a dedicated device -- like Amazon's Kindle, Barnes & Noble's Nook (available
next month) or Sony's eReader -- or free software and read it on your existing
device -- a PC, a Mac, an iPod or iPod Touch.
Everyone and their
uncle thinks this is the next great electronics growth area. They eye the ongoing
"razor blade" revenue -- sale of books, magazines and newspapers.
Amazon said yesterday it will software next month to let people buy Kindle books
and read them on a computer, regardless of whether they own a Kindle device.
I love books.
I love owning them. But there are times where it's more convenient to read them
on my computer -- like when I'm traveling and weight matters. I take the computer
everywhere, so its weight doesn't count. I see people in the subway reading
on Kindles and iPods. It hasn't eclipsed listening to loud music which is annoying
on elevators. But ereading is growing.
is simple. Download one of the free apps for software your computer or iPod.
Pick up some of the free books. Then try reading them. For the iPod or iPod
touch, try Stanza. For your PC,
try BN Reader from Barnes & Noble (now called eReader). Click here.
If you want to
pay money for a book, here are my recent three favorite books:
out for virus-bearing emails. This one looks
so official, so Microsoft. Yet it's 100% bogus. Click on the link and something
awful will happen to your computer. You can easily tell it's bogus. Right click
on the email. Click on "View Source" and look carefully at the blue
underlined link. The original says http://update.microsoft.com/etc. The source
says "http://update.microsoft.com.modesftp.eu." That is not Microsoft.
In short, when in doubt, don't.
investments from Jim Kingsdale. My dear Jim
starts his popular blog Energy Investment Strategies:
"What accounts for your success, Mr. Getty?"
J. Paul Getty:
"Some people find oil, some don't."
Jim has cancer
and needs to battle it. He has posted his final newsletter. Excerpts:
Over the next
five years the price of oil is likely to rise due to three factors:
increasing decline rates for old fields (peak oil) and growing automobile-related
demand from developing countries will outweigh new field production opportunities
and consumption saving in developed countries from new technologies for high
marginal production costs: new supplies are overwhelmingly coming from
increasingly expensive deep water fields. Such fields are a substantial challenge
to drilling technology and some have cost structures that can only be estimated
today, but which are clearly above the current price of oil. Also, from a
longer term perspective, such deep sea fields tend to have higher decline
rates and far fewer work-over possibilities than land-based fields.
3. The declining
value of the U.S. dollar. The recent global economic meltdown has created
a temporary glut of spare oil capacity. My most recent supply/demand projection
analysis posted last March incorporated an assumption that excess spare oil
capacity will peak at 5.8 mb/d in 2010. That projection still seems to be
in the ball park. If the global economy has begun to start growing as recent
reports seem to indicate and if it continues to experience moderate growth,
my projection of oil supplies becoming tight by 2012 and extremely tight by
2014 should still be valid. So I continue to think well see $100+ oil
prices within a year or two and perhaps $200+ prices within five years, based
only on supply and demand considerations. Of course the fact is that speculators
tend to expand price ranges in anticipation of trends, as we are currently
seeing with the price of oil. So the above high range could be conservative.
Jim also talks
earth elements. Jim's take:
press suddenly focused on rare earth elements over the past few months in
response to Chinas most recent reduction in its REE export quotas and
the growing understanding among western governments and investors of the strategic
importance of REEs, particularly for energy conservation, communications and
military applications. As you know, China currently supplies 95% of global
Demand is growing
rapidly for REEs. Industry is working hard to find alternatives to scarce
REEs, but often thats not possible. New mines will be opened but that
process takes many years so new supply coming to market is not likely to be
rapid. If China grows 10% a year - or 33% in three years - and if China is
now using the great bulk of its production domestically and if China
is working to shut down and/or re-engineer small, environmentally toxic REE
mines which are an important share of their total REE production, then it
seems pretty likely that there will be a global shortage of REEs at some point
in the foreseeable future.
One impact of
the increased REE-awareness has been a dramatic spurt in the price of many
REE stocks. Some have increased by seven-fold, all have increase greatly.
There is some thought that the REE equities are now ahead of themselves, and
I would not argue with that. Nonetheless, I think the attractive supply/demand
outlook for REEs over the intermediate term of, say, the next four years justifies
being invested in the sector.
is Lynas (LYSCF) which has the worlds largest REE supply and has now
secured sufficient equity financing without Chinese domination. I also like
Avalon (AVARF) which has North American reserves that emphasize the especially
valuable heavy REEs. I also own some Great Western Minerals (GWMGF).
It would not be surprising to see some additional pullback in these stocks
beyond the 10% or so weve seen lately. But over a two or three year
holding period I think they have room to be rewarding.
on rebalancing your portfolio. If you didn't
read yesterday on rebalancing, please do so this weekend. Here's the key chart
My conclusion: a combination of rebalancing and 15% Rules works the best. I'd
include at least one extra category -- Your Personal Picks. For example, there
has to be a space for those stocks you really like (irrespective of what category
they fit into) -- e.g. Apple, BYDDF, Google, GLD, EWA and EWZ (despite the Brazilian
government's recent creative tax ideas). For yesterday's column, click here.
what others are doing. Does it work? Allegedly, yes. Have I used
it? No. Here's a web site that touts, "invest smarter by following the
stock ideas of the world's top fund managers." It's classed AlphaClone.
are no good dentist jokes. I spent four hours and
$,2335 at the dentist yesterday. My conclusion: Dentists are interested less
in jokes and more in money. Things were bad until yours truly fronted with a
mouthful of misery.
They looked into
my mouth. My mouth is a disaster, I asked. "No," he replied. "It's
I asked for a
prescription for Viagra. He said it had nothing to do with dentistry. I corrected
him. As he inflicted pain, I needed something to hold on to.
My favorite dentist
A young Dentist
had just started his own Clinic. He rented a beautiful office and had it furnished
with antiques. He saw a man come into the front office. Wishing to appear the
"busy dentist", the dentist picked up the phone and started to pretend
he had to give an appointment.
Finally he hung up and asked the visitor, "Can I help you?"
The man said, "Yeah, I've come to activate the phone."
Have a great weekend.
Clean and floss your teeth. You don't want mine or, worse, their bills.
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
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note I'm not suggesting you do. That money, if there is any, may help pay Michael's
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here and here.