Harry Newton's In Search of The Perfect Investment
Technology Investor. Auction Rate Securities. Auction Rate Preferreds.
8:30 AM EST Monday, May 12, 2008: Bubble,
bubble, toil and trouble. Will oil prices drop? Long-term no. Short-term, who
knows. Bespoke Research has a chart comparing the
oil, housing, and tech bubble. Bubbles do tend to burst, especially those
that rise ultra-fast. You can see duration as well as percentage gain -- and
the oil price bubble/run just outdid the tech bubble. It has been running longer,
and it has recently climbed higher.
gas prices are taking a bite. Driving is down. Mass transit ridership
is way up. New York's subways are packed. Gas in England is nearly $9
a US gallon. Here it's $4 in many places, like California. My preferred method
The new Dahon folding Mu SL weighs under 20 lbs. I have the older one and use
it every day. The price has gone up. It's now $1,200. That doesn't include lights
and a bell, which you absolutely need.
to get a job: On Friday, I sat in on big job
hire interview. Three candidates. Each one an hour. Each screened down from
90 applicants who made the first cut. If I had wanted the job, this is what
I would have done:
I would have learned a lot more about the organization that was going to hire
me. Since it was a nonprofit, I would have visited the organization's offices,
met with some of their people, sat in on some of the sessions and talked to
some of the clients. That's called homework. Only one candidate did it.
I would have asked more questions of the interviewers. I would have focused
my questions on the one person who was ultimately going to make the hiring decision.
All the others were probably window dressing. (I was windows dressing.)
I wouldn't talk about myself, or, worse, my wife (as one candidate did). When
I worked with salespeople I found their biggest problem was "too much talking."
Don't talk. Ask questions. Listen. They'll think you're much brighter. They'll
sell themselves on you.
do drugs cost so much? They cost little to
produce. So blame Big Pharma for their high costs. So goes the argument. Not
fully true. You can also blame the retailers. I have to take one 20 mg Prilosec
twice a day. I ran out recently. I checked some local stores. The prices were
outrageous. Then I checked on line. I figured Canada would be cheap. Wrong!
I figured the unknown companies would be cheapest. Wrong! I figured Costco would
be cheapest. Wrong! Check out the numbers. It's mind-blowing. Remember this
is the price per pill. Not a box of them. The price ranges between 60 cents
and $5.88 a pill. That's nearly 10 to 1.
Prices good as
of Saturday, May 10, 2008.
20mg -- Price in U.S. dollars per pill in largest package available (usually
I can buy Prilosec
cheaper in its generic form, Omeprazole. Some pharmacies carry it. I bought
some on Saturday at the local Rite Aid for 55 cents a pill, a little cheaper
than the cheapest Prilosec. Some online pharmacies deliberately mark Prilosec,
so they can pitch a "cheaper" Omeprazole, which then sells for more
than Prilosec itself does elsewhere. This is a racket. Check, check, check.
makes up inflation? The strongest gainers have
been in gas and foodstuffs. But they won't be reflected in a strong CPI rise
because they're not a big part of the CPI. Gas is 5.2% of spending nationwide,
but only 3.8% in the New York area. So it all depends on how you run your numbers.
And whose interest it is in to show higher or lower numbers. Washington's statistics
are politically motivated.
of the Consumer Price Index
easy lessons from a failed hedge fund. Don't gamble. And don't gamble
with huge gobs of other people's money. This story from today's Wall Street
Journal makes you wonder. All these erstwhile intelligent people gambling
huge monies on crazy bets:
High, Fell Fast; Winning Hedge Fund Lost On Bets as Credit Crunch Moved at
chief Ron Beller's investments in U.S. mortgages turned against him, he got
a rude awakening to Wall Street's unsentimental ways. Bankers who had vied
for his business reeled in credit lines and seized the fund's assets. In a
matter of days, Peloton Partners LLP, once one of the world's best-performing
hedge-fund operators, lost some $17 billion.
At one point
during the ordeal, Mr. Beller, a 46-year-old with two decades of high-finance
experience, collapsed from exhaustion, according to people familiar with the
From the U.S.
to Europe, the turmoil in financial markets is leaving behind stories like
Mr. Beller's. The crisis has claimed investment bank Bear Stearns Cos. (being
acquired by J.P. Morgan Chase & Co.) and resulted in hundreds of billions
of dollars in losses for banks, hedge funds and their investors.
In its sheer
speed, Peloton's demise offers an illustration of the delicate relationships
upon which the financial industry is built, and the breakneck pace at which
they have been unraveling.
There is a widespread
weakness in the hedge-fund business: Highflying managers sometimes fail to
fully factor in broader risks, such as what happens when troubled banks pull
back the borrowed money many funds need to make their investments. Peloton
was particularly susceptible because it borrowed heavily to boost returns.
For every dollar of client money, Peloton had borrowed at least another nine
dollars to buy some bonds.
run out of money, you can't stay in the game," notes Chris Jones of Key
Asset Management Ltd., a hedge-fund management firm and early Peloton investor.
who personally lost about $60 million in investments, believes Peloton failed
not because it made the wrong investments but because his bankers didn't stick
with him when the prices of those investments were temporarily out of whack,
according to people familiar with the fund. Among investors that lost money
are New York investment firm BlackRock Inc., Swiss private bank Lombard Odier
Darier Hentsch & Cie. and United Kingdom asset-management firm Man Group
deeply sorry about this outcome," Mr. Beller said on a final investor
conference call in early March.
A Long Island,
N.Y., native, Mr. Beller made his career at Goldman Sachs Group Inc., netting
a post as a top executive in London. His wife, fellow Goldman alumnus Jennifer
Moses, is a policy adviser to U.K. Prime Minister Gordon Brown. In London,
the Bellers were better known for the time a Goldman assistant stole more
than £4 million, or $7.8 million at today's rates, from their account
and that of another Goldman banker.
became fodder for British media, which focused on the opulent lifestyle of
expatriate U.S. bankers.
Mr. Beller and
senior partner Geoffrey Grant, an occasional squash opponent who made about
$150 million for Goldman in 2001, launched Peloton in 2005. One junior partner,
William Gilbert, a former managing director of currency options at J.P. Morgan
Chase, shared a passion with Mr. Beller for cycling that engendered the name
of the fund, which is the French term for the main pack in a cycling race.
At a Goldman-hosted
hedge-fund conference in a Spanish coastal resort, Peloton's team held court
with potential investors, laying out the fund's strategy: Make money on global
economic trends through bets on a variety of assets, including bonds and currencies.
kicked in $30 million to help start the fund. Goldman's asset-management arm
invested $50 million, said people familiar with the situation. The investment
bank's prime-brokerage unit signed up to provide trading and lending services.
Top executives at two other Peloton investors, asset manager Man Group and
Swiss firm EIM SA, sat on the board of a children's charity together with
Mr. Beller's wife.
By that fall,
Peloton's assets totaled $1 billion. Traders met weekly in what they called
the "chill out" room, decorated in Moroccan-inspired red and orange
colors and low-slung couches, at Peloton's London office. Mr. Grant joined
by video link from Santa Barbara, Calif., where he had moved around the time
of the fund's launch.
intense demeanor sometimes caused friction. He berated secretaries, and poor-performing
traders kept quiet in meetings to avoid being humiliated by him, according
to people familiar with the situation. Maxwell Trautman, a founding partner,
quit in January 2006 after personality conflicts and differing views about
strategy with Mr. Beller.
Some say Mr.
Beller put his intensity to good use. Paul Marshall, the founder of a large
London hedge fund, commended him for his vision for education, which included
charity work to improve New York and London schools.
first full year, Peloton's flagship Multistrategy Fund struggled with meager
returns. Some investors, such as EIM, left. But in late 2006, Mr. Beller expanded
on a promising strategy: Bet heavily against the U.S. housing market. That
became the focus of the Peloton ABS Fund, which he launched with about $500
million of investor money from the Multistrategy Fund.
The timing was
good. By July, the ABS fund was up 34.45% as subprime borrowers began defaulting.
At the same time, Mr. Beller was making a counter bet: That highly rated mortgage
securities, which were trading at only 90 to 95 cents on the dollar amid the
market turmoil, would ultimately pay off in full even amid heavy borrower
weren't happy with the shift into mortgage securities. Several withdrew money,
including Key Asset Management and Goldman's asset-management arm. In August,
Goldman's prime-brokerage unit sharply increased the amount of collateral
Peloton had to put up for short-term loans.
The move infuriated
Mr. Beller, according to people familiar with the situation.
He berated some
investors who decamped, questioning why they would forgo Peloton's gains,
which by November 2007 had reached a stunning 87.6%, largely on the bearish
housing bet. In late January, Peloton won two awards at a black-tie ceremony
hosted by trade publication EuroHedge. Some attendees gasped when Peloton's
returns were announced.
At the same
time, the relationship between Messrs. Beller and Grant soured, according
to people familiar with the situation. Mr. Beller increasingly took credit
for the ABS Fund's success -- he accepted the January awards alone -- while
the Multistrategy Fund was still struggling. The two discussed a potential
Messrs. Beller's and Grant's investments took a hit when Swiss bank UBS AG
said it had marked down the value of highly rated mortgage securities similar
to those that Peloton held.
$750 million in cash and believed its funding from banks was secure. That
provided a level of comfort to Messrs. Beller and Grant that Peloton could
cover banker demands, known as margin calls, to put up more collateral as
the value of its investments fell.
But by Monday,
Feb. 25, further sharp drops had left Peloton scraping for cash to meet margin
calls from lenders, including UBS and Lehman Brothers Holdings Inc. When Peloton
traders tried to sell securities to raise money, brokers were unwilling to
bid, according to people familiar with the situation.
Mr. Beller and
his team worked around the clock to assemble a rescue plan, persuading investors
to provide a $600 million loan. But the financial lifeline, which included
some 25 parties, depended on Peloton's banks agreeing to postpone certain
Some banks were
reluctant to sign off on such an unusual deal at a time when they were dialing
back risk amid the financial crisis.
morning, Feb. 27, yet another sharp drop in Peloton's mortgage investments
killed a rescue. Mr. Beller at one point collapsed on a couch in distress.
Mr. Beller and
his team made one final effort to sell Peloton's portfolio, including to other
hedge funds, working late into Wednesday night. By 4 a.m. Thursday morning,
Mr. Beller threw in the towel and went home, exhausted.
The next day,
lenders seized Peloton's assets, bringing a chaotic end to the fund. Mr. Beller
later likened the situation to the final scene in Quentin Tarantino's movie
"Reservoir Dogs," when several actors, guns trained on each other,
simultaneously blow each other away.
in Australia. The savings in plastic and paper
shopping bags are immense.
goes home. After a short stay in America, Michelangelo's David returned
Why did the chicken cross the road?
We have reason to believe there is a chicken, but we have not yet been allowed
to have access to the other side of the road.
To steal the job of a decent, hardworking American.
Because the chicken was gay! Can't you people see the plain truth?' That's why
they call it the 'other side.' Yes, my friends, that chicken is gay. And if
you eat that chicken, you will become gay too.
Why are all the chickens white? We need some black chickens.
Did I miss one?
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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