Harry Newton's In Search of The Perfect Investment
Newton's In Search Of The Perfect Investment. Technology Investor.
8:30 AM EST Thursday, March 6, 2008: First,
an apology. For those of you who don't own auction rate preferreds, I apologize
for boring you silly in recent days. The good news is that my recommendations
on gold (GLD and IAU) and silver (SLV) have been paying off big-time, with huge
rises again yesterday. With the dollar in free fall, and more lost faith in
the stockmarket, these three are proving most rewarding.
And for the craziest
of speculations, a small American precious metals and mining company with no
mining preference is for the Australian miners -- BHP, RIO, KZL, ZFX, MRE, OXR,
AXM, WSA, MEE, EQN and PNA. The Australian dollar continues its inexorable climb,
now 93 U.S. cents. I remember the days -- it was only a few years ago -- when
one Australian dollar cost 55 U.S. cents. No more. It's coming up on par.
Auctions. The Case Against Your Broker.
bought either the single insurer bonds or the auction rate preferreds (ARPS).
There are two institutions you have an issue with, and can sue:
The broker/bank who sold you your the auction rate securities -
2. The issuer,
e.g. Nuveen, BlackRock, Eaton Vance, etc.
Lawyers are telling
us that it will take them three to four weeks to prepare a case from the day
you say, "Sue them."
case is against the brokers. Virtually nobody told their broker to buy these
things. Everyone gave different instructions -- short-term cash, 28-day muni
bonds, etc. One reader instructed his broker to buy him "bonds and T-bills."
The broker bought these. So what you asked for and what you received -- and
the differences -- are what your legal case rests on.
you assemble emails, letters, notes of conversations, etc.
the issuer may actually be easier since many of their marketing materials are
decidedly misleading. I had some examples last week.
a bit early for suing. It is not early for collecting evidence and contacting
everyone and their uncle and expressing how serious this is. I published a list
in recent columns. And there are some names below.
If you own failed
auction rate preferred securities (,ARPS), please send me an email. We need
to talk. There are serious benefits in combining our thinking.
Securities May Get Help. Money-Market Funds Check Out Conversions
As 'Win-Win' Deals. From today's Wall Street Journal by Diya Gullapalli and
funds are emerging as a potential white knight for some troubled auction-rate
securities are debt investments that reset their interest rates as regularly
as every seven to 35 days. In recent weeks, the $330 billion market for such
securities has seized up, leaving many investors unable to cash out.
The News: Some issuers of auction-rate securities are starting
to convert the debt into different investments that can be purchased by
certain money-market funds.
The Impact: Such a move could open up a new market of buyers to
relieve pressure on the auction-rate market.
What's Next: Investors will be watching to see how many auction-rate
borrowers convert their offerings.
tax-exempt municipal money-market funds come in. They hold conservative short-term
debt offerings and are subject to strict rules that typically prevent them
from owning auction-rate securities.
Now there is
an effort under way to convert auction-rate securities into more-liquid investments
that would be acceptable to municipal money-market funds. The effort would
benefit the money-market funds, which have been struggling in recent weeks
to find attractive securities amid problems with the bond insurers backing
many of their normal holdings.
conversions are "a win-win for tax-free money funds," says Deborah
Cunningham, a money-fund manager at Federated Investors Inc.
securities into money-fund eligible investments is often done under the original
bond documents. The biggest sticking point could be that the borrower of the
auction-rate securities or another financial institution must agree to buy
the securities in the event no other buyers emerge. That backstop is what
essentially differentiates auction-rate securities from investments called
variable-rate demand notes that can be held by municipal money-market funds.
But with financial institutions suffering losses, few may want to step up
and take on that risk.
In some of the
first deals, the borrowers using the auction-rate securities are providing
the backing, rather than an outside financial institution. Restructurings
are happening on a "deal-by-deal" basis says Federated's Ms. Cunningham.
Power unit of Southern Co., for instance, recently had $700 million in tax-exempt
auction-rate securities, and is now in the process of converting about $500
million of that into variable-rate demand notes, says David Brooks, managing
director of capital markets at Southern. As the auction-rate market "got
really ugly," in recent weeks, "we started putting out conversion
notes," he says. Georgia Power priced about $33 million of the converted
securities yesterday, and was planning to price another $100 million today
and tomorrow that would be money-fund eligible. Rather than use an outside
bank guarantee, it issued the new securities with the backing of its own credit.
The benefit of such a move is lower borrowing costs than have recently been
available in the auction-rate market. The pricing yesterday, for instance,
was approximately 2.70%, while the borrower had recently seen auction rates
from 5% to 7%.
Health and Educational Facilities Authority had $79 million revenue bonds
remarketed yesterday on behalf of Partners HealthCare System in Boston, with
more to come next week. The borrower is using Bear Stearns Cos. and J.P. Morgan
Chase & Co. as remarketing agents as the new securities are pitched to
outside investors, and has elected to support the bonds with self-liquidity
rather than an external bank facility. "We'd definitely look at that"
deal says Joe Lynagh, a tax-exempt money fund manager at T. Rowe Price Group
reading on Failed Auctions:
+ Auction Bond Failures Near 70%; No Sign of
Abating (Update2). From Bloomberg.com. By Michael McDonald. Click
+ Allianz Global
Investors Fund Management Provides an Update on Auction Rate Preferred Shares
issued by its Closed-End Funds. Click
+ Nuveen eyes
auction-rate options, offers no timeline. Dow Jones Newswires. By Daisy Maxey.
+ No Answers Yet
To a Trillion-Dollar Question, Wall Street Journal March 5, 2008, page D3 by
James B. Stewart. Click
+ Risks of a 'Safe'
Investment Are Found Out the Hard Way. Wall Street Journal. February 27, 2008;
page D4 by James B. Stewart. Click
+ The reality
of the Failed Auction Market. Capital Advisors Group. Click
+ Calamos releases
comment on auction rate securities market. Click
+ Frozen Liquid:
More Auction-rate Securities Put on Ice. SBA Communications becomes the latest
company stung by auction-rate securities when its inability to liquidate them
forces it to take a $15.6 million impairment charge. From CFO.com. By Tim Reason.
+ Another Kick in the ARS. As troubles continue in the auction rate securities
market, Massachusetts's securities regulator begins probing financial firms
for information. From CFO.com by Tim Reason. Click
+ Nuveen Squeezed
as Auction Failures Rise; OppenheimerFunds Buys. From Bloomberg.com. By Jeremy
R. Cooke and Adam L. Cataldo. Click
+ No Mark of ARS?
Bristol-Myers Replaces Its CFO. Drugmaker says the change doesn't reflect its
recent $275M charge. It selects Royal Numico finance chief Huet to succeed Bonfield.
From CFO.com. By Stephen Taub and Roy Harris. Click
+ Replay of Eaton
Vance conference call. 1-800-642-1687. Access code 37152796.
to write to and express your anger: We are
adding more names each day. Send your favorite villains.
Nuveen is owned by Madison Dearborn. Hence contact Tim Hurd, who is Madison
Dearborn's partner in charge of their Nuveen investment. (They paid $5.75 billion
for Nuveen.) His email address is Thurd@mdcp.com. His phone number is (312)
+ Eaton Vance
chairman and CEO, Thomas E. Faust, Jr. His email is email@example.com.
His phone number is 800-225-6265 ext 8201. His executive assistant is Kelly
Creedon. His address is Eaton Vance, 255 State Street, Boston, MA 02109.
+ The closed end
fund top dog at BlackRock is Brian D'anna. He's on Linkedin.
Also CEO - Laurence Fink - Laurence.firstname.lastname@example.org
and CFO - Paul Audet - email@example.com
+ Van Kampen CEO
- Michael Kiley - firstname.lastname@example.org
and COO - Ed Wood - email@example.com
A young boy went up to his father and asked him, "Dad, what
is the difference between potentially and realistically?"
The father thought
for a moment, then answered, "Go ask your mother if she would sleep with
Brad Pitt for a million dollars. Then ask your sister if she would sleep with
Brad Pitt for a million dollars, and then, ask your brother if he'd sleep with
Brad Pitt for a million dollars. Come back and tell me what you learn from their
So the boy went to his mother and asked, "Would you sleep with Brad Pitt
for a million dollars?'
The mother replied, "Of course I would! We could really use that money
to fix up the house and send you kids to a great university!"
The boy then went to his sister and asked, "Would you sleep with Brad Pitt
for a million dollars?"
The girl replied, "Oh my God! I LOVE Brad Pitt! I would sleep with him
in a heartbeat, are you nuts?"
The boy then went to his brother and asked, "Would you sleep with Brad
Pitt for a million dollars?"
"Of course," the brother replied. "Do you know what you could
buy with a million bucks, do you have any idea where you could travel or what
you could do with that kind of money?"
The boy pondered the answers for a few days and then went back to dad. His father
asked him, "Did you find out the difference between potentially and realistically?"
The boy replied, "Yes. Potentially, you and I are sitting on three million
dollars, but realistically, we're living with two hookers and one homosexual."
Mexico won't be participating in the summer Olympics
President Felipe Calder of Mexico has announced Mexico will not participate
in the next Summer Olympics. He stated, 'Casi cada uno que puede correr, saltar,
o nadar ha salido ya del país.'
'Pretty much everyone who can run, jump, or swim has already left the country.'
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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