Harry Newton's In Search of The Perfect Investment
Newton's In Search Of The Perfect Investment. Technology Investor.
8:30 AM EST Friday, January 11, 2008: I
screwed up. On November 13, I wrote "it was time to go to cash."
And I did with much of my equities -- except, dumbly, my Vanguard holdings.
For some inane reason I thought Vanguard immune to the stockmarket downturn
I was predicting (correctly as it turned out). On November 14, my Vanguard portfolio
looked like this:
I had invested
$1.6 million and was up $268,000. Last night (and after yesterday's big 118
point rise in the Dow), my wonderful "profit" had evaporated 55%
to $120,604, as shown in this chart:
I just noticed
that my cost basis, according to Vanguard, has risen $74,000. I think it's reinvested
dividends and taxable gains. I'll call and find out today. Vanguard's online
accounting system is arcane at best.
It's time to take
Vanguard to cash today. My reason is best summed up in an email I received from
reader, Jim Kingsdale, my
oil guru, yesterday.
Can the market fall further due to a recession if everyone knows the recession
My answer: Yes, because the recession could be more severe than the"mild"
one everyone expects.
As I've written
all this week, we are faced with a financial crisis, the full extent of which
we don't know. That makes it different to all other post World War II recent
There remains one unknown: the Fed. It's best summed up in the old chestnut:
"Don't fight the fed." If the Fed does stuff to stimulate the
economy, then the stockmarket will rise. But -- and this is the BIG but -- can
the Fed do sufficient to turn this mess around? Can the Fed raise the money
the banks and the investment banks need? Can the Fed turn bankers' brains to
lending? My answer is NO. I don't even think the Fed has "got the full
You need to make
up your own mind. Here's today's Bloomberg story on yesterday's Bernanke talk:
Jan. 11 (Bloomberg)
-- Federal Reserve Chairman Ben S. Bernanke signaled he has resolved months
of debate over the competing risks of slower growth and faster inflation,
and is ready to make deeper interest-rate cuts.
pledged "substantive additional action'' to insure against "downside
risks'' to the six-year economic expansion. His remarks in a Washington speech
led HSBC Securities USA Inc. and Morgan Stanley to predict the Fed will reduce
its benchmark rate by half a percentage point this month, up from their previous
forecast of a quarter point.
bank faces the most challenging moment of Bernanke's two years in office as
both of the Fed's goals are under siege: unemployment is at a two-year high,
while prices are also climbing. Until now, the deliberations produced non-committal
statements from the Fed, which used "uncertainty'' to describe the outlook
to save the economy and let inflation go,'' said Allen Sinai, chief economist
at Decision Economics Inc. in New York. "We are in a recession-like situation
The shift may
have been driven by the Labor Department's Jan. 4 report showing the jobless
rate jumped to 5 percent in December, economists said. The figures also showed
a decline in private- sector employment.
The speech by
Bernanke, 54, was unusual because he made few references to the "committee,''
as he frequently does when discussing options before the Federal Open Market
Committee. He said the forecast for 2008 "has worsened'' and risks to
growth are "more pronounced,'' effectively rewriting the FOMC statement
of Dec. 11.
yields fell to the lowest in three years on speculation of further interest-rate
cuts. The yield on the two-year note fell 5 basis points to 2.65 percent by
12:00 p.m. in London, according to bond broker Cantor Fitzgerald LP.
chose to finally assume the mantle of leadership,'' said Michael Feroli, an
economist at JPMorgan Chase & Co. in New York. "He has generally
sought to avoid front- running the committee.''
a senior economist at Macroeconomic Advisers LLC in Washington who used to
work at the Fed, said the shift in Bernanke's language indicated he and his
colleagues may have conferred after the Jan. 4 job figures.
that the policy message seemed to be shifted so aggressively suggests there
was some committee-wide communication in recent days.'' Sack said.
speech contained one paragraph on inflation. The Fed's preferred price measure,
the personal consumption expenditures price index minus food and energy, rose
at a 2.6 percent annualized rate for the three months ending November.
see more worrying signs'' of inflation, Martin Feldstein, the Harvard University
economist who is head of the National Bureau of Economic Research, told Bloomberg
Television in an interview. "It is a serious problem, but yet it isn't
the primary problem, which is the weakness of the economy.''
The FOMC has
cut the benchmark rate 1 percentage point to 4.25 percent since September
to offset the drag from tighter lending conditions and the prolonged housing
the European Central Bank has left its key rate at 4 percent and President
Jean-Claude Trichet yesterday signaled it may raise borrowing costs to contain
inflation even as economic growth slows. The ECB's Governing Council is "prepared
to act preemptively'' to prevent risks to price stability from materializing,
Trichet said in Frankfurt.
Group Inc. economists predicted this week that the Fed will lower its rate
to 2.5 percent by year-end. The bank also joined Merrill Lynch & Co. and
Morgan Stanley in projecting a recession.
economy "just makes it more difficult to maintain an active rhetorical
or any other focus on inflation,'' said Edward McKelvey, senior U.S. economist
at Goldman in New York.
investment has declined for seven consecutive quarters, and Fed officials
say it may take at least six more months before housing markets rebound. Delinquency
rates on subprime mortgages climbed to 16.3 percent in the third quarter,
the highest in at least a decade.
for housing seems to have weakened further, in part reflecting ongoing problems
in mortgage markets,'' Bernanke said.
by 18,000 last month, with the first decline in private jobs since 2003. The
unemployment rate rose to 5 percent, from 4.7 percent the previous month.
The more aggressive
response signaled by Bernanke today may come too late to prevent a sharp slowdown,
said Lou Crandall, chief economist at Wrightson ICAP LLC in Jersey City, New
Jersey. "If we have a recession coming, then all this does is create
a more conducive environment for the economy's convalescence.''
the labor market deteriorate, the risks to consumer spending would rise,''
Bernanke said in his prepared remarks to the Women in Housing and Finance
and Exchequer Club.
you the chairman's mindset has moved,'' said Credit Suisse Group Chief Economist
Neal Soss, who changed his forecast yesterday to a half-point rate cut this
month. "He acknowledges inflation risk -- it's his job to do so -- but
certainly that's not the primary focus.''
measured by yield differences on 10-year Treasuries and government inflation-indexed
bonds have remained between 2.2 percent and 2.4 percent over the past year,
a sign that investors have confidence the central bank will maintain price
stability in the long-term.
of inflation expectations to become unmoored or for the Fed's inflation-fighting
credibility to be eroded could greatly complicate the task of sustaining price
stability and reduce the central bank's policy flexibility to counter shortfalls
in growth in the future,'' Bernanke said.
questions tourists have of Australia:
These questions were posted on an Australian Tourism Website and
the answers are the actual responses by the website officials (allegedly)..
First, a map of Australia. Australia is as large as the continental US. but
has only 20 million people. Kings Cross is the Times Square of Sydney, only
Kings Cross is seedier.
Now, it's time
to have your questions about Australia answered:
Q: I have never
seen it rain on TV, how do the plants grow? (UK).
A: We import all plants fully grown and then just sit around watching them die.
Q: Will I be
able to see kangaroos in the street? (USA)
A: Depends how much you've been drinking.
Q: I want to
walk from Perth to Sydney - can I follow the railroad tracks? (Sweden)
A: Sure, it's only three thousand miles. Take lots of water.
Q: Are there
any ATMs (cash machines) in Australia ? Can you send me a list of them in Brisbane
, Cairns ,Townsville and Hervey Bay? (UK)
A: What did your last slave die of?
Q: Can you
give me some information about hippo racing in Australia? (USA)
A: A-fri-ca is the big triangle shaped continent south of Europe. Aus-tra-lia
is that big island in the middle of the Pacific which does not ... oh forget
it. Sure, the hippo racing is every Tuesday night in Kings Cross. Come naked.
Q: Which direction
is North in Australia? (USA)
A: Face south and then turn 180 degrees. Contact us when you get here and we'll
send the rest of the directions.
Q: Can I bring
cutlery into Australia? (UK)
A: Why? Just use your fingers like we do.
Q: Can I wear
high heels in Australia ? (UK)
A: You are a British politician, right?
Q: Are there
supermarkets in Sydney and is milk available all year round? (Germany)
A: No, we are a peaceful civilization of vegan hunter/gatherers. Milk is illegal.
Q: Please send
a list of all doctors in Australia who can dispense rattlesnake serum. (USA)
A: Rattlesnakes live in A-meri-ca which is where YOU come from. All Australian
snakes are perfectly harmless, can be safely handled and make good pets.
Q: I have a
question about a famous animal in Australia , but I forget its name. It's a
kind of bear and lives in trees. (USA)
A: It's called a Drop Bear. They are so called because they drop out of gum
trees and eat the brains of anyone walking underneath them. You can scare them
off by spraying yourself with human urine before you go out walking.
Q: I have developed
a new product that is the fountain of youth. Can you tell me where I can sell
it in Australia? (USA)
A: Anywhere significant numbers of Americans gather.
Q: Can you
tell me the regions in Tasmania where the female population is smaller than
the male population? (Italy)
A: Yes, gay night clubs.
Q: Do you celebrate
Christmas in Australia ? (France)
A: Yes, but only at Christmas.
Q: I was in
Australia in 1969 on R+R, and I want to contact the girl I dated while I was
staying in Kings Cross. Can you help? (USA)
A: Yes, and you will still have to pay her by the hour..
Q: Will I be
able to speak English most places I go in Australia? (USA)
A: Yes, but you'll have to learn it first..
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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