Harry Newton's In Search of The Perfect Investment
Technology Investor. Harry Newton
AM EST, Tuesday, May 12, 2009. Sentiment
has turned lousy again. The timing of the upcoming stockmarket downturn is
uncertain (though yesterday was severe). There is now widespread consensus
that we'll be retesting the March lows. If you're up on recent investments,
take profits now. For reference, this shows the bear market, from its
beginnings in fall of 2007, and the March/April 2009 bounce:
for new pessimism: My friends. My discussions with investors, and
Have we seen
stocks selling at great values or below known values in this bear market?
Let's take a look at previous bear market bottoms.
In July 1932,
the Dow sold at a yield of 10.2%.
In June 1949,
the S&P sold at a yield of 7.6%
1974, the S&P sold at a yield of 5.1%.
In April 1980,
the S&P sold at a yield of 5.7%.
1982, the S&P sold at a yield of 6.3%.
And what was
the yield on the S&P in March 2009 (the "supposed" bear market
bottom)? The yield on the S&P in March 2009 was 3.58%, hardly indicative
of the bottom of a great bear market. Actually 3.58% is more what I'd expect
at a market top. The current S&P dividend is now 2.45%.
has less money. The underlying core earnings power of the major banks is
negligible. There has been zero fundamental improvement. Upcoming earnings
will manufactured. Short consumer retailing. Hold cash. Great assets coming
up for sale later this year.
Check out her
fascinating interview on CNBC
yesterday with Maria Bartiromo.
May 12 (Bloomberg)
-- Economists downgraded their projections for a recovery from the deepest
U.S. recession in half a century, now seeing the jobless rate exceeding
8 percent through 2011, a Bloomberg News survey showed.
For the full
are interest rates going? From AP:
(AP) -- With the economy performing worse than hoped, revised White House
figures point to deepening budget deficits, with the government borrowing
almost 50 cents for every dollar it spends this year.
for the current budget year will rise by $89 billion to above $1.8 trillion
-- about four times the record set just last year. The unprecedented red
ink flows from the deep recession, the Wall Street bailout, the cost of
President Barack Obama's economic stimulus bill, as well as a structural
imbalance between what the government spends and what it takes in.
As the economy
performs worse than expected, the deficit for the 2010 budget year beginning
in October will worsen by $87 billion to $1.3 trillion, the White
House says. The deterioration reflects lower tax revenues and higher costs
for bank failures, unemployment benefits and food stamps.
For the current
year, the government would borrow 46 cents for every dollar it takes to
run the government under the administration's plan. In one of the few positive
signs, the actual 2009 deficit is likely to be $250 billion less than predicted
because Congress is unlikely to provide another $250 billion in financial
bonds have fallen over half a percentage point in the past seven weeks,
the biggest fall since 1994. Mortgages rates on 30-year fixed loans are
back to more than 5%... This sets the stage for a showdown between the government's
lenders (bond buyers) and the Federal Reserve, which wants interest rates
to remain low. The Street (BlackRock, American Century, Federated, and Pioneer
Investment) thinks the Fed will buy Treasury bonds again (like it did last
month) in order to force rates lower. Your editor thinks, no matter what
the Fed does, long-term interest rates are going much higher and the
bond market is going to get crushed. ...
Or if you
prefer more tangible investments, consider buying artwork to combat inflation.
According to Sotheby's, a recent auction of lower-end (but still expensive
by normal standards) artwork brought in $23 million. One of the bidders
at the sale, a private London art dealer, Ivor Braka, speculated, "Perhaps
people are anticipating global inflation, and want to put their money into
something tangible... At the moment there is more money being produced than
in real estate? I figured by now you'd be able to find properties
yielding 10%? Take the rents. Deduct the expenses. Figure your gross
profit on the total price of the property and you'd see 10%. Today, we're
lucky to see half that. I'm asking around, checking and searching. The consensus:
1. Banks are
holding onto their crappy properties because of their TARP monies, their fear
of government bureaucrats (what will they decide tomorrow?), and the fear
that selling cheaply might open the floodgates of forcing them to report their
balance sheets as they really are -- miserable.
2. Private sellers
are still in total denial as to what their properties are worth. They think
old prices. "My property is different."
3. There are
few bank loans available to finance buying a property. Hence few sales. Few
comps (comparables). Item: A friend has his property loan approved five months
ago. Along the way the bank provided multiple assurances, "We're doing
the loan." Last Friday, the bank called, said the loan was off. The bank
had "no money."
4. The difficulty
(impossibility?) of making sane projections. Where will rents be a year, two
years, three years from now? Today, even written, cast-in-stone leases are
being rewritten. Every retail store is telling its landlord, "We need
a reduction in rent or we'll go out of business." Landlords are responding
with lower rents, thus lowering the value of their property. And what rate
will you finance at? And what will the rate be in five years time?
5. Finding the
person in charge of a building loan is often almost impossible. Remember "the
good old days"? Loans were made, then bundled with other loans (it was
called securitization), then split into various tranches and then sold to
buyers all over the world. Meantime, Lehmann Brothers who was king of that
business went broke. Good luck finding today someone who can make a decision
on a property.
problem remains that bankers -- especially the 20 biggest -- are like deer
in the headlights. Frozen. Unwilling to sell their foreclosed properties.
Unwilling to make new loans. Unwilling.
My real estate
mavens tell me today is the worst real estate market they've ever seen --
and that includes the late 1980s/early 1990s with the savings and loan crisis.
All the above
is journalism generality. You may fluke a loan. Your banker may be small,
local and actually doing business. The New York Times has a story today on
community banks, "Were
Dull, Small Banks Say, but Have Profits."
ticks -- part 3: Reader Glenn Perkinson emails:
I know you
have received many tick remedies. Here is another. I have a farm and am
out very often during the tick season, so I frequently have the little buggers
I remove them with superglue. Coat the tick with several layers extending
beyond the body of the tick. About the size of a fingernail. When the glue
is dry peel it off. The tick has no pressure at all exerted on it so no
fluids are squeezed into you. You might pull a few hairs out but the method
has never failed for me.
your hands frequently. The Centers for Disease Control and Prevention
says hand washing is the most effective way to stay healthy. But many people
don't do it often enough, or long enough, to be effective, according to today's
Wall Street Journal:
For the entire
hands every time you use the bathroom. Every surface presents an opportunity
for germs to hitchhike out. "Who thinks to clean the latch on the inside
of the stall door? Try nobody," says Jim Mann, executive director of
the Handwashing for Life Institute, which advises food-service providers
around the world on best hand-hygiene practices.
your hands whenever you change a diaper, pick up animal waste, sneeze, cough
or blow your nose; when you take public transportation, insert or remove
contact lenses, prepare food, handle garbage and before eating. Few people
are as conscientious as they should be. Mr. Mann recalls being in meetings
to discuss hand hygiene: "Everybody shakes hands. You finish the talk,
and everybody runs for the food line. Nobody washes their hands."
How to do
it. Soap and water is the gold standard. In a recent study in the journal
Clinical Infectious Diseases, researchers in Australia doused the hands
of 20 health-care workers with human H1N1 flu virus. Soap and water removed
slightly more virus than three alcohol-based hand rubs. When volunteers
didn't clean their hands, most of the virus was still present an hour after
It's the mechanical
process of washing that's so effective. Soap molecules surround and lift
the germs, friction from rubbing your hands loosens them, and water rinses
them down the drain.
using warm water -- mainly for comfort, so you'll wash longer. Use liquid
soap if possible. Bar soaps can harbor germs, though they'll likely rinse
off with water.
soap to build a lather. Lace your fingers together to cover all the surfaces.
Rub the fingertips of one hand into the palm of the other, then reverse.
Keep rubbing for as long as it takes to sing "Happy Birthday"
twice. (Some experts prefer "Row, Row, Row Your Boat." But any
tune will do as long as it lasts at least 15 seconds.)
typical 'splash and dash' that most people do doesn't do anything,"
says Mr. Mann.
Residual soap can make hands sore. Leave the water on while you grab a paper
towel and use it to shut off the faucet. Take it with you to use on the
door handle as well.
Perfect liquidity Investment. Friends had their "perfect"
yacht built in South Africa. They flew down, picked it up. They're now sailing
it back to Rhode Island and, courtesy the magic of satellites, sending daily
email updates to their desk-bound friends state-side. Latest:
And where, pray
tell, is Ascension Island?
see Ascension Island, too far over the horizon. All we really wanted to
do was make sure we didn't hit it
have mentioned how "peaceful" it is out there. I don't make this
Leno's political quips:
+ The White House announced today that Vice President Joe Biden
has laryngitis. Yeah. They said that he has a rare strain they hope lasts
+ In Louisiana
a porn star named Stormy Daniels is now embarking on a listening tour of the
state of Louisiana. Shes considering running for the Senate. A porn
star running for the Senate. Porn to politics. Thats kind of a lateral
move, isnt it?
+ Federal authorities
are now investigating how John Edwards spent his campaign money. Well, we
know what he didnt spend it on condoms!
+ The economy
is so bad, John Edwards is giving his mistress I.O.U.s.
+ Miss California
went to a gay wedding just for the free food. Thats how bad the economy
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
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