Harry Newton's In Search of The Perfect Investment
Technology Investor. Harry Newton
9:00 AM EST, Friday, February 20, 2009. The
stockmarket closed yesterday below its November low. My charting friends
tell me this is a seriously bad thing. The only way to play this (as
I've been saying) is through shorts and gold. But don't bet
the farm. All bear markets have strong rallies.
the story in pictures. We are now below what the market was in 2002.
This is not
the time to buy shares also. They're not cheap.
the latest Barron's, the P/E ratio for the Dow is now 18.62, and 17.90 for
the S&P. That's way too high to be interesting. These numbers are high
because earnings are falling.
is talk that the big banks will be nationalized. If this happens -- and certainly
the market is hinting it will -- then the banks' shares will be worthless.
GE is half finance
and half industrial. Its fall has been a major destruction of wealth.
Ditto for Warren
Buffett's Berkshire Hathaway, which has now fallen roughly 50% from its one
and Doom revisited:
1. It's seriously bad. Cut your expenses.
Bargain harder. Don't even think about paying retail. I own a closet of tools.
But I use only two. I call this Harry's argument for owning nothing.
This weekend's Economist:
So much has
been written about the destructive power of the global financial crisis
that the collapse of manufacturing has barely been noticed. In fact the
contraction is the worst since the 1970s. In the fourth quarter of last
year Germany's industrial production fell by 6.8%; Taiwan's by 21.7%;
Japan's by 12%. The number of cars being assembled in America this
January was 60% below last year's figure. Industry is collapsing
in eastern Europe, as it is in Brazil, Malaysia and Turkey. Thousands of
factories in southern China are now abandoned. Their workers went home to
the countryside for the new year in January. Millions never came back.
3. From Forbes.com,
Nouriel Roubini ("Dr. Gloom") chimes in:
Capitalism Has Failed
It is now clear that this is the worst financial crisis since the Great
Depression and the worst economic crisis in the last 60 years. While we
are already in a severe and protracted U-shaped recession (the deluded hope
of a short and shallow V-shaped contraction has evaporated), there is now
a rising risk that this crisis will turn into an uglier, multiyear, L-shaped,
Japanese-style stag-deflation (a deadly combination of stagnation, recession
data on third-quarter 2008 gross domestic product growth (at an annual rate)
around the world are even worse than the first estimate for the U.S. (-3.8%).
The figures were -6.0% for the euro zone, -8% for Germany,
-12% for Japan, -16% for Singapore and -20% for Korea.
The global economy is now literally in free fall as the contraction of consumption,
capital spending, residential investment, production, employment, exports
and imports is accelerating rather than decelerating.
To avoid this
L-shaped near-depression, a strong, aggressive, coherent and credible combination
of monetary easing (traditional and unorthodox), fiscal stimulus, proper
cleanup of the financial system and reduction of the debt burden of insolvent
private agents (households and nonfinancial companies) is necessary in the
U.S. and other economies.
the euro zone is well behind the U.S. in its policy efforts for several
reasons. The first is that the European Central Bank is behind the curve
in cutting policy rates and creating nontraditional facilities to deal with
the liquidity and credit crunch. The second is that the fiscal stimulus
is too modest, because those who can afford it (Germany) are lukewarm about
it, and those who need it the most (Spain, Portugal, Greece, Italy) can
least afford it, as they already have large budget deficits. The last reason
is that there is a lack of cross-border burden sharing of the fiscal costs
of bailing out financial institutions.
With its aggressive
monetary easing and large fiscal stimulus putting it ahead, the U.S. has
done more. Except for two elements, both key to avoiding a near-depression,
which are still missing: a cleanup of the banking system that may require
a proper triage between solvent and insolvent banks and the nationalization
of many banks, even some of the largest ones; and a more aggressive,
across-the-board reduction of the unsustainable debt burden of millions
of insolvent households (i.e., a principal reduction of the face value of
the mortgages, not just mortgage payments relief).
in many countries, the banks may be too big to fail but also too big to
save, as the fiscal/financial resources of the sovereign may not be large
enough to rescue such large insolvencies in the financial system.
To read his
entire piece, go to Forbes.com.
our coupons": My wife is insistent.
She's right. Last fall we bought triple tax-free New York municipal bonds.
Yields were high -- way over 50%. Then bond prices rose and yields dropped.
Now they are edging up, as investors worry about the ability of municipalities,
states and counties to pay interest on the bonds. Muni bonds appeal increasingly
to me, since my local New York City and New York State taxes are definitely
which bonds? The key is to understand what will is the underlying revenue
stream that will pay your interest. A hospital bond will be less sound than
a water bond. Hospital bills may not get paid. But water bills definitely
will -- even if they rise.
short, understand the underlying revenue stream. Understand the whole "business'
model. Check out the "management." And don't trust the rating agencies.
thinks bond yields will rise. Dennis says if you like today's yields go for
it. Predicting interest rates is on the same level as astrology.
email scams: Delete instantly.
1. There is money sitting in a foreign bank. Nigeria. Iraq. Hong
Kong. Send money and we'll send you more money.
2. You have
won a lottery. Send all your personal details.
3. You are entitled
to a free dinner, a free discount coupon,
4. You have
been picked to complete our survey for the opportunity to receive a $500 Sears,
Lowe's, Home Depot (etc.) gift card.
caused all the anger in New York: An
editorial cartoon in the print and online editions of The New York Post was
criticized for linking a chimpanzee with the economic stimulus package signed
by President Obama. The New York Post issued an
apology on Thursday night to those who were offended,
while maintaining that the cartoon was not intended to be racist.
10 top reasons the market is in trouble...
The Sunday paper costs more than NYT stock
2. The Citi
ATM fee costs more than C stock
3. The paper
that a mortgage is written on costs more than FRE stock
4. A subscription
to Sirius Satellite radio would cost more than SIRI stock
5. A gallon
of gas costs more than F stock
6. One ride
costs more than SIX (Six Flags) stock
7. A bottle
of soda costs more than JSDA (Jones Soda) stock
8. A 5 minute
long distance phone call costs more than VG (Vonage) stock
9. A 5 stick
pack of gum costs more than RAD (Rite-Aid) stock
10. The strawberries
in a smoothie cost more than JMBA (Jamba Juice) stock
recent New Yorker cartoon:
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,
here and here.