Harry Newton's In Search of The Perfect Investment
Technology Investor. Harry Newton
9:00 AM EST, Wednesday, March 18, 2009. "The
bottom has been reached," many intone. They refer to both the
stockmarket and in real estate markets. In the stockmarket, they like the
In real estate,
they like the fact that the yield on income-earning properties is touching
10% -- assuming no borrowings (i.e. an all cash deal).
I'm not sure.
Every hungry broker -- whether real estate, stock or bond -- is always
looking for a reason to sell me or you something. I understand the urge. And
my trip out west has turned my "we're falling off a cliff"
New York attitude and has made me feel more positive.
we will come through this without "systemic collapse." But
I continue to worry that the long-term momentum simply isn't there at present.
I don't see buyers flocking back in, given the continuing spate of bad economic
news and the continuing job firings.
I am more optimistic.
But I remain skeptical. My philosophy remains, "When in doubt, stay
out" and "Cash is King."
more things change, the more they stay the same.
A group of bright brokers from Santa Rosa, California (calling themselves
The Vick/Cho Group) wrote in their latest weekly market commentary:
people own gold: Richard Russell writes the respected Dow
Theory Letters. His
Monday newsletter explained "the real meaning of gold."
Well the Trillion
Dollar question is: "has the bottom been put in the market, and this
is the start of a new bull market, or is it just a bull rally in a bear
market and after a time it will go back down?" That's how it works.
We can draw lines on charts and we can overlay past markets and we can parse
the words of economists, market gurus, strategists, etc. But human behavior
works around these three basic emotions: Fear, Hope, and Greed. Well, I'm
sure and you know there are a few more and even some that are on a higher
plane, however, as it relates to money and investing these three dominate.
we have Fear moving toward Hope. Greed is a long long way away. Hope is
fragile after the fear we have experienced since August of 2007 when the
first salvo of the "Subprime" contagion was beginning to be felt
by our major financial institutions. The key to moving solidly out of Fear
and solidly into Hope is the end of bad news in the economy (read jobs and
housing, stability in the financial system, and earnings in corporate stocks).
We will have firmly moved into Hope on our way toward Greed when smaller
and smaller amounts of "bad" news are ignored. Right now any significant
bad news on jobs, housing, financials, or earnings may cause investors to
hit the sell buttons. We will keep you posted.
a report from Sharman Mossavar-Rahmani, Chief Investment Officer, Goldman
Sachs titled, "Uncertain But Not Unprecedented". Sharman said
the following: "It's hard to accept that the current financial crisis
and its economic repercussions are unprecedented when so many credible -
and not so credible - researchers, journalists, and television commentators
now characterize most any development as unprecedented. Last month (Dec
2008) alone, we counted about 4000 reports or articles describing some economic
news as "unprecedented". She goes on in several pages to point
out that what we are experiencing is not unprecedented and shows multiple
times in history when events mirrored today. The article ends with this
telling quote from the Economist, "From one point of view, credit may
be defined as the power to attract gold; but public credit really depends
on public confidence, just as private credit depends on private confidence.
The financial crisis in America is really a moral crisis, caused by the
series of proofs which the American public has received that the leading
financiers who control banks, trust companies and industrial corporations
are often imprudent, and not seldom dishonest. They have mismanaged trust
funds and used them freely for speculative purposes. Hence the alarm of
depositors, and a general collapse of credit." What is interesting
about the quote is that it was written in 1908. Nearly 100 years later,
in the December 16, 2008 issue of the New York Times, Thomas Friedman wrote:
"we don't just need a financial bailout; we need an ethical bailout."
So to quote Jean-Baptist Alophonse Karr, " plus ca change, plus c'est
la meme chose - the more things change, the more they stay the same.
is now in a serious global recession. "Paper wealth" from the
US to Japan to China is now crumbling. Any company can go broke, and any
stock can decline to zero. A company can go broke by possessing debt that
it can't finance. A company can go broke if it has overhead that it can't
carry (the reason for all the firing). A company can go broke if it's sales
collapse. A company can go belly up if its products are uncompetitive.
reason why people own gold is that gold can't go broke. Gold can't go broke
because it has no counter-parties or liabilities against it. Gold can't
go broke because gold is pure wealth. Sure gold can do down in price in
terms of a currency, but gold CAN NOT GO BROKE. This is the crucial fact
hat the "dollar-bugs" fail to comprehend. This is the reason why
sophisticated wealthy people own large quantities of gold. Gold represents
eternal unquestioned wealth. Wealthy people do NOT hold gold for appreciation.
They don't care about the price of gold today or tomorrow. That is not why
they hold gold.
Then why own
gold? Example, an investor who owns ten million dollars in stocks and bonds,
knows that this is "paper wealth." It can be here today and gone
tomorrow. The same investor owns five thousand ounces of gold, worth almost
five million today in terms of Federal Reserve Notes. This investor knows
he will be "rich" no matter what. His five thousand ounces of
gold means that no matter what, he will always be wealthy. This is the ultimate
secret of gold. It's the secret that the "dollar-bugs," will never
understand. The wealthy don't worry about the price of gold as denominated
in paper currency. Their only worry is whether they own enough gold to make
them eternally rich.
to gold in the face of a world collapse, when the price of everything --
houses, commodities, stocks -- heads down. Let's say that the world and
its assets are heading towards zero. That's when owning gold is most important.
Gold is the only asset that can't and won't join the crashing asset parade.
Thus, owning gold is the ultimate insurance against utter disaster.
Stewart rips into CNBC's Jim Cramer. -- Part 2. Jon
Stewart hosts The Daily Show on Comedy Central. He shredded Jim Cramer
of CNBC's Mad Money into little pieces. If you haven't watched the
shredding, please do. It's fun watching Cramer cringe. Click
here. Repercussions from the shredding
pour in, as every reporter weighs in with his thoughts on what the financial
press's responsibility is (and isn't) and whether Cramer should still have
get it straight; A financial reporter's job is twofold: 1. To provide fodder
for the ad salesmen to sell ads and 2. To to fill space (or time) between
the ads. Gloom and doom stories don't sell anything -- readers nor advertisers.
Further, financial reporters are no smarter than you and me. And worse, even
if they did feel prescient, it's a matter of timing, which is hard to predict.
There's usually a disconnect between the economy and the stockmarket. They
usually move in opposite directions. Before I called a "top"
in November 2007, I was bullish. I was right telling everyone to get out of
the market then. But respected newsletter writers like Fred Hickey have been
bearish all along. And their opinions are dismissed -- though ultimately Hickey
I'm not prepared to call a turn now. But I'm also not prepared to call for
Cramer's head. The guy is a great entertainer and an erstwhile great hedge
fund manager, who couldn't make money today the way he made it 20 years ago.
The Wall Street Journal took up the Cramer Cudgel:
Journalists Fail Upward, by Thomas Frank.
"Listen, you knew what the banks were doing and yet were touting
it for months and months," said "Daily Show" host Jon Stewart
to CNBC superstar Jim Cramer in their much-discussed confrontation last
week. "The entire network was, and so now to pretend that this was
some sort of crazy, once-in-a-lifetime tsunami that nobody could have seen
coming is disingenuous at best and criminal at worst."
The applause Mr. Stewart has received for his j'accuse is the sound of the
old order cracking. We have turned on the financial CEOs, inducting them
one by one into the Predator Hall of Fame. We have gone deaf to the seductive
rhythms of the culture wars. We have tossed out the politicians whose antigovernment
rhetoric seemed invincible for so long.
And now comes
the turn of the bubble-blowers of pop culture, the army of fake populists
who have prospered for years by depicting the stock market as an expression
of the general will, as the trustworthy friend of the little guy buffeted
by a globalizing economy.
We know --
or we think we know -- about the roles played by other culprits in the debacle.
The government regulators, for example: How could they have ignored the
coming disaster? Well, they were incapacitated by decades of deregulation.
What about the market's own watchdogs? Well, from appraisers to ratings
agencies the whole tough-minded system was apparently undermined by conflicts
But what about
the syndicated columnists and the beloved stock pickers and the authors
of personal finance bestsellers, the industry for which CNBC is the perfect
symbol? How did they manage to miss the volcano under their feet?
for his part, had the forthrightness to confess his errors and admit his
limitations. "I'm not Eric Sevareid. I'm not Edward R. Murrow,"
he pleaded. "I'm a guy trying to do an entertainment show about business
for people to watch."
But the larger
problem won't go away. And it's not just a matter of people missing the
biggest economic story of the last 20 years. It's a matter of those who
minimized it and those who blew it off because it didn't fit their worldview
continuing in their plum positions of authority. Mr. Stewart wasn't rude
enough to ask it, but over all his inquiries there hung the obvious question:
Why do you still have a job, Mr. Cramer?
If the world
of financial infotainment can itself be described as a "market,"
it is a market where accountability does not seem to exist, where the heaviest
of incentives seems to carry no weight, and where consumers, to judge by
what they get, seem constantly to choose the lousy over the good. The old
order discredits itself, but the old order persists nevertheless.
to be repeated every time someone pleads, "Who could have known?"
Plenty of people did see the disaster coming. Most of them were marginalized,
however, laboring at out-of-the-way econ departments, blogs and B-list think
tanks. They were excluded and even ridiculed because their larger understanding
of the economy was not one that fit well with the sort of Wall Street worship
preached by the likes of CNBC.
Nor is this
a particularly liberal line of inquiry, despite Jon Stewart's well-known
fondness for tormenting Republicans. It was a question that interested Milton
Friedman, among others, who could be seen musing on the subject in a 1994
TV interview that C-Span chose to rebroadcast on Sunday.
was the 50th anniversary of the publication of Friedrich Hayek's "The
Road to Serfdom." As he looked around him, Friedman marveled at the
world's perverse refusal to learn certain lessons, even when history itself
drove them home. Everyone had by then learned that government was too large,
he said, but countries kept on growing government anyway.
have misread the direction in which the world was moving in 1994, but the
question he raised is still a good one. Bad ideas and clueless pundits often
do get on top, and they stay there -- sometimes hailing incentives and accountability,
even -- despite all manner of rebukes handed down by history itself.
the financial-entertainment biz failed us are many and complex, but they
ultimately come down to this: In the marketplace to describe the marketplace
itself, there is precious little competition. There is a single, standard
product that comes in packaging that is alternately sultry, energetic or
fun -- bitter, brainy or Cramer "crazy" -- but which rarely strays
beyond certain ideological boundaries. Adversarial voices are few. Criticism
is sacrificed for access. Advice sometimes shades over into simple propaganda.
Even the worst prognosticators sometimes go on to jobs with presidential
campaigns or prominent think tanks.
And the small
investors whom the personal-financial industry claims so much to adore remain
bystanders in a drama they neither understand nor control.
Wells tennis continues. Susan and I went
to see all the action live yesterday. I'd tell you more. But their public
relations department is so unfriendly to bloggers (like me) who want to give
them free ink that I'm not going to waste my breath on them. Watch it on TV.
Wells Tennis TV Schedule -- EST times
PM - 7 PM
10:30 PM - 2:30 AM
(Fox Sports Network)
PM - 7 PM
10:30 PM -12:30 AM
PM - 7 PM
10:30 PM - 12:30 AM
PM - 8 PM
PM -5 PM
was St Patrick's Day. You gotta love the Irish:
+ Paddy was
driving down the street in a sweat because he had an important meeting
and couldn't find a parking place. Looking up to heaven he said, 'Lord take
pity on me. If you find me a parking place I will go to Mass every Sunday
for the rest of me life and give up me Irish Whiskey!'
a parking place appeared.
up again and said, 'Never mind, I found one.'
opened the morning newspaper and was dumbfounded to read in the obituary
column that he had died. He quickly phoned his best friend, Finney..
'Did you see
the paper?' asked Gallagher. 'They say I died!!'
'Yes, I saw
it!' replied Finney. 'Where are ye callin' from?'
+ An Irish
priest is driving down to New York and gets stopped for speeding in Connecticut.
The state trooper smells alcohol on the priest's breath and then sees an empty
wine bottle on the floor of the car.
He says, 'Sir,
have you been drinking?'
says the priest.
says, 'Then why do I smell wine?'
The priest looks
at the bottle and says, 'Good Lord! He's done it again!'
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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