Harry Newton's In Search of The Perfect Investment
Technology Investor. Auction Rate Securities. Auction Rate Preferreds.
For today's column
on Auction Rate Preferreds.
8:30 AM EST April 1, 2008: April
Fools Day. Call your UBS broker up and tell him UBS is being nationalized by
the U.S. Government and his job is being outsourced to India. See below for
1957 the respected BBC news show Panorama announced that thanks to a very mild
winter and the virtual elimination of the dreaded spaghetti weevil, Swiss farmers
were enjoying a bumper spaghetti crop. It showed footage of Swiss peasants pulling
strands of spaghetti down from trees. Many viewers called the BBC wanting to
know how they could grow their own spaghetti tree.
In 1996 the Taco
Bell Corporation announced that it had bought the Liberty Bell and was renaming
it the Taco Liberty Bell. Hundreds of outraged citizens called the National
Historic Park in Philadelphia where the bell was housed to express their anger.
When White House press secretary Mike McCurry was asked about the sale, he responded
that the Lincoln Memorial had also been sold. It would now be known as the Ford
Lincoln Mercury Memorial.
In 1998 Burger
King published a full page advertisement in USA Today announcing the
introduction of a new item to their menu: a "Left-Handed Whopper"
specially designed for the 32 million left-handed Americans. According to the
advertisement, the new whopper included the same ingredients as the original
Whopper (lettuce, tomato, hamburger patty, etc.), but all the condiments were
rotated 180 degrees for the benefit of their left-handed customers. Thousands
of customers went into restaurants to request the new sandwich. Many others
requested their own 'right handed' version."
I told one of my brokers I was not pleased I hadn't received even a small Visa
allocation. After "investigating" my complaint for a week, they called
and suggested "it would be best" if I moved my account. Last year
I brought them $30 million of friends' money.
A company is raising money it desperately needs. I own shares in it. The CFO
sends out a real dreary press release. I send the president an email, "What
an ultra-depressing press release.
Cant you guys find anything positive to say?" He replies
with a snippy email, "Harry - don't bother me with such pointless emails.
If you have something to say, call me."
Times are tough.
The economy is hard, and getting harder. Customers, clients and shareholders
should be coddled, not pissed off. From 40 years in business, I can absolutely
say that annoyed customers whose problems are solved quickly become loyal, lifetime
customers. I have always followed one rule: When customers bitch, pick up
the phone instantly and solve their concerns. They'll love me and my company
P.S. I had signed
PPM (private placement memorandum) papers on my desk. I was just about to write
a check. Then I received the president's snippy email. The papers are now filed
in the circular file, under my desk.
case you thought financials were "cheap:" For months I've
been ultra-clear: Don't touch financials. Now comes today's Bloomberg story:
Biggest Crisis in 30 Years, Report Says (Update2) By
April 1 (Bloomberg)
-- Credit market turmoil poses the most severe crisis for banks in 30 years,
surpassing Black Monday in 1987, the Asia currency crisis and the burst of
the dot-com bubble, Morgan Stanley and Oliver Wyman said in a joint report.
investment banking may drop 20 percent in 2008 before a further $75 billion
in markdowns, analysts led by Huw van Steenis said in a note to clients today.
Six quarters of earnings will have been erased by writedowns and falling revenue
by this month, rivaling the collapse of the junk bond market at the end of
the 1980s that put Drexel Burnham Lambert Inc. out of business, the report
is facing the most severe investment banking crisis in 30 years,'' the analysts
wrote in the report. "Global securities markets are in the midst of profound
cyclical and structural change.''
from their credit businesses may drop as much as 60 percent, the analysts
said, and the firms will have to provide more transparency to investors who
buy their loans. At the same time, regulators will push the industry to retain
more capital as a cushion, hurting banks' return on equity in the long-term,
the group added.
Henry Paulson proposed yesterday the biggest overhaul of U.S. financial rules
since the Great Depression, saying the Federal Reserve should expand its oversight
of financial services beyond banks.
have been hit for the past three quarters by the turmoil in the credit markets,
the report said. In total, the crisis may last for eight to 10 quarters, exceeding
the six- quarter duration of the Asia crisis and bailout of LTCM in 1997-
8, and the seven-quarter fallout from the bursting of the dot- com bubble,
the report said.
revenue has also stalled as the pace of takeovers and initial public offerings
declined in the first quarter of 2008. Writedowns and losses on subprime-infected
assets have already cost the world's biggest financial institutions about
$230 billion since the start of 2007.
UBS AG today posted an additional $19 billion of writedowns and said it would
seek $15.1 billion in a rights offering to replenish capital. Deutsche Bank
AG, Germany's biggest bank, also said today it expects to book about 2.5 billion
euros ($3.9 billion) in writedowns for the quarter.
Merrill Lynch & Co. and Citigroup Inc. had their first-quarter earnings
estimates cut by Goldman Sachs Group Inc., which said the two banks may post
$14 billion in writedowns on assets linked to collateralized debt obligations.
Banks are also
finding their cost of capital is increasing relative to other investment-grade
companies, as traditional sources of money like Structured Investment Vehicles
exit the market, the report said. Banks are also struggling to offload loans,
leaving leverage ratios high, it said.
with diverse sources of funding, with retail and commercial deposits clearly
helping, and a diversified business will have a funding advantage over the
coming years,'' the analysts wrote. ``This may lead to a material reassessment
of business models over time.''
in the stockmarket. My friend Mike ORourke
is the ultra-smart Chief Market Strategist for BTIG LLC. Mike writes today:
The old adage
about Marchs weather could be used to describe the Market this month,
In like a lion, out like a lamb. Investors probably cant
wait for the April showers. This was about as unspectacular a
quarter end as we have seen in some time. It was a subdued end to a quarter
in which Market history was made. We witnessed the demise of a top 5 investment
bank and several emergency actions by the Federal Reserve, including opening
the Discount Window to primary dealers. Despite the turmoil, Financials were
only the second worst performing sector for the quarter, and they came in
ahead of Technology. No sectors posted gains for the quarter. Consumer Staples,
Materials and Industrials held up the best. Across the board, it was a rough
quarter in the Equity world. In the major indices, the Dow Industrials were
the best performer down only 7.6%. Meanwhile, the S&P 500, Russell 2000
and Russell 3000 were all down approximately 10%. The NASDAQ Composite and
the NASDAQ 100 posted losses in the mid-teens.
Friday was the
slowest day of the year and todays volume managed to edge it out only
by a very small margin. There was not much along the lines of window dressing,
Although it appears that vanilla investors have remained conservative and
saved ammunition in recent sessions, they still chose not to put that money
to work for quarter end. It is likely that investors preferred to show a healthy
cash position on the books to close out the quarter. That then leads us to
ponder whether the big vanillas will be looking to come back in tomorrow or
the next day as the new quarter commences. It is a tough call but it seems
likely they might re-engage at least for a few days. If they dont, the
Market should take it as a very disappointing sign.
last weeks short lived gains. We continue to believe the slowing economy
will take its toll on the commodity. It is a positive for both the Equity
market and the economy that Crudes latest rally made a lower high at
$108, failing to clear the recent $110 peak. The next key level to watch is
$99, where there is a major support. A close below that level will be notably
is one dumb company: On Friday it became the
first (and so far only broker) to write down the value of its clients' auction
rate securities. It gave no reason for its action nor the "logic"
of precise arithmetic of the writedowns.
it sent out the following press release (I don't make this stuff up):
31, 2008 -- UBS Financial Services Inc. announced today that it has opened
this year's first Private Wealth Management office in Houston, Texas dedicated
to serving the specialized needs of the Firm's clients with assets greater
than $10 million. With this latest office, UBS has eight dedicated Private
Wealth Management offices across the U.S. ...
The Houston office is composed of a staff of Private Wealth Advisors, Private
Wealth Management Consultants, and related service personnel. Private Wealth
Advisors have completed the Firm's rigorous internal accreditation program
that focuses on a range of sophisticated wealth management strategies. ...
UBS is one of the world's leading financial firms, serving a discerning international
client base. Its business, global in scale, is focused on growth. As an integrated
firm, UBS creates added value for clients by drawing on the combined resources
and expertise of all its businesses.
fight the Fed" is an old tired cliché. It means if the Fed is
boosting the economy, the stockmarket will go up. The Fed is doing everything
and more to boost. The Fed is spending taxpayer money like a drunken sailor.
The BIG move was the Bear Stearns bailout. Two parts were critical (and new):
today, UBS said it will write off an additional $19 billion in real estate-related
assets on its books and seek some $15 billion in new capital -- its second big
capital increase this year. The
write-off contributes to an expected $12.08 billion quarterly loss for
the Swiss bank, which has been Europe's biggest victim of the subprime meltdown.
Of all the brokers who peddled auction rate securities to their clients, UBS
seems to be top of the 'hate" list, based on emails I've been receiving
from pissed-off ARPs holders. Here's a typical email (I have many more):
I would have
never invested a major part of my retirement but my UBS Financial advisor
said I could liquidate at any time. I had planned on retiring in two years.
Now I'm devastated such a thing could happen. I've always stayed with safe
secure investments but I got caught like so many others. With $200,000 tied
up and no resolution in sight, I hope everyone will join me writing complaints
to UBS, Finra, SEC, the state securities agency and the Attorney Generals
office. It clearly was misrepresentation by UBS. Only in numbers can we force
our UBS adviser about CDs or money markets, and he steered us to the PIMCO California
Municipal Income 7-day security. Same story- it's like a CD. Totally safe, completely
liquid. In November, as things got a little crazy int he markets, I called up
and specifically asked if there was any reason to sell. The adviser said not
to worry, we would be able to sell in the spring when we needed to tap the funds.
Geek April Fools jokes, from Wired Magazine:
I got a phone
call in February from the UBS guy to tell me that the 'bond market had dried
up' and we might not be able to sell the shares.
I was upset, but didn't have the time to deal with it; our daughter was born
So now we are
faced with having to cancel our family time off. My wife may have to return
to work after only a few weeks off. We are talking about tapping a 529. UBS
has suggested a loan, but I will not deal with them unless we have to. The
forms to transfer the rest of our assets to another bank are filled out and
signed on my dining room table.
I wrote a letter
to UBS requesting that they buy the shares back at full value. I don't expect
them to, but I am giving them the chance before I join one of the class-action
1. Re-map the
Keyboard of Your Excitable Co-worker. Every company has a sales rep who
uses exclamation marks excessively ("C'mon guys!! We can do better this
quarter!!!"). Use a program like KeyExtender, software that re-maps their
keyboard so that exclamations and question marks are switched.
2. The Speech-to-Text
Platform Joke. You'll need a wireless keyboard for this. Set up a meeting
with a colleague to teach them a speech-recognition program (you'll need a plausible
reason why the company needs this). Then, right before the meeting, connect
your keyboard wirelessly to the victim's computer. Explain to the victim that
the program will have to be trained to recognize their voice, and give them
a sample sentence to try out. As they do this, have a co-worker a few desks
away type gibberish into the program page ("Boomshakalaka!).
Havoc on the Mac. A London design firm called Troika has produced video
of an amazing computer "virus," which may or may not be publicly available.
It's probably just a clever art project, but it's too good not to mention here.
Nonetheless, Troika's Newton Virus is a Mac bug that rearranges the desktop
icons using the accelerometers built into recent MacBooks. When the unsuspecting
user picks up their laptop, all the icons and menu items fall to the ground
as though under the influence of gravity. Watch
Optical Mouse Confusion. This is an update of the old mouse-ball-removal
trick: A small piece of tape over the laser sensor on an optical mouse will
cause it to go haywire. Just color the nonstick side of the tape with a Sharpie
and then tape it over the lens.
Change the Language Settings on Google. When a co-worker leaves her computer
unattended for a minute, quickly go to Google's home page and click on "Preferences."
There, you can choose the interface language of the search engine. Klingon,
Hacker and Yiddish are all excellent choices, but Elmer Fudd is our personal
favorite. As Elmer, you can use the Google Diwectowy, perform a Google Seawch
or find out if you're feewing wucky.'
6. The BlueScreen
of Death Screensaver. The BlueScreen of Death error in Windows has driven
lots of users to the fringe of computer homicide. Tap into the river of pain
by installing the BlueScreen of Death Screensaver on a friend's machine. It's
available at Microsoft's IT website Technet, but there are several others out
there. Make sure it doesnt have a real virus.
Monitor Cables. This is one even software geeks won't easily figure out.
Open up their monitor cable (don't worry, it's safe) and wire the RGB lines
to different colors -- this will totally warp the image on the screen. Everyone
will assume it's a software problem.
8. The Old
Screenshot-as-Desktop-Wallpaper Gag. This classic is as good as gold. Take
a screenshot of your friend's desktop and make it their desktop wallpaper. You'll
have to minimize applications, hide all of the desktop icons, and set the Windows
task bar to auto hide. Pull up a comfortable chair and pretend to feel their
pain while they click like mad and rail at the gods.
9. Change Autocorrect
in MS Office. People are too reliant on some common programs that help them
cheat, such as the Autocorrect feature in MS Office. Capitalize on their laziness
by adding a few of your favorite "alternative" spellings.
Common words like
"about" or "together" work well. Even better, try subtly
adjusting the spelling of your victim's name. It's so hard-wired into most people's
fingers, they hardly look at it. Right, Mr. Dumass?
Monitor a Friend's Webcam. Spy on your best buddy at work through his webcam
(think American Pie), record the feed, then show a compilation of his brow-furrowing
and nose-picking at the next staff meeting. This is why they like you. You can
do this through remote-monitoring programs, such as WebCam Monitor on Windows;
and even do it through an iPhone using Telekinesis, an iPhone app that allows
you to take pictures on a Mac laptop using its built-in iSight camera.
for this is not the next staff meeting, but place the best photo as screensaver.
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.