Harry Newton's In Search of The Perfect Investment
Newton's In Search Of The Perfect Investment. Technology Investor.
8:30 AM EST Tuesday, February 19, 2008: Today
I initiate a new financial definition -- not cash, but Mattress Cash.
In the past, cash has meant money market funds, muni bond floaters (also called
auction rate securities -- ARS), and accounts at banks -- CDs, savings accounts,etc.
But many of these instruments, I believe, are no longer safe.
am obviously freaked by what's happening in throughout the financial community.
Past financial crises needed a check (albeit a big one) to fix them. Think the
Mexican crisis. Or a big injection of confidence by the government (e.g. Chrysler)
or a leading banker (think J.P. Morgan in 1907). This time I see no one stepping
up to the plate. I see the crisis spreading daily.
Everyone is scared,
uncertain what this might touch next. They see no end in sight. Everyone is
getting ultra conservative. Banks are not lending. And when they are lending
they are lending less, under far more stringent rules. The investment banks
are not fronting the monies they used to. They are shutting down everything
from financing private equity deals and commercial real estate to buying unsold
auction rate securities.
Everyone is questioning
(and hence fearful) of the places they put their money. Cash is no longer the
place to be. Mattress Cash is the place to be. An explanation. My grandfather
kept his savings in his mattress. In 1959, my grandfather accused me of stealing
his money. I denied it. I went searching. I eventually found the $AUS9,500 in
his mattress. As he turned in his sleep, the money had moved over the years
from one side of the mattress to the other. He had grown up in the Great Depression
in Warsaw, had lived through the German hyperinflation of the 1930s, had run
away from the Nazis in 1939 and, in 1959 in Australia, could only speak Yiddish
and Polish. He was as fearful of banks and financial institutions as I am today.
time for everyone to step back and spend
a few hours quietly checking our entire portfolio. Ask questions such as:
How will the accelerating financial crisis hurt what I presently own? Be
ruthless about the possible impact. This crisis is spreading its tentacles everywhere.
On Monday, for example, Australia & New Zealand Banking Group, Australia's
third largest bank, fell to a 2 1/2-year low in after CEO Michael Smith said
the "bloodbath'' in debt markets will erase profit growth this year. The
bank will also make a $200 million provision for derivatives linked to U.S.
debt insurer ACA Capital Holdings.
There are now estimates that we'll see $400 billion of write-offs from
financial institutions around the world as a result of the credit contagion.
So far, I believe the banks and other financial institutions have only written
off $150 billion. Only! A billion here. A billion there. Pretty soon
it adds up to real money, said Senator Everett Dirksen.
Do I really know what this is? Most people who own the muni bond auction
rate securities (ARS) -- whose auctions failed last week -- had no idea what
these things really were. They relied on brokers and other financial advisers.
But, it turns out that these people had no clue either. They just assumed that
because the auctions had worked last week, they'd work next week. Wrong! Check
what you own.
Do you own money market funds? My research on some of them last week shows
they're not the safe animal we think they are. They could collapse. There
are provisions in their rules -- buried deep in their prospectuses -- to freeze
your monies and not return your monies when you want them back. My auction rate
munis are frozen. I was keeping them as "cash." Imagine I needed the
money from them to pay Uncle Sam or an operation I need. I'd be screwed. Many
people are. What value does something have if you can't sell it?
Question the assumption behind everything you own.
Is the assumption still OK or has it changed? The sub-prime and other mortgage
business was based on one assumption -- namely that homes would continue to
rise in value forever. Whatever bad loan was made yesterday could be covered
by tomorrow's rising home price. That one assumption had now been broken. Home
prices are plummeting. I have examples of homes selling today in California
for half the price they sold two years. Read that again -- half the price
they sold for only two years ago. That's one sure way to make a small fortune.
Start with a large one.
your portfolio. Do I really want to own this? Do I really want all that money
in one bank? Uncle Sam only insures $100,000 per person. I should now have that
money in many banks.
you don't like what you own, mark it for sale today. And pray you'll be able
Ron Insana, a CNBC senior analyst said:
"I am going
to go way out on a limb here Maria. I think this credit crisis is viral and
it's spreading quickly in all corners of the credit markets.
We talked earlier
this week about auction rates on municipal bonds where we are having some
failures on auctions taking place with banks unwilling to take the overflow
when investors don't buy. We are going to have another crisis in munis beyond
the bond auction issue.
I think ultimately
when it's all said and done, the Fed is going to have to be the bank of Japan
and go to zero interest rate policy to reflate our way out of this thing.
This is far
bigger, far more misunderstood, than anybody knows. This is a real crisis
of historic proportions and still no one is paying full attention.
to really like mattresses.
declared its independence on the weekend. Yugoslavia
has now broken into seven countries. Count them:
Bosnia and Herzegovina, Croatia, Macedonia, Montenegro, Serbia, and
Slovenia and now Kosovo.
On January 1,
1993, Czechoslovakia peacefully split into the Czech Republic and Slovakia.
My dream has been
for Iraq to split into three countries -- Kurdistan, Sunnistan and Shiitestan
(or whatever names they want).
There are now
192 countries in the United Nations, most of them new. There were 51 original
member countries when the U.N. was created in 1945.
movies worth seeing.
story. Take the kids. They'll love the jargon and the humor.
charming story. Don't take the kids. Incredibly violent, but appropriate
for the story.
I guess this is how the conversation went:
'dis Walmarts, how can I help you?"
I would like to order a cake for a going away party this week."
want on da cake?"
Wishes Suzanne. And underneath that We will miss you."
thanks for answered prayers.
The pastor asked if anyone in the congregation would like to express
Praise for answered prayers.
A lady stood and
walked to the podium. She said, "I have a Praise. Two months ago, my husband,
Jim, had a terrible bicycle wreck and his scrotum was completely crushed. The
pain was excruciating and the doctors didn't know if they could help him."
You could hear
an audible gasp from the men in the congregation as they imagined the pain that
poor Jim experienced. She continued, "Jim was unable to hold me or the
children and every move caused him terrible pain. We prayed as the doctors performed
a delicate operation . They were able to piece together the crushed remnants
of Jim's scrotum and wrap wire around it to hold it in place."
Again, the men
in the Congregation squirmed uncomfortably as they imagined the horrible surgery
performed on Jim.. She continued, "Now, Jim is out of the hospital and
the doctor's say, with time, his scrotum should recover completely."
All the men sighed
The pastor rose
and tentatively asked if any one else had anything to say.
A man rose and
walked to the podium. He said, "I'm Jim and I want to tell my wife, the
word is sternum."
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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