Harry Newton's In Search of The Perfect Investment
Technology Investor. Auction Rate Securities. Auction Rate Preferreds.
9:00 AM EST Tuesday, July 22, 2008: Hedge
funds have made billions this year shorting the banks, Freddie and Fannie and
other financial institutions (like AIG). There is more money to be made short-selling
toxic financials, despite the new SEC rule limiting naked short selling. A little
bank called BankAtlantic has sued analyst Richard Bove for defamation. CNBC
discussed the suit and the definition of defamation. Click
Florida Bank Sues Dick Bove."
Bove's crime was writing a report called "Who is Next?" His answer
Not as many candidates as one would think. He has two ways of figuring who's
+ One method is
to take the non-performing asset of an institution (non-performing loans, foreclosed
assets, and 90-Day past due loans) and divide them by outstanding loans. A ratio
above 5% suggests danger.
+ A second approach is to divide an institution's non-performing assets by its
reserves plus common equity. A ratio about 40% is in the danger zone.
Here are the banks
from the first method whose ratios are above 5%:
Corp (DSL), Corus Bankshares (CORS), Doral Financial Corp. (DRL), IndyMac
Bancorp. (IMB), FirstFed Financial Corp. (FED), Oriential Financial Group
(OFG), BankUnited Financial Corporation (BKUNA),. First BanCorp (FBP), Santander
BanCorp. (SBP), Bank Atantic Bancorp. (BBX) and BFC Financial Corp. (BFF).
Here are the banks
from the second method whose ratios are above 40%.
(IMB), Downey Financial (DSL), Doral Financial Corp. (DRL), BFC Financial
Corp. (BFF), Bank United Financial Corporation (BKUNA), Corus Bankshares (CORS),
First BanCorp. (FBC), FirstFed Financial Corp. (FED), Flagstar Bancorp (FBC),
and Santander BanCorp. (SBP).
Bove is clearly
one of the most talented analysts whose work I've ever read. He's been covering
this sector for eons. His report is actually far more optimistic on the banks
than on the Federal Government which he clearly regards as clueless. (He's right.)
Reading between Bove's lines, you get the feeling that the man is seriously
worried about the health of the United States' financial system. Read his words:
It is clear
that Fannie and Freddie are too big to fail. They are also too big for the
United States government to support. Referring to the numbers above, if the
debt and the known guarantees of the GSEs (Fannie and Freddie) are added
to the public debt of the United States, that debt would grow by 104%
to an estimated $10.8 billion.
This might cause the value of dollar to decline. It might force interest rates
throughout the economy higher, not just those of the mortgage sector. It might
force Congress to raise taxes.
Add to the entities that are not big enough to protect Fannie and Freddie,
the Federal Reserve. This agency is approximately the same size of each of
the GSEs. The Fed has $940 billion in assets. Fannie has $883 billion and
Freddie has $803 billion. In theory, the Fed has $6 billion in equity and
the GSEs together have $60 billion.
It is for these reasons, the risks to the United States financial system,
that the former Fed Chairman, Alan Greenspan, repeatedly went to Congress
during his tenure to ask that these agencie be reduced in size. He was supported
by Treasury Secretaries Paul ONeill and John Snow. The current Treasusury
Secretary Henry Paulson did not argue for a cutback.
Mr. Paulson has publicly stated that he does not want to see the structure
of Fannie Mae and Freddie Mac changed. This view is wrong. It may be Mr. Paulson's
way of recognizing that he has no ideas about how to run these organizations
other than to argue that big financial companies should fail.
metrics above clearly indicate why these companies must be restructured. They
are now so large they dominate activities in the mortgage markets impacting
not just financials institutions but also housing, and through housing, the
United States economy. ...
It is also clearl
that these institutions are so large that they are impacting the funding of
the United States government and possibly the value of the U.S. currency.
They may have reached a size that allows them to interfere with the normal
functioning of the government itself, if the government actually does the
unthinkable, and guarantees their debt.
have argued for decades now that these institutions raise interest rates in
the overal economy by diverting funds away from commercial activities into
Elsewhere in his
report, he has a section on "What should be done with Fannie and Freddie?"
of the dilemma are:
+ The GSEs (Fannie
and Freddie) cannot be allowed to fail without putting the financial system
of the United States at risk.
+ The Unites
States government cann't nationalize these companies are guarantee their debt
explicity, and, maybe now, even implicitly.
+ They cannot
be allowed to continue in their present form because they have a long record
of complete mismanagement and fraud, and they are simply too big.
+ They must
support growth in the housing industry.
all this (and yesterday's column), it is clear that the best place for my
and your investible funds is in government securities in a safe foreign country
in local (i.e. non-US) currency. Australia, with its huge mining and commodity
resources, seriously appeals.
To read his entire
report, "Who is Next?" by
stuff from your own website: From reader Michael Marcus,
It's tough to
create a website that looks professional (even with the blogging platform).
I operate four blogs and many web sites.
A blog is NOT the place to sell things. I highly recommend Yahoo Store
for commercial websites, particularly for small business. It's very easy to
use and provides professional results, unless you have terrible taste.
They have plans starting at just $20 a month, and can handle dozens or even
thousands of products.
Yahoo offers about 20 basic design templates with a huge number of color variations,
and the templates can be customized with HTML and graphics and various tweaks
as you gain experience. Tech support is available around the clock. Yahoo
can provide credit card processing, or you can use the merchant service provider
of your choice.
not subscribe to QCharts. They claim to be
"the definitive state of the art software for serious traders." In
fact, their data center crashed this morning because of "a power outage."
And they don't have an alternative center. That's why this column is late this
morning. I had pretty charts prepared and everything and then these idiots crashed....
New York Times rejected John McCain's article. They said it was not
up to their standard. Frankly, it wasn't. It gave boredom a whole new meaning.
But it's ignited explosive charges of media bias in Republican circles. You
can read the entire piece in its original form in The
for Dan Gillerman:
Each week in its Sunday magazine, the New York Times asks someone a bunch of
questions. This past weekend, the Times interviewed the Israeli ambassador to
Israeli ambassador to the United Nations, you are about to leave your
post after nearly six years and return to Tel Aviv at a time when Iran
is releasing touched-up photographs of its latest missile tests and continuing
to enrich uranium in defiance of U.N. sanctions. How seriously do you
take their threats?
Ahmadinejad, who denies the Holocaust while planning the next one, who
talks about wiping Israel off the face of the map listen to him,
and take him at face value.
if its all bluster? Maybe hes just a short man who needs to
long, much of the world, including Neville Chamberlain, believed that
Hitler was just a crazy short man. I dont think we can afford to
do it again.
the long and illustrious history of the Persians, isnt it unlikely
that the Iranians would ever do anything reckless with nuclear weapons?
fear is not that the Iranians will be crazy enough or stupid enough to
launch a missile at Israel, but that they will have no compunction about
providing rogue regimes and terror organizations like Hamas and Hezbollah
with weapons of mass destruction.
You recently called Jimmy Carter a bigot after he met with
Khaled Meshal, the head of Hamas. Is it true you were reprimanded
by the U.S. State Department?
There was no complaint or reprimand. The only reaction I received was
The Bush administration,
it seems, has not done much to advance the Mideast peace process. Would you
I think the key
is in the Arab world. The Palestinians real tragedy is that they have
not been able to produce a Nelson Mandela. Every single day, Muslims are killed
by Muslims. You do not see a single Muslim leader get up and say, Enough
is enough. Its nearly as if we live in a world where if Christians
kill Muslims, its a crusade. If Jews kill Muslims, its a massacre.
And when Muslims kill Muslims, its the Weather Channel. Nobody cares.
Mahmoud Abbas, the impressively moderate head of the Palestinian Authority?
I am not saying Abbas is a Mandela. But at least he is willing to talk, and
the Arab world should stand with him and legitimize him and stand against the
extremists. They are not doing that.
Of the 192 ambassadors from as many countries at the U.N., do any of them refuse
to speak to you?
I say hello to
everyone. The ambassadors who do not say hello to me are the Iranian, the Syrian
and the Libyan, whose mere presence on the Security Council is scandalous. No
co-op board in this city would even consider letting Libya buy an apartment,
yet the U.N. gives it a seat on the world body responsible for peace and security.
What is your
It is very tight 24-7. When my wife and I go to the movies, our main worry is
maybe we picked a movie our security men wont like. Usually two or three
bodyguards sit in the row behind us.
Who buys their
They do. They are having a great time.
You are about
to be replaced at the U.N. by Gabriela Shalev, a law professor at Ono Academic
College with no experience as a diplomat. Can any regular person be a diplomat?
Gaby will do great. Diplomacy is not something you can learn at school or in
the foreign service. A diplomat is a person who can tell you to go to hell and
actually make you look forward to the journey.
you like to see win the presidential election in this country?
I dont think it would be right for me to voice an opinion on American
politics. I would be crucified. This is the worst gaffe you can make as a diplomat,
to take sides.
wearing a tie decorated with elephants. Is that a sign of your loyalty to the
No, no, my loyalty is to pink elephants.
airconditioner is struggling: You haven't changed
its dirty filter, or washed its cooling fins. Ditto for your refrigerator.
Memo to Harry: Do it today.
A man is walking down the street in Boca Raton, Florida, when a beautiful
woman appears out of nowhere, right in front of him. She is completely naked
and has green skin. Stunned, the man starts to speak to her. 'Excuse me, but
you just popped out of thin air. How did you do that?'
'Oh,' says the
woman, 'I'm from Andromeda, in what you call 'outer space'.'
the man, 'Wow! Do all the women on Andromeda have green skin like you?'
the woman, 'everyone is green on Andromeda.'
The man continues to stare and speak. 'Excuse me for asking, but I can't help
noticing that you have 12 toes on each foot. Here on Earth we all have five
toes on each foot. Do all Andromedans have 12 toes on each foot?'
'Yes, they do,'
replies the woman.
'Please, may I ask you one more question?'
The woman nods.
'I also can't
help noticing that on each of your hands you have seven fingers, and on each
finger is a very large diamond. Here on Earth, diamonds are very rare and valuable.
Do all Andromedan women have large diamonds on their fingers?'
'Well, no,' the
woman answers, 'not the shiksas.'
to make love
Last May, Boudreaux married an attractive woman, Lola, half his age.
months, Lola complained that she had never climaxed during sex; and according
to her Grand Momma, all Cajun women are entitled to a climax once in a while.
So, to resolve
the problem, they went to see the large-animal Vet since there was no trustworthy
doctor anywhere in Pierre Part. The Vet didn't have a clue, but he did recall
how, during the hot summer, his Momma and Daddy would fan a cow with a big towel
that was having any difficulty breeding. This would cool her down and make her
So, the Vet told
them to hire a strong, virile, young man to wave a big towel over them while
they were having sex. This, the Vet said, would cause the young wife to cool
down, relax, then climax.
So the couple
hired a strong young man from the big city of Houma to wave that big towel over
them as the Vet suggested.
After many efforts,
Lola still had not climaxed! They went back to the Vet. The Vet said for Lola
to change partners and let the young man have sex with her while Boudreaux waved
the big towel.
They tried it
that night and Lola went into wild, screaming, ear-splitting climaxes, one right
after the other for about two and a half hours.
When it was over,
Boudreaux looked down at the exhausted young man and in a cocky manner said,
'Now dat, my good fren, is how you wave de towel!'
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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