Harry Newton's In Search of The Perfect Investment
9:00 AM EST, Monday, January 19, 2009: Martin Luther
King Day. It's a federal
holiday. But my friends are working. They are fearful. Seriously fearful.
So, let's start with the optimism of Warren Buffet:
says U.S. in 'economic Pearl Harbor'
OMAHA (AP) Billionaire investor Warren Buffett says the U.S. is engaged
in an "economic Pearl Harbor."
In an interview that aired Sunday on Dateline NBC, the chairman and CEO
of Berkshire Hathaway (BRKA, BRKB), said the nation's economic situation
is not as bad at World War II or the Great Depression, but it's still pretty
Americans are in a cycle of fear, "which leads to people not wanting
to spend and not wanting to make investments, and that leads to more fear.
We'll break out of it. It takes time."
interview centered on President-elect Barack Obama and the tough task he
faces in fixing the U.S. economy.
couldn't have anybody better in charge," the Omaha resident said of
Obama, who'll be sworn into office on Tuesday.
As one of
Obama's economic advisers, Buffett said the president-elect listens to what
his advisers say, but ultimately comes up with better ideas.
that Obama will be able to convey the severity of the economic situation
to the American people and explain their part in alleviating it.
As to how
long the crisis would continue, Buffett said he didn't know.
never paid to bet against America," he said. "We come through
things, but its not always a smooth ride."
Berkshire owns a diverse mix of more than 60 companies, including insurance,
furniture, carpet, jewelry, restaurants and utility businesses. And it has
major investments in such companies as Wells Fargo and Coca-Cola.
Its shares have,
like everyone else, not done well recently.
are bad out there. How bad? From this weekend's
Economist. Read the chart carefully:
Why China and Germany need to do more to boost demand
EVERYONE knows that the financial system took a downward dive in mid-September.
The failure of Lehman Brothers turned the rich worlds credit crunch
into a global calamity, as the international banking system came close to
collapse and even the most basic functions of finance, such as trade credit,
seized up. To stop this financial breakdown sending the world economy into
a tailspin, politicians scrambled with bank-rescue packages and promises
of fiscal stimulus. Unfortunately, it seems increasingly clear that they
failed. Just as the financial crisis went global at the end of 2008, so
large chunks of the world economy went into freefall.
in grave trouble. Around the world factory output is plunging at its fastest
pace in decades as the consequences of slumping demand have rattled along
the supply chain. In the three months to November American industrial production
fell at an annualised rate of 16% compared with the three months before.
Over the same period Japans fell by 21% and Germanys by 15%.
Some emerging economies have done even worse. South Koreas factory
output fell at an annualised rate of 25% in the three months to November,
about as fast as in its financial crisis a decade ago.
On the basis
of these figures and the gloomy state of manufacturers order books,
economists at JPMorgan reckon that global manufacturing production is likely
to have fallen at an annualised rate of almost 20% in the last three months
of 2008. The car industry is seeing the most savage drop in sales in its
history (see article), but the collapse in demand is widespread. From computer
chips to sophisticated machine tools, the production of goods is plunging.
As a result trade flows, which had grown faster than output for decades,
have recently shifted into reverse. Germanys exports are falling at
their fastest pace in many years. Taiwans exports fell by 42% in the
year to December. After years of double-digit growth, Chinas exports
are now falling too, though by less than those in the rest of East Asia
is highly cyclical, falling first and fast in a downturn. Firms are quick
to scale back capital spending and consumers skip new cars rather than scrimp
on food or healthcare. A rapid rundown in inventories and temporary distortions
in credit markets (see article) have not helped. The collapse of trade finance
made it all but impossible for many producers to shift their goods abroad.
The plunge in trade flows is partly a result of tumbling commodity prices.
is beginning to flow. Firms cannot run down stocks for ever: eventually,
they will empty their warehouses. But the damage is done: those temporary
factors triggered a collapse in global demand that has now spread way beyond
the Anglo-Saxon economies at the heart of the credit crisis.
the euro area probably fell as fast as in Britain and America in the last
three months of 2008, even as Japans GDP sagged still more dramatically
(see article). The drop in industrial output has hammered export-dependent
economies, from Germany to Taiwan, and there is little sign that domestic
demand in these countries is stepping in to compensate. In some countries
with big external surpluses, notably China, the opposite may be true. Chinas
imports have been falling faster than its exports and in recent months its
trade surplus has risen.
factors together and the outlook seems grim. This sharp global drop in industrial
production will itself lead to more weakness, as unemployment rises around
the world and demand therefore falls. And in America, too, the outlook has
grown darker. Around three-quarters of output growth over the past two years
came from net exports. That prop will go. And while domestic demand in surplus
economies flags, the imbalances that have contributed to the current crisis
will not right themselves, and will encourage protectionism. When rich-country
economies were growing, Chinas surplus was a political lightning-rod;
how much more dangerous will it be when unemployment is rising?
these risks policymakers need to do more to prop up demand, especially in
countries that have external surpluses. Fiscal stimulus packages that seemed
sufficient two months ago may be too small, and too slow to take effect.
Much of the infrastructure spending in the package that China announced
in November will not kick in until later this year. This weeks decision
by Germanys government to add a second €50 billion ($66 billion)
stimulus package is a step forward, though at barely more than 1% of GDP
it is still far too small (see article). For the time being, the biggest
and quickest fiscal boost is likely to come from America, as the Obama team
seeks speedy passage of an $800 billion package of tax cuts and spending.
That sort of money may put a brake on the global industrial collapse, but
it will not set the world economy on course for a sustainable recovery.
Others still need to do far more.
at Circuit City? It was in Chapter 11, but couldn't find a recovery
solution. It's now in Chapter 7 where its inventory is being liquidated as
fast as possible. You may be able to find some bargains in your local Circuit
City. But you may not. A reader , Tim Jebara writes this morning:
Harry be careful
of Circuit City deals, on a few things they cut prices 5-10% but they marked
them up to msrp. So you might think your saving a lot on that TV, but it
may be cheaper at Best Buy. I believe in February and early March the best
deals will be had.
Open Tennis began this weekend. The huge
time difference makes this ideal for TiVo. Enjoy.
For the full schedule go to Tennis.com.
A farmer lived on a quiet, rural highway. But, as time went by, the traffic
slowly built up at an alarming rate. It became so heavy and so fast that his
chickens were being run over at a rate of three to six a day.
So he called
the sheriff's office and said, "You've got to do something about all
of these people driving so fast and killing all of my chickens."
you want me to do?" asked the sheriff.
care, just do something about these drivers."
So the next
day the sheriff had the county go out and put up a sign that said: SLOW: SCHOOL
Three days later,
the farmer again called the sheriff and said, "That sign didn't help
a bit. They are still hitting my chickens."
So the next
day, the county put up a sign that said: SLOW: CHILDREN AT PLAY.
Again, no change.
So the farmer called and called, every day for three weeks.
told the sheriff, "Look, your signs are just not working. Mind if I put
up one of my own?"
told him, "Sure thing, let's see if yours works better." He was
willing to agree to anything to get him to stop those daily calls.
Well, the sheriff
got no more calls from the farmer. After three weeks, he decided to call the
farmer and see how things were going. "Did you put up your sign?"
sure did. And not one chicken has been killed since. I've got to go. I'm very
busy." And he hung up the phone.
thought to himself, "I'd better go have a look at that sign. There might
be something there that WE could use to slow down drivers..."
So the sheriff
drove out to the farmer's house, and he saw the sign. It was on a whole sheet
of plywood. Written in large, yellow letters were the words: SLOW: NUDIST
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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