Harry Newton's In Search of The Perfect Investment
Technology Investor. Auction Rate Securities. Auction Rate Preferreds.
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8:30 AM EST Tuesday, April 22, 2008: Walk
New York's streets today. You won't hear English. You'll hear the happy babble
of foreign tongues, happy with the bargains they're buying with their strong
money. An evening or two back, I watched an entire French family -- mother,
father and two kids -- outfit themselves with more jeans, tops and jackets than
they'll need in a decade.
U.S. is on sale. This overseas bargain hunting will soon translate into buying
depressed U.S. stocks -- especially Big Names. And I'm eyeing a dip back into
the market for stocks like GE (already nicely depressed), JPMorgan Chase (volatile,
but not pricey) and some hefty dividend payers (whose dividend looks safe).
My favorite market guru emails me this morning:
financial stocks like GE (yes, GE is a big financial stock) and JPM are unlikely
to lead us out of this thing. The former leaders rarely lead the recovery.
Financials are likely doomed to be a smaller piece of the S&P than their
once huge percentage. Stick to your mining stocks, your energy stocks, transport
stocks (I like FDX)
and even some large cap tech stocks, like IBM, Google,
Intel and Research In Motion.
There is no urgency
to jump back in. As I've been saying for eons, "Better to wrong and out,
than wrong and in." There is a mild urgency to keep one's eyes open for
temporary price drops, e.g. GE. And there will be temporary price drops.
John Bogle on CNBC asked the question, "What does an investor do today?"
And he answered, "The problem is I don't think there are many investors.
There are only speculators. Last year turnover on stockmarkets was 275%. In
1929, it was only 140%. In my early days, and for a couple of decades, it was
25% to 30%."
That can be good.
Speculators make the market volatile and sometimes that volatility breeds opportunity.
Be wary, though. Go in with little amounts. It's dangerous to catch falling
Funny this RIMM versus Apple thing. I personally prefer Apple, since my BlackBerry
keeps acting up and I don't see much real innovation from RIMM. But my market
guru thinks the iPhone is overpriced and overhyped and iPods are fully penetrated.
So far, both RIMM and Apple are bouncing back.
of a collapse. Floyd Norris is a great financial
writer, the New York Times' chief financial writer. On Sunday he reviewed
this new book:
In his brief
but brilliant book, The Trillion Dollar Meltdown: Easy Money, High Rollers,
and the Great Credit Crash, Morris describes how we got into the mess
we are in, with bankers making loans that they expected to sell to investors
through ever more complex securities. Bond rating agencies and financial insurance
companies blessed the process, and Alan Greenspan, then the Federal Reserve
chairman, cheered, assuring the public that American regulators would not
spoil the party.
is free, and lending is costless and riskless, the rational lender will keep
on lending until there is no one left to lend to, Morris writes. You
logged in the loans, collected your fees and sold them off to yield-hungry
investors. The investors were insured. Your fees were real money.
The loans might even be paid off.
is the operative word. It turns out that the rational lenders were not so
rational. They did not know when to stop, and are now stuck with a lot of
bad loans and securities that they cannot sell. Some have gone broke. Morris,
a lawyer and former banker, as well as the author of 10 books, thinks that
by the time all the losses are toted up, from mortgages to corporate loans
to credit cards, the total could hit $1 trillion. And that is before considering
some risky areas he thinks are as yet unquantifiable.
are as good as Morris at making financial arcana understandable and even fascinating.
Confronted with a report by British regulators warning of a financial
stability level event, he explains that the language is civil-service
speak for a credit-market Chernobyl.
One of the most
important aspects of the financial architecture that is now collapsing was
the way it allowed investors to believe they could make perfectly safe investments
when they financed very risky loans. Or, as Morris puts it, Highly rated
bonds magically materialize out of a witches soup of very smoky stuff.
He adds, Very big, very complex, very opaque structures built on extremely
rickety foundations are a recipe for collapse.
is now under way. In recent years Wall Street profits were built on leverage
and on taking risks that were obscure both to regulators and even to the top
managements of the banks themselves. Every three months now, we see banks
disclosing huge losses from risks that they had never admitted they were taking.
not investors, not managers, not regulators is sure when this process
will end. And that uncertainty has created a credit freeze, with lenders reluctant
to lend both because they do not know whom they can trust and because they
fear they may need the money to cover losses that are yet to materialize.
As the recession gathers steam, there are likely to be more corporate failures
than there need to be, because credit has gone from virtually free to all
In recent years,
Wall Streeters have often been seen as responsible guardians of the
public trust, wealthy men who could be relied upon to act in the national
interest, as J. P. Morgan did in halting the Panic of 1907 when the government
seemed powerless to do so. Former chairmen of Goldman Sachs served as Treasury
secretary for both of the occupants of the White House in this century.
As Fraser shows,
there has been another view, one that may come to the fore if the recession
lingers and millions lose their jobs or homes, while those who brought on
the disaster remain wealthy beyond any dream available to normal people. By
the time of the American Revolution there was already a robust plebeian resentment
of the aristocrat as parasite, a privileged nonproducer living off the hard
labor of those he lorded over, Fraser writes. It has not helped that
the financial lords have not always been subtle about their superiority, as
when Jay Gould, the robber baron who ran railroads in the late 19th century,
boasted he could hire one half of the working class to kill the other half.
It is one thing
to be seen as venal but brilliant, and another to be seen as both greedy and
stupid. That is the risk Wall Street now faces.
As Fraser says
in writing about the aftermath of the 1929 crash, Wall Street had proved
itself not only ethically challenged and dangerously omnipotent but, more
damning than that, omni-incompetent. And he continues: During
the boom years of the 1920s, the white-shoe world of J. P. Morgan had accepted
credit for the nations good fortune and been portrayed as a conclave
of wise men. Now, under the new circumstances of economic ruination, that
same world was treated as criminally irresponsible, pathetic even, an object
not only of censure but of mockery. And there is perhaps nothing more fatal
for the life expectancy of an elite than to be viewed as ridiculous.
to load a new laptop: Ed went surfing where
he shouldn't. He busted his laptop's PC software. Meantime I'm loading up his
and my new Lenovo X61 ThinkPad laptop. I learn:
You need three "softwares" for a laptop: Microsoft Windows, drivers
for the hardware and the application software you use (like Office). The last
software to load is anti-virus software. Don't run it while you're loading software
or drivers. It will totally mess things up. I kid you not.
2. You don't need all the "craplets" which your hardware vendor includes.
Best to remove them completely. For those you're in doubt, stop them in Msconfig.
Run your machine. See if you need them. You probably don't.
Old software often works better. I love Windows XP. I won't touch the new Vista.
New software is bloatware. Bigger, fancier menus, and "features" you
don't need. Adobe Acrobat 8 is four times the size of Acrobat 5. Acrobat Reader
Version 2.0 was 1.4 megs. Version 8.1 is 22.3 megs. It's ridiculous. The newer
and older programs do the same thing. PCWorld did a famous piece, "Before
they spoiled the software," showing where you can get the older, smaller
(and more reliable) software.
Word's preferences are kept in a file called Normal.dot. You must back this
file up and keep it safe somewhere. Normal.dot can spontaneously blow up, leaving
you with a screwed-up Word. You'll need the old version of Normal.dot. Or you'll
have to make one from scratch.
best tools for investors." That's the
name of BusinessWeek's new online "Special Report." There actually
aren't any tools. But there are some semi-interesting ideas, including a piece
on bear funds. Click here for BusinessWeek's
progress in biotechnology:
Pfizer Corp. announced today that Viagra will soon be available in liquid form,
and will be marketed by Pepsi Cola as a power beverage suitable for use as a
mixer. It will now be possible for a man to literally pour himself a stiff one.
Obviously we can no longer call this a soft drink, and it gives new meaning
to the names of 'cocktails', 'highballs' and just a good old-fashioned 'stiff
Pepsi will market
the new concoction by the name of: MOUNT & DO.
There is more
money being spent on breast implants and Viagra today than on Alzheimer's research.
This means that by 2020, there should be a large elderly population with perky
boobs and huge erections and absolutely no recollection of what to do with them.
Turn up the volume. Try the Manic Mode and the Fresh Sheet. Click
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
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