Harry Newton's In Search of The Perfect Investment
Newton's In Search Of The Perfect Investment. Technology Investor.
8:30 AM EST, Tuesday, August 7, 2007:
"The (stock)market can stay irrational
longer than you can stay solvent." -- John Maynard Keynes.
What can charts
tell us of the trend? This is view of the Dow, charted on a daily basis.
This is a view of the Dow charted on a 60-minute basis.
Looks very different.
As I wrote yesterday,
I'm not optimistic for the market until the extent of this credit crisis becomes
clear. I suspect strange victims yet to emerge. Yesterday Oneida, dinnerware
and flatware maker, had to pull a $120 million bond offering because the credit
market were presently frozen.
In misery, there
morning (long before the market opened), I emailed my favorite guru. "What's
happening?" I asked.
I think the
great stuff you outlined in today's column is exceptionally bullish. I was
worried that people werent panicking enough, but in the last couple
days they seem to be. Theres all the articles you cite. Theres
also the fact that people around the office are finally starting to freak
out. Finally, theres the cover of Businessweek with a house on
fire. As I said, I like the high quality home builders here.
The good ones,
D.R. Horton (DHI), Toll Brothers (TOL) etc.) trade at under 1x tangible book
value. This is largely land purchased over the last five years. The value
of that land has declined somewhat from the peak, but the value of the blended
amount on the balance sheet should not be much below the levels on the book.
Buying homebuilders (that dont go bankrupt) has always paid at these
levels over time, though there is certainly going to be a heck of a lot of
As for bankruptcy,
some (perhaps Beazer Homes (BZH), perhaps Standard Pacific (SPF) will go bankrupt.
BZH in particular is at risk of tripping its tangible net worth covenant and
is under investigation for fraud at its lending business. BZH employees were
telling people to lie about their income on mortgage applications. However,
the likes of DHI and TOL have debt that is termed out for years (i.e. nothing
due) and these businesses tend to generate cash in downcycles (as they liquidate
inventory). So, the smart ones should have a fair degree of bankruptcy
protection and you can get them at very attractive multiples if you take a
couple year time horizon.
If they bounce
30%-50%, I run for the hills, but I like them here for now.
was your last idiocy? When things go bust (like
the water to house on the weekend), the logical way to fix the problem is deductive
reasoning. Start with one possible cause, then deduce. It's not this. It's that.
most effective way of figuring what's wrong is to start with one question: "What
was the last thing you did?" This works well troubleshooting computers.
Usually it's the last piece of software you loaded, the last file you opened,
the last button you pushed that caused the problem. Start your search there.
your bags on -- if you can. Some airlines say
you're allowed only one bag. I routinely take two -- a 22" roll-on and
a backpack containing my laptop. If you do check them include your contact details
in several places. Airlines lose an amazing amount of checked luggage. From
a Daily Telegraph (UK) article:
A baggage crisis
at Heathrow has led to suitcases being piled up in corridors at the airport,
left outside in the rain or sold at auction houses. ...
suffering a continuing crisis because of a chronic shortage of handlers and
creaking infrastructure. Last month this led to a backlog of up to 40,000
BA has even started trucking unclaimed luggage to Milan for sorting. Figures
released this week revealed that the national carrier is losing more bags
than any other major European airline, with more than 300,000 failing
to turn up on carousels at Heathrow between April and June.
An average of
15,000 a month fail to be traced within 48 hours, according to the
Association of European Airlines (AEA).
A BA spokesman
said that bags that cannot be traced to their owners are sold at auction houses
after three months and the proceeds - in the "tens of thousands of pounds"
every year - are donated to charity. ...
There is no
law governing what should happen to lost luggage. Under the Montreal Convention,
an international agreement on airlines' various liabilities to passengers,
a limit of £850 compensation can be claimed. The AEA figures for the
second quarter this year showed that on every BA Boeing 747 flight carrying
350 passengers, an average of 10 people would not find their bags on
Air France and Lufthansa, which both carried three million more passengers
than BA during this period, performed better, with one in 62 passengers losing
Unwind' May Be Here.
This is from yesterday's Heard on The Street from the Wall Street Journal:
Spread To Broad Bond Market, Top Brokers Could Suffer
The problems have been gathering for months, beginning with subprime loans
and spreading outward. Now Wall Street firms face the risk of a broad bond-market
unwind, leaving vulnerable five years of record earnings and stock run-ups.
worrying about more than just reduced earnings growth. It's the overall uncertainty,
they say: The unintended risks of "bridge" loans stuck on balance
sheets or even how to value a new set of exotic securities that can't find
buyers. This could weigh on Wall Street stocks -- be it Lehman Brothers Holdings
Inc. or Goldman Sachs Group Inc. -- for months to come.
Brad Hintz of Sanford C. Bernstein & Co. predicts "performance will
decline" at the top five U.S. brokers for the second half of the year.
"The halcyon days," he adds, "may be over for now." Perhaps
that's why chatter around some firms suggests job cuts could be coming if
conditions don't improve by September.
stretch across a number of areas. In the past few weeks, trading has fallen
off to a trickle in some asset-backed bonds, issued at double-A or triple-A
ratings. With no bidders lining up, valuations and ratings have been left
uncertain. Investors are also finding it harder to trade some risky high-yield,
or "junk," bonds and leveraged loans for borrowers with high debt
in liquidity has been made worse by the usually slow summer-vacation season.
That has hurt the chances Wall Street securities firms can offload their bridge-financing
commitments for pending private-equity deals, which have soared this year.
analysts and bankers had predicted that rising debt levels for hedge funds,
buyouts and Wall Street dealers might eventually snap, leading to a "great
unwind" of lower prices and forced selling. Now, some say, the process
For the Wall
Street firms, analysts say the current crunch could mean cutbacks in lucrative
fees for financing and advising on fewer private-equity buyouts, and the risk
of losses on loans to finance hedge-fund positions and "hung" financing
commitments. They also face reduced profits if they must trim their sails
by cutting the size of their balance sheets.
of investors are realizing that the same very loose lending standards that
were applied to homeowners have also been applied to corporate" bonds
as well, says Albert Edwards, the global strategist at the Dresdner Kleinwort
unit of Allianz SE who popularized the term "the great unwind" and
believes such an unwind has been under way since early this year.
"I don't see it as a great unwind, but a correction to more reasonable
levels. It's more like the great return to rationality," says Peter Andersen,
a junk-bond manager at Dreman Value Management. "Overall, it's a healthy
thing, but it's quite painful living through the adjustment."
So far, investors
are skeptical that an unwind won't claim some victims. Bear Stearns Cos. shares
are now off nearly a third year-to-date, and its co-president and co-chief
operating officer, Warren Spector, resigned yesterday. Merrill Lynch &
Co. shares are off by a quarter, and Lehman shares nearly 30%.
A Wall Street
executive who markets hedge funds and other alternative investments said the
valuation of some collateralized-debt-obligations pools backed by other securities
such as mortgages -- which sport nominally top-notch credit ratings -- has
become highly uncertain. "Someone says they're worth 50, and someone
else says 90, and you can't sell at 30 because there aren't any bids,"
creates a challenge for Wall Street firms that have made loans backed by such
securities. Should they be marked down? And should investors who hold them
with borrowed funds be forced to sell assets to give the lenders an extra
cushion of safety?
By the fraught
psychology of the bond market, this could trigger more problems than it is
supposed to prevent.
have something like this, there's a debate about where to mark these things,"
said Alex Ehrlich, global head of prime brokerage at UBS AG, which has extended
credit to some clients that hold such securities. "Nothing's trading,
so you have to exercise great care and caution in where you mark. We're
trying to be pragmatic. When you're caught up in this situation, you know
the market is dysfunctional; you have to come up with reasonableness standards.
We try to come up with a theoretically fair value."
of the ailing market is fewer new issues. Friday, Thomson Financial said the
48 U.S. corporate-bond deals in July, which is ordinarily a slow month, constituted
"the lowest monthly number since 1990." ...
and Wall Street executives point to the strength of the global economy in
their predicting the credit crunch will be short-lived. Buckingham analysts
James Mitchell and John Grassano compare the current debt-market pullback
to the brief two-month impact of credit-rating downgrades in 2005 of the two
big U.S. auto makers.
Other Wall Street
market participants say a recent $6 billion debt sale to help finance the
buyout of DaimlerChrysler AG's Chrysler Group and a $2 billion bond issue
by General Electric Co.'s General Electric Capital Corp. show the market is
still open -- although the Chrysler loans were sold at a discount, and $10
billion of the debt remains on the underwriters' books.
If you didn't
read yesterday's column headed "The Party's Over," please do.
Here's the link.
to offend everyone
What do you call two Mexicans playing basketball?
Juan on Juan
What is a Yankee?
The same as a quickie, but a guy can do it alone.
What is the difference
between a Harley and a Hoover ?
The position of the dirt bag
Why is divorce
Because it's worth it.
Why is air a lot
Because it's no big deal unless you're not getting any.
What do attorneys
use for birth control?
What's the difference
between a porcupine and BMW?
A porcupine has the pricks on the outside.
Did you hear
about the Chinese couple that had a retarded baby?
They named him "Sum Ting Wong".
What's the difference
between a boyfriend and husband?
What's the fastest
way to a man's heart?
Through his chest with a sharp knife.
Why do men want
to marry virgins?
They can't stand criticism.
Why is it so
hard for women to find men that are sensitive, caring, and good-looking?
Because those men already have boyfriends.
What's the difference
between a new husband and a new dog?
After a year, the dog is still excited to see you
What makes men
chase women they have no intention of marrying?
The same urge that makes dogs chase cars they have no intention of driving.
Why do men find
it difficult to make eye contact?
Breasts don't have eyes.
How do you get
a sweet little 80-year-old lady to say the F word?
Get another sweet little 80-year-old lady to yell *BINGO*!
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 .
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