Harry Newton's In Search of The Perfect Investment
Newton's In Search Of The Perfect Investment. Technology Investor.
8:30 AM EST Friday, February 22, 2008: "So
Harry, what the heck is Mattress Cash?" Muriel, my wonderful assistant
asked, "I understand we are supposed to go to mattress cash with our
money. But my mattress is sewn shut and too expensive to cut open."
is my term for an ultra-safe place to put your money. The term derives from
where my grandfather put his savings. He had cause: He had run away from Germany's
hyperinflation of the 1930s. The Nazis had confiscated all his assets. He rushed
out of Europe carrying a few thousand dollars in U.S. greenbacks and a couple
of diamonds. He arrived in Australia seven days before the outbreak of WWII.
All his friends and relatives perished.
The search for
ultra-safety has become an obsession -- not only for me, but also for millions
of people all over the globe. It's a search motivated by two things: First,
the collapsing credit markets, which seem to be progressively taking down one
thing after another. Second, the collapsing economy, which seems to be taking
down investor confidence and with it, the stockmarket.
I'm not into "gloom
and doom." So don't dismiss this as "another of Harry's madnesses."
But I am into protecting the capital that I spent nearly four and a half
So here goes.
The safest money is distributed money, i.e. not all in one place. Number one
are FDIC-insured bank accounts. They're insured up to $100,000 per person. Here's
what the FDIC says on its web
FDIC deposit insurance cover?
FDIC insurance covers all types of deposits received at an insured bank, including
deposits in checking, NOW, and savings accounts, money market deposit accounts,
and time deposits such as certificates of deposit (CDs).
insurance covers the balance of each depositor's account, dollar-for-dollar,
up to the insurance limit, including principal and any accrued interest through
the date of the insured bank's closing.
The FDIC does
not insure money invested in stocks, bonds, mutual funds, life insurance policies,
annuities, or municipal securities, even if these investments were bought
from an insured bank.
The FDIC does
not insure U.S. Treasury bills, bonds, or notes. These are backed by the full
faith and credit of the United States government.
insurance coverage does the FDIC provide?
The basic insurance amount is $100,000 per depositor, per insured bank.
amount applies to all depositors of an insured bank except for owners of certain
retirement accounts, which are insured up to $250,000 per owner, per insured
separate branches of an insured bank are not separately insured. Deposits
in one insured bank are insured separately from deposits in another insured
in different categories of legal ownership at the same bank can be separately
insured. Therefore, it is possible to have deposits of more than $100,000
at one insured bank and still be fully insured.
investment are U.S. Treasury bills, bonds and notes. These are second safest
because you could lose money on them. If interest rates rise, the value of these
things will fall. Interest rates are fortunately not likely to rise.
Third safest investments
are the government bonds of foreign countries. I like Australia. Their federal
government bonds are paying as high as 6.89%, and apparently going higher.
German bonds are paying 3.33%. U.K. bonds are paying 4.28%. Brazil
government bonds are 11.15% to 12.53%, as you go out in maturity.
There's a currency risk here. But it's more with the U.S. dollar than with
these other currencies, which have been rising (and will continue to rise).
There are different
tax implications. You'll pay more taxes overseas, but those taxes will be credited
against your American taxes.
investment (and here we get into less safe ground) are the commodities -- especially
gold, silver, platinum and oil. It's obvious that the huge run-up
in these things has nothing to with global consumption (China, India, Brazil,
etc.), it has to do with Mattress Money -- investors looking for a safe place
to put their money, in view of the declining dollar, the declining U.S. economy,
etc. It's "a flight to safety." It has all the markings of a bubble.
Yet another bubble.
investment (certain irony here) is to profit by the credit contagion. Sell short,
or buy puts. The financials are The Big Disaster. Big and little cockroaches
appear daily. I have shorted Citibank. You can short individual local banks.
Ask around, which ones were offering the easiest mortgages two years ago? Once
banks start valuing their loans at what they're really worth, many banks will
announce huge losses and drop their dividends. I can see another 10 point fall
But the easiest
way to profit by the financial credit crunch contagion is simply to sell short
the entire financial sector by shorting the financial spider, XLF:
I'm running out
of Mattress Money ideas. Suggestions welcome.
As I've written,
I don't like the stockmarket. I told everyone to get out in mid-November and
I was right. You've heard my feelings about the stockmarket. The following came
in this week from a mature, very successful money manager, reporting on his
last week of January was the best week the market has had since 2003, which
was of course the first of a string of five good years. The market - and most
of the usual cheerleaders - seems to expect a replay. I'm skeptical. Too many
people seem to me too eager to call the bottom. This is not 2003. We are not
on the verge of an explosion in innovative (and ultimately irresponsible)
credit instruments which will generate superabundant liquidity and inflate
the collateral value of investable assets and ultimately generate still more
liquidity in a dizzying spiral of rising prices. that just happened - and
it's over! The internet bubble was big, but brief. It was very different.
Temporarily absurd valuations were not for the most part monetized. Many people
made and lost paper fortunes so quickly they had no opportunity to borrow
out or spend their windfall. Our recent real estate bubble was much bigger
and much more pervasive and much of it was monetized. Ephemeral valuations
were converted into real debt - debt which now creates serious and lingering
problems for both debtors and creditors. This was not a typical expansion
and I don't think we'll have a typical recession followed by a typical recovery.
However, even if I'm right about this, it may be some time before the market
begins to realize that its celebration was premature, so the next few months
might be quite difficult for us. The other possibility is that I might be
wrong about all this - which might even be more painful.
on failed Auction Rate Securities: "I don't have bad news.
I just don't have any news." That was the gist of a thousand phone
calls yesterday. In short, our money in ARSs is safe. We just can't get to it,
i.e. sell it. Some brokerage firms will lend us money against our auction rate
securities. But I don't know the terms or what percentage. I'm guessing 50%
to 70% of their NAV (net asset value).
The good news
is we're still earning interest on these things. All of us owners of failed
auctions are earning more, some more than others.
The advice I keep
hearing: Scream. The louder you scream, the more attention you'll get.
I hear also that a letter to your state's Attorney-General and Governor might
help. You might point out that your April 15 are stuck in these things. And
if this problem isn't solved, the state isn't going to get your taxes for 2007.
That should get their attention, since many states (e.g. California) are already
seriously in the red, as tax collections have dropped off, while expenses continue
typically stupid Texas joke.
A Texas gentleman asked a waiter to take a bottle of Merlot to an attractive
The waiter took
the Merlot to the woman and said, 'This is from the gentleman seated over there,'
indicating the sender.
She regarded the
wine coolly for a second, not looking at the man, and decided to send a reply
note to the man. The waiter, who was lingering for a response, took the note
from her and conveyed it to the gentleman.
The note read:
"For me to accept this bottle, you need to have a Mercedes in your garage,
a million dollars in the bank, and 7 inches in your pants."
the note, the Texan decided to compose one of his own in return. He folded the
note, handed it to the waiter and instructed him to return it to the woman.
It read: "For
your information, I have a Ferrari Maranello, a BMW Z8, a Mercedes CL600, a
Porsche Turbo and a Toyota Prius in my garage. I have homes in Aspen, Colorado
and Miami and a 10,000 acre ranch in Texas .. There is over twenty million dollars
in my bank account. But not even for a woman as beautiful as you, would I cut
three inches off. Just send the bottle back."
It's snowing and cold this morning in New York. I
thought Al Gore promised it would always be warm.
Snow in New York.
Good exercise for the back. Time
to put snow tires on the bicycle and go play tennis, indoors.
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
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