Harry Newton's In Search of The Perfect Investment
Newton's In Search Of The Perfect Investment. Technology Investor.
8:30 AM EST, Monday, January 7, 2008: The
Dow has now seen its worst 3-day start to a New Year since 1932 and the S&P
500 has seen its worst start to the New Year since 2000. The catalysts for this
Talk of recession. There are learned observers who think we're already in one.
Last Friday's awful jobs report and news of rising unemployment.
The ongoing credit crunch, which is now depriving legitimate businesses of the
credit they need for funding inventory and expansion.
Continuing cockroaches in housing. We know more will appear, hurting banks and
finance companies and damaging companies that make things for houses -- from
doors to windows. Uncertainty is painful.
As the economy slows, everyone is affected -- including commercial real estate
which now has more difficulty filling its buildings with tenants -- like banks.
(I've never understood why we need so many bank branches.)
in the economy doesn't correlate strongly with misery in the stockmarket. Two
things we know about the market.
There's huge liquidity on the sidelines. I have money. My readers have money.
I know because I recommended back in November we get largely out of this market.
The stockmarket always has a tendency to overshoot.
chart is instructive. For the past six months, it's been bouncing violently
around -- but staying within a range.
Look at this chart.
There are sufficient people who believe these charts. It looks like a triple
bottom. If we bust through support with volume, this market is in big trouble,
many chartists believe.
This is a difficult
market to predict. The mantra remains, "When in doubt, stay out."
But that said,
there are stocks to short. I don't like home builders. I recommended selling
Toll Brothers way above where it is now. And that short is making me money.
I bet Toll and some of the others will fall further.
a chart showing winners and losers for 2007. I bet some of these big gainers
from 2007 will be among the big losers of 2008.
Wien's forecasts for 2008.
Byron Wien was until recently Morgan Stanley's senior investment
strategist. He's now with Pequot Capital. He's a respected guru. Since 1986,
he had published his annual list of surprises to expect in the coming year.
He got about half
of his 2007 predictions right.
Bryon Wien, brainy, not beautiful
He foresaw the
surge in agricultural prices, the Fed refraining from reducing interest rates
in the spring, and Latin America putting in a good performance. He furthermore
predicted gold bullion at $800 and oil at $80 -- perhaps too conservative but
nevertheless in the right ballpark.
Wien was, however,
quite wrong with his prediction of a year-end yield of 5.5% for the US 10-year
Treasury Note, as the actual figure turned out to be significantly lower at
his ten surprises for 2008 have at least a 50% chance of occurring at some point
during the year. His 2008 list:
1. In spite of Federal Reserve easing, and other policy measures, the United
States economy suffers its first recession since 2001 as housing starts stay
soft and banks are reluctant to lend to anyone where a whiff of risk is apparent.
Federal funds drop below 3%. The unemployment rate moves definitively above
5% and consumer spending is lackluster.
2. Standard and Poors 500 earnings decline year-over-year and the index
drops another 10%. Energy and materials stocks hold up relatively well in what
is viewed as a correction rather than a bear market. Market conditions start
to improve during the summer.
3. The dollar strengthens in the first half reaching $1.35 against the euro
and weakens in the second exceeding $1.50. The European Central Bank begins
an accommodative monetary policy. Foreign investors flock in to buy cheap assets
in the US early in the year but the dollar declines later as several countries
holding large reserves diversify into other assets.
4. Inflation rises
above 5% on the Consumer Price Index as higher commodity prices and oil finally
begin to have an impact in spite of modest wage increases. The 10-year US Treasury
yield rises to 5%. Stagflation becomes a frequent presidential campaign and
Op-Ed discussion topic.
5. The price of
oil goes down early in the year and up later, sinking to $80 a barrel in the
first half as western economies slow and inventories are drawn down, and rising
to $115 in the second. Established wells continue to decline in production while
China, India and the Middle East increase their consumption.
commodities remain strong. Corn rises to $6 a bushel and cotton to $0.85 a pound.
Gold reaches $1,000 an ounce as disillusionment with paper currencies spreads
7. The recession in the United States slows the Chinese economy modestly but
its stockmarket declines sharply. Investors recognize that paying biotechnology
stock multiples for highly cyclical companies doesnt make sense. The Chinese
revalue the renminbi by another 10% to control inflation and as a gesture to
foreign governments participating in the Olympic Games who complain that Chinese
terms of trade are unfair. Several long distance runners refuse to compete in
certain Olympic events because of continuing air pollution problems.
8. The new Russian President Dmitry Medvedev, under the tutelage of Vladimir
Putin, becomes more assertive in world affairs. He insists that Russian oil
and gas be paid for in rubles and demands a Russian seat at major world conferences.
Russia and Brazil stock markets lead the BRICs. The Gulf Cooperation Council
markets begin to attract interest among emerging market investors.
9. Infrastructure improvement becomes an important election theme for both parties
and construction and engineering stocks rally in anticipation of huge programs
beginning after the new Presidents inauguration. Water becomes a critical
problem worldwide and desalination stocks soar.
10. Barack Obama
becomes the 44th President in a landslide victory over Mitt Romney. With conditions
in Iraq improving, the weak economy becomes the determining issue in voters
lending guidelines explained
is getting into the shower just as his wife is finishing up her shower, when
the doorbell rings. The wife quickly wraps herself in a towel and runs downstairs.
When she opens the door, there stands Bob, the next-door neighbor.
Before she says
a word, Bob says, "I'll give you $800 to drop that towel."
for a moment, the woman drops her towel and stands naked in front of Bob. After
a few seconds, Bob hands her $800 and leaves. The woman wraps back up in the
towel and goes back upstairs.
When she gets
to the bathroom, her husband asks, "Who was that?"
"It was Bob
our next door neighbor," she replies.
the husband says, "did he say anything about the $800 he owes me?"
Moral of this
If you share critical information pertaining to credit with your shareholders,
you may be in a position to prevent avoidable exposure.
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, click
here and here.