Harry Newton's In Search of The Perfect Investment
Technology Investor. Auction Rate Securities. Auction Rate Preferreds.
8.:30 AM EST Friday, May 2, 2008: Good
news. The world has changed, at least according to the press, which, like me,
suffers for something brilliant to write about each day. A week ago, it was
all doom and gloom. Now it's all happy days are here again. Has anything fundamentally
changed? No. Has investor sentiment changed? Your guess is as good as
mine. The traditional measure is the VIX. Lately it's dropped dramatically:
What does this mean? According to my favorite and most trusted broker Todd,
who will voice a learned opinion on most anything,
VIX is as low it is now, complacency among investors is high. Fear is low.
And people are stupid. Think about it. Less than a month ago, Bear Stearns
was on the brink. Everyone was fearing the Great Depression. Everyone was
seeking safety in treasurys, gold and silver. Now, a few weeks later everyone
is piling out of treasurys -- they don't want quality -- they're back into
gambling. A financial disaster of the sub-prime etc. size cannot be undone
in under a month."
he's in my camp -- fearful. Cash remains king. When in doubt, stay out.
up bigtime. It felt good. Except that gold (GLD), silver (SLV), and First Solar
fell. But traditional "hot" stocks, like Apple and MasterCard rose
strongly. I look upon this strategy, which when combined with my commodities,
emerging markets (via Vanguard) and Australian mining exposure, as my feeble
attempt at "hedging." I haven't applied for a patent on this. And
I doubt they'd give me one.
New York Times, is running positive stories. This has two objectives:
It proves to the world that it's not doom and gloom New York left-wing, Commie
pinko liberal. (My friends out west believe this.) And it puts up a strong competitive
front to Rupert Murdoch's Wall Street Journal, which is increasingly
reflecting Rupert's own right-wing, low-taxes, optimistic philosophy. With all
this as background, read today's New York Times piece:
Clouds? Wall Street Sees Signs of Sunshine
Main Street may be struggling, but Wall Street is on a bit of a roll.
Despite a drumbeat
of bad economic news, the stock market is up almost 11 percent
in the last few weeks. Junk bonds, those risky corporate I.O.U.s, are
rallying. The value of financial shares, bank loans, tricky credit derivatives
up, up, up.
Many on Wall
Street, the epicenter of the credit mess, seem to think that the worst is
over. For the first time in months, analysts and executives sound upbeat again.
Many of them see a broad, sustained recovery in both the economy and the financial
markets coming in the second half of this year, a prediction some market strategists
call hopeful at best.
For now, policy
makers are echoing the mood on Wall Street. Treasury Secretary Henry M. Paulson
Jr. said in an interview with Bloomberg Television on Thursday that we
are closer to the end of this problem than we are to the beginning.
A report from
the Bank of England, meantime, concluded that mortgage securities, which have
been at the heart of the financial troubles, probably have fallen too far.
The central bank said prices of such securities should improve gradually
in the coming months.
and the broader market surged on Thursday as the dollar strengthened and oil
prices fell for the third day in a row. The Standard & Poors 500-stock
index closed up 1.7 percent, to 1,409.34 points; the Dow Jones industrial
average notched a 189.87-point gain, to 13,010; and the Nasdaq composite jumped
2.8 percent. Another day or two like that, and those market benchmarks will
be in the black for the year.
It is a remarkable
reversal in attitudes from just a few months ago, when the broader economy
seemed relatively healthy but Wall Street was traumatized by billions of dollars
in mortgage-related losses. Now, bankers and investors appear ready to look
past the crisis to more profitable times, while consumers find themselves
in a more precarious position as the job market weakens and banks make it
harder to borrow money.
It is, of course,
not uncommon for Wall Street to run ahead of the broader economy. Investors,
after all, make money by anticipating the future. The job market, by contrast,
improves more slowly than other aspects of the economy.
say the two sides will eventually converge. Either the markets will give up
their recent gains or, if the optimists are right, the broader economy will
show greater strength as tax rebate checks and lower interest rates stimulate
There have been
false dawns before. Last spring, after several mortgage companies collapsed,
Mr. Paulson and the chairman of the Federal Reserve, Ben S. Bernanke, said
the problems appeared to be contained. In early October, just
two months after credit markets froze up, the stock market climbed to an all-time
believe it is different this time. The catalyst for the change, they say,
was the Fed-arranged deal that sold a troubled investment bank, Bear Stearns,
to JPMorgan Chase in mid-March. The central bank further restored order in
the markets by lending directly to investment banks, assuring that big securities
firms could not be undone by a crisis of confidence.
In the last
month, the cost of insuring against the failure of banks and other companies
has fallen sharply. Pressures on financial firms also appear to have eased
somewhat because banks have tended to borrow less from the Fed in recent weeks
than they did in March and early April. The cost of interbank borrowing has
has been a huge change of sentiment in all of the markets, a lot of the fear
has been gone, said William Knapp, investment strategist for MainStay
Investments, a division of New York Life.
say the optimism on Wall Street is premature. These people argue that even
if the Fed has defused the immediate liquidity crisis facing the financial
system, much pain lies ahead in the housing market and the broader economy.
be very grateful that things appear to have improved in the financial sector
and that significantly reduces the risk of a financial meltdown, said
Bernard Connolly, chief global strategist for Banque AIG in London. But
it doesnt mean that there is not going to be a deeper and more protracted
U.S. slowdown than people had thought.
are climbing at a strong clip and the decline in home prices has picked up
speed in recent months. Rod Dubitsky, an analyst at Credit Suisse, estimates
that falling home prices, tighter lending standards and job losses could force
an additional 2.8 million mortgages into foreclosure in 2008 and 2009. That
would be on top of the 1.2 million loans that were in foreclosure in January.
One sign that
the mortgage market remains unsettled is that the national average for a 30-year
fixed mortgage has climbed modestly, to 6.06 percent on Thursday, up from
5.85 percent at the end of March, according to Freddie Mac, the government-sponsored
The job market
is also weakening. The unemployment rate, which measures the number of people
without jobs who are actively looking for work, remains low at 5.1 percent,
but the percentage of working-age Americans without a job has risen significantly
in recent months. The Labor Department will release the employment report
for April on Friday, and a big reduction in jobs and increase in unemployment
could put a damper on Wall Streets enthusiasm.
to the employment picture, the market closely follows corporate earnings.
Profits have fallen every quarter since the third quarter of last year, largely
as a result of write-offs at financial firms and losses at homebuilders and
other firms that rely on discretionary consumer spending.
sectors are doing pretty well, said Robert C. Doll, vice chairman at
BlackRock, the investment firm. He added: I am not making the case that
the consumer and the economy is not weak, but I think its a lot stronger
than the bears are saying.
a sharp upturn in profits in the second half, in part because the earnings
will be compared with weak results from 2007 but also because exports are
surging. The $117 billion in federal tax rebates that will start going out
this month should also help bolster profits.
But some specialists
say that the markets expectations for profits are too lofty. They assert
that slowing consumer spending will offset the gains corporate America is
reaping from rising exports, which may also suffer because economies in Europe
and Asia are starting to slacken.
been lowering their profit forecasts in recent weeks. At the start of April,
for instance, second-quarter profits were expected to fall 2 percent; now
analysts are estimating earnings will fall 6 percent, according to Thomson
think its a definite by any stretch of the imagination that we are in
for a recovery in the second half, said K. Daniel Libby, a senior portfolio
manager at Sands Brothers Select Access Management Fund. There are still
plenty of downside risks to the economy.
say the market is bouncing between despondency and exuberance, as it often
does when the future is cloudy. The S.& P. index fell about 10 percent
in the first three months of the year, its worst quarterly performance in
more than five years. In April, however, the market jumped 4.8 percent, its
best month in four years.
had gotten so pessimistic that it was the perfect opportunity for the rally
that we have had, said Liz Ann Sonders, chief investment strategist
for Charles Schwab. Now, you have seen a pretty quick reversal. Thats
natural for the market. Ms. Sonders added, I think in general,
we ought to hold off on either extreme.
friend's mold disaster: He'd walk in the door and start sneezing.
His wife had trouble breathing. The kids acted cranky. But nobody knew the problem
until one night the pipe finally broke and water gushed out. Then they discovered
the mold. It was everywhere in their neat San Diego, California house. There'd
been a slow leak. The mold had been growing for six months. They'd been living
with it. This stuff is seriously toxic. They're now out of their house. It will
take months to rebuild the house. Their lives are a mess. The major lesson:
When bad stuff happens, get yourself a public adjuster. These guys apparently
are good. Don't try to handle disasters on your own.
does it take to give up sex? Shortly before Valentine's Day, a study
was released claiming that 47% of men in Britain would give up sex in return
for a big-screen plasma television (in particular a Pioneer PDP-5080HD). As
with all matters relating to technology, numbers are key: precisely how long
were these men prepared to go without sex? And how large a screen? (Answers:
six months, fifty inches.) The survey was conducted by an electronics retailer,
so it's biased -- probably useless -- but fun.
idiocy that was the housing mess. In the old
days (like last year), people would
sell homes or take out mortgages on homes that did not belong to them. Like
the wife and her boyfriend who sold her husbands house while he was in
Iraq. He didn't find out until he came home. Lenders at the closing often did
not ask for pciture ID, or if they did, the borrower or seller would say they
left the wallet at home and, since everyone was there, the closing would take
place anyway. A friend whose wife is a claims counsel for a title insurance
company, sent me this excerpt from a deposition:
As I've said before,
I don't make this stuff up.
this meeting, did you ask anyone to provide you with any kind of picture ID?
Q. Why not?
A: It wasn't
Q. Why is
that not your practice?
A. Just like
why don't I ask for them to bring a monkey with them to the office. It's not
part of our practice.
Q. With all
due respect, I think providing a picture ID is probably a little bit more
appropriate than asking someone to bring a monkey if you're issuing a loan
Disease is truly awful: If not treated in time,
it can be permanently debilitating. Words can't describe the permanent agony
some of my friends live with. As the summer approaches and as the deer tick
spreads wider and wider throughout the U.S., I implore all of you to be ultra-careful
outside. Stay away from tall grass. Stay covered. Check yourself (and have your
spouse) check you carefully for ticks. Do it carefully. The smallest ticks are
the most dangerous. If you suspect you've been bitten, get yourself (and hopefully)
the tick to a doctor fast. This stuff is really serious. The latest issue of
Psychology Today magazine has a piece titled, "The Great Imitator.
Lyme disease can masquerade as a host of psychiatric ills, confounding doctors
and driving patients to question their very sanity." My friend,
who's had Lyme Disease for years, says "This is one of the best articles
I've ever read regarding Lyme." Her own progress?
it here myself. The Lyme bacteria have gone "cystic" on me, collecting
in my abdominal area. Fortunately the brain issues and nervous system issues
have been reduced to a dull hum. I'm on a new rigorous round of antibiotics
in an attempt to reach them and kill them...
article is excerpted from a forthcoming St. Martin's Press book, "Cure
Unknown: Inside the Lyme Epidemic" by Pamela Weintraub.
Pamela has given permission for everyone to download the article
(in .pdf format) from here
or from this site. This is a huge 8
meg file. Don't despair.
Yes! Go Amazon. Amazon.com -- God bless it -- has filed a lawsuit
challenging New York States new law forcing online retailers to collect
sales tax on shipments to state residents. If New York gets away with this,
every New Yorker Amazon customer (including me) will be pissed. But we'll all
find a new friend in New Jersey, Connecticut or Massachusetts and New York State
won't be any richer. From today's New York Times:
On Friday, Amazon
filed a complaint in State Supreme Court in Manhattan objecting to the law,
which was approved as part of the $122 billion state budget that Gov. David
A. Paterson signed last week. The law is expected to raise about $50 million.
The issue is
not whether people (that's you and me) should pay tax when they buy
goods from out-of-state sellers like Amazon. For decades, the state has required
them to pay sales or use tax.
is whether the vendors must collect that tax on behalf of the state. Generally,
only those companies that have a physical presence like an office or
store in the state where the purchase is made are required to collect
The new law
is based on a novel definition of what constitutes a presence in the state:
It includes any Web site based in the state that earns a referral fee for
sending customers to an online retailer. Amazon has hundreds of thousands
of affiliates from big publishers to tiny blogs that feature
links to its products. The state law says that thousands of those have given
an address in New York State, although the addresses have not been verified.
The law says
that if even one of those affiliates is in New York State, Amazon must collect
sales tax on everything sold in the state, even if it is not sold through
the affiliate. This is an extension of an existing rule that companies employing
independent agents or representatives to solicit business must collect taxes
for the state.
suit challenges the constitutionality of this interpretation and seeks a declaratory
judgment that it is invalid.
complaint argues that the statute is overly broad and vague. It
is impossible, Amazon wrote, for it to determine which of its affiliates are
actually in New York State.
that its affiliates are not agents, but simply sites on which it places advertising.
The commissions it pays the sites are simply one method of paying for those
ads, it argues.
And it further
claims that the new rules violate the equal-protection clause of the Constitution
because they specifically took aim at Amazon. It was carefully crafted
to increase state tax revenues by forcing Amazon to collect sales and use
taxes, the complaint says, noting that state officials have described
the statute as the Amazon Tax.
a spokesman for the New York State Department of Taxation, said that the department
would not comment on the suit until it filed a formal reply with the court.
The states defense will be coordinated by the attorney generals
Morris and his wife Esther went to the state fair every year, and every year
Morris would say, 'Esther,I'd like to ride in that helicopter.'
replied, 'I know Morris, but that helicopter ride is fifty dollars, and fifty
dollars is fifty dollars'
One year Esther
and Morris went to the fair, and Morris said, 'Esther, I'm 85 years old. If
I don't ride that helicopter, I might never get another chance.'
To this, Esther
replied, 'Morris that helicopter ride is fifty dollars, and fifty dollars is
The pilot overheard
the couple and said, 'Folks I'll make you a deal. I'll take the both of you
for a ride. If you can stay quiet for the entire ride and not say a word, I
won't charge you! But if you say one word, it's fifty dollars.'
Morris and Esther
agreed and up they went. The pilot did all kinds of fancy maneuvers, but not
a word was heard. He did his daredevil tricks over and over again, but still
not a word.
When they landed,
the pilot turned to Morris and said, 'By golly, I did everything I could to
get you to yell out, but you didn't. I'm impressed!'
'Well, to tell you the truth, I almost said something when Esther fell out.
But you know, fifty dollars is fifty dollars!'
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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