Harry Newton's In Search of The Perfect Investment
Technology Investor. Harry Newton
9:00 AM EST, Tuesday, February 10, 2009. The
most efficient way to waste your time is to read (and listen to) all the words
about the mess our economy' is in and our government's "stimulus"
program to fix the mess. Suffice:
We're a talented bunch. In our own ways each of us is repairing the damage,
putting things on a solid footing and moving ahead. It's working.
The repairs are painful -- big layoffs, factory shutterings, bank closures
-- but they're part of the solution. They're not the problem. We overextended
(part of the human condition). We built too much capacity. Now we need to
cut back. We'll cut too much back. Which means there'll be opportunities for
cash. Cash remains King.
Government will not solve this. It will make things worse. It will seriously
distort the economy.
James Tisch, Loews Corp.s CEO, says Congress is killing
the hotel business. Washington created much of today's mess -- from encouraging
lending to deadbeats to own houses to dropping interest rates to ridiculously
low rates, from lightening up on financial regulation to "bailing"
out preferred banks but letting non-preferred ones die. There is a serious
role for government. It would be nice if I could trust peanut butter.
Crises bring out snake oil. Obama
says "failing to act could lead to a catastrophe."
He warns of a "lost decade." Meantime,
he burdens our national debt to where economists warn of serious dangers to
the U.S. dollar (especially as the Chinese pull away from owning Treasurys).
Some now refer to the U.S. as a banana republic with nukes."
Washington is now the epicenter of the economic universe. Politicians
need money to be re-elected. Money is raised from the interests and individuals
for whom politicians can do favor of many kinds. From Playboy (of all
places), "Bailout supporters scrambled to change the legislation in ways
that would win support from a majority of representatives. In a matter of
days new provisions were added: an extension of an excise-tax rebate on Virgin
Islands and Puerto Rican rum (cost to Treasury $192 million); an extension
of a special tax break for owners of stockcar racing tracks (cost $100 million);
a tax break for making movies within the borders of the United States (cost
over 10 years -- $478 million). The stimulus package is loaded with pork.
looking for the next boom. There will be one. Trust me. Boom follows
bust. Previous booms included technology, housing, raw land out west, commodities,
REITs, bird flu epidemic curers, magazines, the Internet, China, India, Brazil,
and radio (in the 1920s). The key is to ride it and get out before
Obama is spending
big-time to weatherize homes and offices.
Magazine likes stem cells. Feb. 9's cover says "How the coming revolution
in stem cells could save your life."
The New York
Ruskin. A retired New York City detective, he is the president of CMP Protective
and Investigative Group, and his business is booming. For personal security,
he says, revenue is up three times from what it was six months ago. Clients
are demanding more protection whether or not they actually need it
and paying upward of $100,000 a month for his services.
have also increased. In the last 90 days, weve seen a tidal
wave, he said. Mr. Ruskin added that the feeling that good times were
over had made spouses less tolerant: Its mostly for infidelity
that has been going on for years and that spouses were willing to accept
in better times.
One wacky idea:
legalize marijuana -- marijuana as an economic stimulus:
All the discussion
about the economic effect of Marijuana legalization seems centered around
the tax benefits and savings in police, legal, and incarceration expenses.
That argument alone was enough to convince Milton Friedman and 500 other
economists -- including two other Nobel Laureates -- to endorse the Miron
report favoring legalization.
It's a powerful
argument, and I'll be referring to it. But in today's economic climate,
there's an even more powerful economic argument that, so far, nobody's making.
Marijuana legalization, over and above the revenue benefits, would provide
a strong economic stimulus without the necessity for a New Deal type program.
If we take
my proposed $10 per ounce tax for both federal and local, this would raise
$2.2 billion a year for the national treasury and the same for the state
treasuries, without including sales or income taxes, tariffs, license fees,
etc. Not enough to balance the budget, but still 'real money.'
For more on
that idea Marijuana
as an economic stimulus.
And, of couse,
a new neighborhood bank. An idea I've written about. Still makes sense. See
last week's columns.
your bank is broke." Time Magazine
has written a brilliant, simple piece on "Sketchy loans, financial
blunders and a string of bad bets have left America's banks nearly insolvent.
How an industry collapsed -- and why nationalization may be the only way to
save it." I'm hearing the word nationalization more and more. If
it happens the publicly-traded shares of the big banks -- Bank of America,
Citi, JPMorgan Chase and Wells Fargo -- will be valueless. Here's the beginning
of Time's piece on banking:
doing the math, you probably get that the government's financial-rescue
effort is failing. The signs are hard to miss. Your friend in finance got
pink-slipped. A house sale down the street fell through because the buyer
couldn't get a mortgage. A local bank is closing a nearby branch or maybe
shutting down altogether.
But do the
math, and you can begin to understand how really botched this bailout has
been. Since October, the government has deposited $165 billion into the
accounts of the nation's eight largest banks. Yet those same financial firms
are now worth $418 billion less than they were four months ago, and the
Congressional Budget Office estimates that the government's preferred shares
are worth at least $20 billion less. In Wall Street terms, that's throwing
good money after bad. All told, the government's annualized rate of return
on its investment in the nation's largest banks is -1,096%. That's well
beyond Bernie Madoff territory; he topped out at a mere -100%. (See pictures
of the demise of Bernie Madoff.)
So how could
$438 billion $418 billion of their money and $20 billion of ours
go poof, just like that? Here's the easiest explanation: our banking
system has sprung a leak.
firms are built on capital. They take in a dollar, borrow against it and
then lend out $3, $4 or $9. Or $30. In the past few years, executives have
been using thinner and thinner capital acquisitions and questionable
off-balance-sheet arrangements to build their money pails. In good
times, the more of those cheap sources of capital you use, the more profitable
your bank will be.
For the past
few decades, banks have been piling up risk, making more and more loans
based on less and less capital. Years of economic growth, shallow recessions
and record-low default rates lulled bankers into thinking that the future
would resemble the immediate past, at least as far as risk went. Turns out
it didn't. All it was going to take was a worse-than-average recession
and it looks as though we've got one and many banks, including a
number of the biggest ones, were bound to fail. The shockingly poor lending
standards housekeepers being approved for million-dollar mortgages
have only hastened their demise. "This crisis needs to be understood
as something that has developed over the past decade," says Joseph
Mason, a finance professor at Louisiana State University's E.J. Ourso College
of Business. "This isn't just one black swan. It's a bunch of black
swans that have hung out for a while and created a giant problem."
(Read George W. Bush's top 10 economic mistakes.)
hope that the type of shares the government is buying in banks as part of
the Troubled Asset Relief Program (TARP) will plug the hole in the banking
system's bucket. Paul Miller, an analyst at FBR Capital Markets who has
written a number of reports on the capital issues of banks, says the only
way to solve the problem is for the government to stop buying preferred
shares and start taking direct ownership stakes. Of course, the issue with
that approach is that the problem at the banks is so large, Uncle Sam may
end up owning a good portion of the banking sector. Few seem to want nationalization.
Unfortunately, that could be the only way out.
To read the
entire Time magazine article, Why
Your Bank is Broke.
costs to cut: For years my friends made a
handsome living cutting phone costs and securing refunds from telephone companies.
These days that business has expanded into cutting the Top 12 Corporation
+ Shipping &
+ Payroll Processing
+ Merchant Card Fees
+ Office Supplies
New Tight Economy.
The most remarkable thing about my mother is that for 30 years she served
us nothing but leftovers. The original meal has never been found. -Calvin
+ My husband
wanted one of those big-screen TV's for his birthday. So I just moved his
chair closer to the one we have already. -Wendy Liebman
+ I hate housework!
You make the beds, you do the dishes and six months later you have to start
all over again. -Joan Rivers
+ My doctor
is wonderful. When I couldn't afford an operation, he touched up the x-rays.
Mick and Paddy were walking home from the pub. Mick says to Paddy,
'I can't be bothered to walk all that way.'
'I know,' says
Paddy, 'but we've no money for a cab and we've missed the last bus home.'
'We could steal
a bus from the depot,' Mick suggests.
at the bus depot and Mick tells Paddy to go in and get a bus while he keeps
around for ages, Mick shouts, 'Paddy, what are you doing? Have you not found
back, 'I cant find a No. 91'
'Oh Jeysus Christ,
ye tick sod, take the No. 14 and we'll walk from the roundabout!'
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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