Harry Newton's In Search of The Perfect Investment
Technology Investor. Auction Rate Securities. Auction Rate Preferreds.
9:00 AM EST Wednesday, May 21, 2008: The
world is changing faster than you ever dreamed. Oil is at $130 and gas at $4.
Mass transit ridership is way up. You can't buy a motorscooter and I bet bicycles
sales are booming. Housing is way down, but Lumber Liquidators (LL) is way up.
friend, the real estate developer, can no longer borrow money for his shopping
center purchases from Wall Street. He has to borrow the money from a local bank.
This is onerous. Not only does he get to borrow less money (as a % of the total
purchase price), but he also has to give a personal guarantee (called recourse).
he borrowed from Wall Street (which dumped his loan into a basket of like loans
and sold the package off), he didn't have to personally guarantee anything.
That had huge implications. Developers borrowed more, did crazier, riskier projects
-- knowing they could walk if the project failed. Many are now walking. And
many more will walk in coming months. We will see more writeoffs from financial
institutions. As I've mentioned before, stay away from financials. Or short
card debt is piling up, doing good for Visa (V) and MasterCard (MA) who don't
bear the debt. But companies like Capital One (COF), which do bear the debt,
may have noticed: I'm not predicting the market any longer. That's a fool's
game. I'm predicting sectors I like (mining, commodities, oil, agriculture)
and stocks I don't like -- largely because they're overpriced. First Solar (FSLR)
is falling, yet its P/E is still 118, way out of line with its recent earnings
two unfavorite financials: They
are UBS and Bank of America. Their stocks may go up. They may go down (hopefully).
I'll just never deal with these companies as a customer.
UBS. It got more investors into auction rate securities than any one
firm. (I bet that's accurate.) And it's acting the absolute worst with its unlucky
clients. It's written down their securities. It refuses to deal with outside
sales firms. And -- worst -- it has the most disgusting loan terms I've ever
read. For more, go to my other site, www.AuctionRatePreferreds.org
and read the piece on "Should I borrow from UBS?"
Bank of America. When BOA took over my local
bank in mid-state New York, a bunch of workers there asked me for a job. That's
how disgusted they were with the way BOA was now running their bank. (Imagine
the choice -- working for a national bank or working for Harry!). Anyway, BOA's
latest stunt is to offer a new deal -- 8.5% return on preferred stock. My friend,
Frank was tempted. He's a yield hog. So, Frank, who's very trusting, puts the
question out to his friends. Within nanoseconds, he gets this priceless email:
The (BOA) investment
is in a pool that will be funded by preferred stock dividends. It has no rights
to ever be repaid and the dividend must be voted by a group each year and
is not guaranteed. It is subordinate to everyone else.
If the bank
does well you have a chance of getting the dividend, if not, you won't and
you may never see your $25,000 again.
I would not
I think we need
to re-read Jack
Krupansky on why not to buy anything Wall Street creates.
goes on "trading hold": You can't
buy HeartWare on the Australian market at present. It's on "trading hold"
until Friday or Monday. Trading hold means in Australian that something is happening
to the stock. In fact, I know it's raising money. I'm guessing you could participate
if you contacted the company directly -- but probably not for small amounts.
A bunch of American institutions are loading the boat. I have some shares in
my writeup on HeartWare on Friday,
I asked the company what they'd add. Their comments:
Just three points
1. While the
total cost of managing heart failure in the US runs into the tens of billions
per year, this does not translate directly to a potential size of the market
for pumps such as ours. It is not true to say one could sell "a million
pumps a year..." While estimates of the potential market vary widely,
an often-quoted figure is that from the NIH (National Institutes of Health)
which has suggested that 100,000 patients per year (in the US alone) might
benefit from a pump. These devices sell at approx US$75k each - so this would
represent a pretty healthy market potential.
2. It seems
you might have interpreted the move into the new facility as the company moving
from Australia to the US. In fact, the company's operations have been based
in the US since inception (over 10 years ago). The J&J facility to which
we are currently moving is just 6 miles away from our previous facility in
Miramar, FL. (You are correct that the company trades on the ASX and is not
yet listed in the US.)
3. Re your comment
that "it's easy to kill people with these things..." The reality
is that most of these patients will die if they do not receive a pump. You're
correct in suggesting that if something goes wrong during our US clinical
trial it could be very damaging. However, with 33 patients having now been
implanted with our device across 5 hospitals in Europe and Australia - and
with the results looking really promising - we're pretty confident that we
won't encounter any serious surprises...
To your question
as to what to stress next time:
- Ours is the
only full-output pump designed to be implanted in the patient's chest. All
other competing devices must generally be implanted in the patient's abdomen
(because they're too big to fit above the diaphragm.) As a result our surgical
procedure should be quicker and less complex and we might expect better patient
I asked some more
Q: When do
you figure you might be listed in the U.S.?
A: 2009 timeframe,
but impossible at this point to be definitive on timing. Wish we could be more
Q: You mention
that you've done 33 implants so far. Can you give me a summary of the results
A: The key measure
of performance in the industry is patient survival after 6 months on the device.
We recently presented patient survival of 91% at 6 months. (Out of 33 patients,
30 survived beyond 6 months). Across all our patients, the cumulative period
of support on the pump is approx 7800 days (or >21 years). The average duration
is approx 240 days per patient. One guy has been on the pump for 550 days and
Q: You mention
$75,000 for a typical sale of the device. You're telling me that the selling
price -- out of the factory -- for one of these devices is $75,000?
A: Yes. They sell
in the range USD70k-80k and are fully reimbursed by Medicare in the US. (The
implant procedure is reimbursed at approx $140k. Of this, the hospital pays
circa $75k for the device.)
Q Are we likely
to see the price of the device come down in coming years? What are we looking
A: In the long
term, yes. But over the next few years we dont expect any price pressure.
(On the contrary, Medicare reimbursement for the procedure has been increasing
every year over the past few years.)
recommendations: "We're making a big move on.... " I welcome
the phone calls. Cold call Harry. He'll take "a small position to test
you." And if it works out and he doubles his money in six months, he'll
become your client for life. So far 100% of these cold call recommendations
have tanked. Readers suggested I publish them, since they'd be great shorts.
The latest two are ETrade (ETFC) and Sandridge Energy (SD).
When you get your
next cold call, please don't hang up. Stay interested. Get the "recommendations"
and send them my way..
This could be fun.
Spitzer obsession: Ever since our beloved governor
resigned because of hiring a gorgeous hooker, the New York press has been obsessed
with "What was Spitzer thinking." From the May 24 New
York magazine comes the following "statistics:"
+ Recent analyses
of genetic databases reveal that fully 10 percent of people have different biological
fathers from the men they name as their fathers, ... thats evidence of
+ The national
average for frequency of intercourse in marriage is about 66 times a year. Sexlessness
in a marriage is defined as intercourse fewer than ten times a year.
+ About 25% of
married men commit adultery; 15% of married women.
My favorite quote
form the article:
Sitting in Schillers,
I explained Squires history to my friend and suggested that we could
change sexual norms to, say, encourage New York waitresses to look on being
mistresses as a cool option. Thats fringe, my friend said
dismissively. Wives werent going to allow it, and we men grant them
a lot of power; theyre all as dominant as Yoko Ono. Look, were
the weaker animal, he said. They commandeer the situation.
He and I love our wives and depend on them. In each of our cases, they make
our homes, manage our social calendar, bind up our wounds and finish our thoughts,
and are stitched into our extended families more intimately than we are. They
seem emotionally better equipped than we are. If my marriage broke up, my
wife could easily move in with a sister. Id be as lost as plankton.
You can read the
York Magazine article. If you think this has nothing to do with
investing, you're wrong. Think the high cost of divorce. Yet, so far The Spitzer
(and Clinton) marriages are intact.
like this email:
"To all my friends who in 2007 sent me best 'wishes', chain letters,
'angel' letters or other promises of good luck if I forwarded something, None
of that worked.
For 2008, could
you please send money, pizza, beer, chocolate, or gasoline vouchers."
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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