Harry Newton's In Search of The Perfect Investment
Technology Investor. Harry Newton
9:00 AM EST, Thursday, March 5, 2009. The
stockmarket goes up during a bear market, like the one we're in. Every time
it goes up (like yesterday), learned reporters and newsletter writers rejoice
that we've reached bottom and it will up and away from here. They argue that,
though the economy is awful, the stockmarket always turns up before the economy
does. Typically that stockmarket turn-up is nine months before the economy
you think this economy will turn up in nine months, I want some of what you're
Motors says it's going bankrupt, despite all the money we gave
it. Surprise. Surprise. General Electric looks its' going that way also. GE
reminds me of Iceland. GE knew manufacturing and did good work. Iceland knew
fishing and fished well. When both got into banking, things went seriously
plus about banking (in all its forms) is that you can fake profits by simple
accounting "tricks" -- like not recognizing the losses on the lousy
loans you made. When you run a bank -- regular, investment or finance -- you
borrow lots of money so you can make more loans. In his wonderful piece on
Iceland for Vanity
Fair (which you must read), Michael Lewis ends thus:
When you borrow
a lot of money to create a false prosperity, you import the future into
the present. It isnt the actual future so much as some grotesque silicon
version of it. Leverage buys you a glimpse of a prosperity you havent
Oh yes, the
Dow rose 150 points yesterday. Whoopee do. It made a great deal of difference
to the chart:
total lack of trust in Wall Street. No one trusts Wall Street any
longer. And it's not coming back any time soon. Don't believe me? Read this
piece from today's New York Times:
Trading Firms Settle Charges for $69 Million
a dozen Wall Street trading firms systematically cheated their customers
of millions of dollars by improperly slicing bits of profit from countless
trades, federal regulators said on Wednesday.
and Exchange Commission disclosed the allegations after negotiating settlements.
The firms did not admit or deny the charges but agreed to pay a total of
more than $69 million in forfeited profits and penalties.
The 14 firms
named in the complaints are all specialists, trading firms that
have a specific duty to maintain orderly markets by matching buyers and
sellers and standing ready to conduct trades when buyers or sellers are
scarce. They include units or subsidiaries of well-known Wall Street names,
including E*Trade Capital Markets, Goldman Sachs Execution and Clearing,
Knight Financial Products and TD Options.
said the firms had engaged in various types of front-running,
which involves trading ahead of customer orders or timing their own trades
to seize profits. For instance, specialists that had a big order to buy
a stock would first buy it from a seller themselves and then illegally bid
up the price moments before selling it to profit on the transaction.
say specialist firms made a total of $58.4 million, which should have gone
to their customers.
to the S.E.C., the improper trading occurred from 1999 to 2005 on the American
Stock Exchange, the Chicago Board Options Exchange, the Philadelphia Stock
Exchange and the Chicago Stock Exchange.
years, many customer orders have been routed to electronic trading networks,
which automatically match buy and sell orders without human intervention.
But specialist firms still play a role in securities trading at many exchanges,
handling orders that cannot be filled electronically and maintaining reliable
markets when trading becomes volatile.
business is lucrative because it has exclusive rights to oversee trades
in particular stocks, and it was especially so before more automated trading
became prevalent in the middle of the decade.
compensated for the risks and duties they take on as specialists, which
makes the violations cited by the agency more shocking, said James Clarkson,
acting director of the S.E.C.s New York regional office.
firms violated the public trust by abusing the privileged position they
had as specialists on the various exchanges, Mr. Clarkson said.
in scale, the allegations are similar in nature to those the commission
filed in 2004 against five large specialist firms on the New York Stock
Exchange, accusing them of collecting more than $150 million in improper
profits. Those firms, without admitting or denying the allegations, paid
$241.8 million to settle the cases.
In the individual
complaints made public on Wednesday, the S.E.C. said that the improper profits
collected by the 14 specialist firms had ranged from a few million dollars
at some of the smaller organizations to more than $28 million at E*Trade.
the charges, the S.E.C. said that specialist firms had an obligation to
put orders from public customers ahead of their proprietary interests. Whenever
possible, a specialist firm should fill a customers order to buy shares
by matching it with another customers order to sell, giving those
customers the best possible price.
to regulators, the improper trading activity was detected through examinations
by the S.E.C.s compliance staff and investigated by its enforcement
division, with the cooperation of the Financial Industry Regulatory Authority,
the securities industrys self-regulatory organization, and compliance
staff members at the various exchanges.
funds who invested with Bernie Madoff thought the reason his earnings were
so consistent was that he was front-running customer orders at the other part
of his business that bought and sold shares on behalf of customers -- in effect,
he was running a mini-stock exchange. The amazing part of this story is that
they still gave Madoff billions even though they were convinced that he was
earning money with their money by doing something totally illegal. But who
cared? Everybody did it. And I bet they still do it.
Let me make
myself perfectly clear. When you place an order to buy or sell with a broker
or a machine (i.e. over the Internet), to this day you have no idea
if someone or some thing is front-running your order and ripping you off.
I no longer
believe that Wall Street is a place for my or your money.
Gotcha in Short Sales: Let's say you owe
$800,000 on a house that's only worth $600,000. You work a deal with your
bank to sell the home at $600,000 and pay off your loan in full. Good news.
The IRS will now tax you on the $200,000 (i.e. $800,000 minus $600,000) as
ordinary income. There's more here.
Dumb. Dumb. Having money (your own or some
one else's) makes you super-intelligent. Can you believe this piece on today's
March 5 (Bloomberg)
-- Mediobanca SpA, Italys biggest independent investment bank,
is considering buying a stake in Brioni Roman Style SpA to help fund the
luxury suit makers expansion...
The bank may
buy 30 percent of Brioni in a transaction that would value the Penne, Italy-based
tailor at about 300 million euros ($378 million) including debt.
known for its $5,000 suits, which have been favored by Donald Trump and
Clark Gable. The firm is seeking funds to pay down about 100 million euros
in debt and to open new stores as rivals slow expansion plans. Mediobanca,
which wants to increase its private equity unit, is separately buying part
of Ferretti SpA, the Italian maker of Riva luxury yachts.
I found both
these images on the Internet. The first shows James Bond is his Brioni suit.
The second shows "Brioni suits at over half off." Nieman Marcus
is selling a Brioni suit for $4,600. They don't have one in my size -- 41L.
Shucks! But maybe they have one in your size. Nieman
This Riva boat
is more my style. It's the 92' Duchessa.
There is an
old saying in financial circles: If it flies, floats or f..ks, rent it.
most comfortable saddle ever: Remember yesterday's
Reader Steve Hufford writes
seat looks wonderful in the picture. My wife and I both have what we call
big butt seats on our bicycles. My father-in-law had located
these seats at a Camping World store here in Orlando. He purchased one for
himself and let me try it out and that was enough for me and my wife. They
are made by Worksman Trading Corporation in Ozone Park, NY. They are extremely
comfortable. I am on my second bicycle with the same seat. Those saddles
that the manufacturers put on bicycles are very uncomfortable for me. To
think that I used to ride on a banana seat on my Huffy when I was a kid
This is from
Comfort Seat #6911V. $33.99
This incredibly comfortable seat is designed to make your riding experience
more enjoyable. This extra wide comfort seat is 13 inches across, is thickly
padded, and contains dual springs. Fits standard 7/8" seat posts. This
seat is often the difference between wanting to ride your bicycle or making
excuses not to ride! After all, nobody wants to be uncomfortable!
to think that I was making fun of a seat which I thought was designed for
case you've recently lost your job, Worksman Cycles also makes a full line
of these ice cream bikes:
They cost around
we ever hear are Jewish jokes. So, here are some Gentile jokes.
+ A gentile
goes into a clothing store and says, "This is a very fine jacket. How
much is it?"
says, "It's $500."
The gentile says, "OK, I'll take it.."
+ Two gentiles
meet on the street.
The first one
says, "You own your own business, don't you? How's it going?"
The other gentile
says, "Just great! Thanks for asking!"
+ Two gentile
mothers meet on the street and start talking about their children.
1 (said with pride): "My son is a construction worker!"
2 (said with more pride): "My son is a truck driver!"
+ A son calls
his mother and says, "Mother, I know you're expecting me for dinner this
evening, but something important has come up and I can't make it."
His mother replies,
+ A gentile
man calls his elderly mother. He asks, "Mom, how are you feeling? Do
you need anything?"
She says, "I'm
feeling fine, and I don't need anything. Thanks for calling."
Now you know
why there are no gentile jokes
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,
here and here.