Harry Newton's In Search of The Perfect Investment
Technology Investor. Auction Rate Securities. Auction Rate Preferreds.
8:30 AM EST Wednesday, July 30, 2008: "If
you're looking for an explanation of why the market was down two and a half
percent yesterday and up two and a half percent today, I have no f...ing clue.
The market's retarded. That would be my learned explanation," mouthed Todd,
my favorite market pundit, yesterday evening. "One day it's about the banks
and how miserable they are and the next day it's about oil's falling price and
how good that's for profits."
Todd has been
a stockbroker for 26 years. He's still learning. His savings are stuck in ARPS
(auction rate preferred securities).
The news today
is not positive. Bloomberg headlines include:
Cash remains king.
May Drop the Most in a Decade, Led by Lehman, Merrill Lynch
Economic Confidence Slumps Most Since Sept. 11 Terrorist Attacks
Profit Misses Estimates, Forecast Cut as Competition Hurts Prices
Gambling Slump Shows How Starbucks Expansion Bubble Lost Air
Collapse Likely to Have Little Impact on Global Trade Expansion
to sell short. Most mergers don't work. A merger
of unlike cultures never works. The classic was the Lucent/Alcatel merger.
I was reminded
of the Lucent/Alcatel awfulness by today's news that the combined mess is firing
the two architects of the stupid merger -- Pat Russo and Serge Tchuruk.
and TV shows on the Internet: The Internet is bursting with movies
and TV shows you can watch for free. One key site is Hulu,
which presently has movies and clips and full shows from NBC and Fox, but also
has shows from Comedy Central, owned by Viacom. CBS
and ABC have their own web sites. There's
also an independent site called Joost,
which comes from the guys who brought you Skype.
for free stuff is to watch a pre-roll ad and/or a mid-roll advertisement, for
which Hulu charges the advertiser between $30 and $40 per thousand viewers.
Their revenue model is similar to on-air TV. The quality on all sites is remarkably
good. You need a plug-in with some, but not all. The sites are moving away from
plug-ins. It's best to use Internet Explorer.
sends money to Australia. Westpac, the third
largest Australian bank, is paying me 8% for on demand money. The money is not
government insured, but Westpac is solid, I believe. Several other Australian
banks -- e.g. the ANZ -- are not solid. The risk in sending money to Australia
is the exchange risk. Will the Australian dollar hold up? My favorite reader,
Don Craig, says I'm "his best contrary indicator." This morning he
sends me this chart. Since the Aussie dollar has now broken its trendline, I'm
guessing Craig thinks it will fall.
the Economist just ran a piece on Australia. The conclusion: Australia is feeling
the world's woes. Here's the piece filed from Perth, Western Australia, my wife's
a great day for politicians:
The air goes
out of one of the last remaining booms
IN THE early 1990s the mining town of Newman in Western Australia was in a
deep slump. Its population had dwindled to 3,000 from a peak of 15,000 in
the 1970s. Thanks to extraordinary demand (and prices) for commodities, primarily
from China, migration has since been reversed. The population is nearing 11,000
and no tour of the local streets is complete without pausing at a home that
was recently sold for A$800,000 ($770,000), having fetched A$80,000 just a
few years ago.
The region is
still thirsting for people. There are acute shortages of diesel-engine mechanics
and electricians, as well as cooks and even jackaroos (cowboys). Lorry drivers
can earn in excess of A$120,000 a year, plus benefits and vacations. Bringing
in more people is tough because the waiting list for the kind of manufactured
homes that can be brought in on trailersthe fastest solution to a housing
shortageis more than a year.
is in short supply too. Bankers and mining companies have piled into Perth,
the financial capital of Western Australia. Rents can exceed those in New
York and London, if property is available at all. UBS, a Swiss bank, is working
out of a temporary service office.
But even in
Australia, a country with economic growth, rising corporate profits and stable
home prices, there is growing financial distress. Mortgage credit will expand
by less than 10% for the first time in 40 years in 2008, reckons Craig Williams,
an analyst with Citigroup. The Australian stockmarket is down by 26% since
its peak in November. Banks have been hit harder still, although they are
not nearly as ravaged as those in America and Europe.
In part, the
problems are a result of Australias split economy. The mining boom has
produced wealth in the west while pushing up the Australian dollar, thus undermining
the competitiveness of manufacturers in the more populated east. In part,
the problems are also a product of a country with a low savings rate whose
banks and financial institutions have relied on foreign sources for half of
their funding. Thanks to the capital crises in America and Europe, credit
is now much tighter. Collectively, these two forces are reshaping Australias
First in the
firing-line has been a series of debt-laden financial and real-estate companies.
Centro Properties, an acquisitive mall operator, blew up last December. Others
are sweating through brutal negotiations with lenders. Allco Finance Group
managed to negotiate a loan extension with its bankers on July 1st in return
for higher interest charges and a promise to cut its debt. Babcock & Brown,
which manages a string of leveraged infrastructure funds, has also had to
accept higher interest rates in order to stave off nervous creditors (although
it was helped on July 23rd by a solid set of results from Macquarie, a bank
with a similar business model).
The banks themselves
are also under pressure. Adelaide Bank, which was heavily reliant on wholesale
funding, was purchased last year for A$4 billion by Bendigo Bank, which is
funded mainly by retail deposits. The proposed A$19 billion acquisition of
St Georges, the countrys fifth-largest bank, by Westpac, its third-largest,
partly rests on Westpacs claim that it can fund itself more cheaply.
Even the miners
are not immune. In 2000 there were only three companies producing iron ore
in Western Australia, says an executive at one of the mining giants. With
prices surging and resources in the Pilbara region abundant, by late last
year 95 had announced production plans. The oxygen of capital has now thinned
dramatically for the newcomers.
tapped stockmarkets regularly in 2007, often raising just enough money to
pay for a limited period of exploration and drilling. This year the market
for initial public offerings has collapsed (see chart). If the financial spigot
does not open again, most of the new entrants will disappear. That is not
all bad. Tightening credit and a more discriminating equity market may be
accomplishing what no business would do on its own: tamping down on supply
to moderate the prospect of a future bust. Would that lenders everywhere had
done the same.
The Justice Department indicted Alaska Republican Sen. Ted Stevens on Tuesday
on criminal charges related to inproper disclosure of gifts and services valued
at more than $250,000 in his home state. He is being charged with seven felony
counts of making false statements between 1999 and 2006. The Justice Department
is alleging that Stevens, 84 years old, accepted gifts from oil services company
VECO in the form of material and labor to renovate his private residence in
Alaska. Stevens is the longest serving Republican in the Senate in the party's
history. He's been a Senator 40 years.
+ A federal judge
on Tuesday sentenced former Mayor Sharpe James, 72, of Newark to 27 months in
prison for failing to disclose a romantic relationship with his former mistress,
Tamika Riley, whom he helped get a lucrative deal on city-owned land. Mr. James
was convicted in April on fraud and corruption charges for illegally steering
nine parcels of city-owned land to Ms. Riley between 2001 and 2005. She paid
a total of $46,000 for the lots and resold them often just weeks later
for a total of $665,000 without making any improvements to them. In addition
to the fraud and corruption charges, Ms. Riley, 39, was found guilty of tax
evasion and of lying about her income to collect housing subsidies.
Remember I don't
make this stuff up.
improved my desk. In the center I now have a 22 inch $260 Samsung
monitor showing 1680 x 1050 pixels. It's great for big spreadsheets. The Samsung
is powered by the Toshiba Tecra M5 laptop's docking station. On either side
are 19 inch Mag Innovision monitors that are 1024 x 768 pixels. They are powered
by the VTBook PC card which sticks out the front left of the laptop.
Harry's new monitor arrangement. All the screens are one big "desktop."
I can drag anything to any screen. I usually have stockquotes on the left, a
spreadsheet in the middle and my inbox on the right. On the laptop, I'll usually
have this column or emails I'm working on. All LCD monitors get darker
as they age. The new one in the middle, though the cheapest, is also the brightest.
An old, tired-looking dog wandered into my yard; I could tell from
his collar and well-fed belly that he had a home and was well taken care of.
He calmly came over to me, I gave him a few pats on his head; he then followed
me into my house, slowly walked down the hall, curled up in the corner and fell
asleep. An hour later, he went to the door, and I let him out.
The next day he
was back, greeted me in my yard, walked inside and resumed his spot in the hall
and again slept for about an hour. This continued off and on for several weeks.
Curious, I pinned
a note to his collar: "I would like to find out who the owner of this wonderful
sweet dog is and ask if you are aware that almost every afternoon your dog comes
to my house for a nap."
The next day he
arrived for his nap, with a different note pinned to his collar: "He lives
in a home with 6 children, 2 under the age of 3. He's trying to catch up on
his sleep. Can I come with him tomorrow?"
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
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