Harry Newton's In Search of The Perfect Investment
Newton's In Search Of The Perfect Investment. Technology Investor.
8:30 AM EST Monday, May 8, 2006: Though
very tempting, speculating on currencies -- whether the dollar moves up or down
-- is too hard for most of us. With companies, you eye the earnings, the fundamentals
and the trends and you can pick likely successes. With currencies, you can figure
all the fundamentals and be wrong 100% of the time. Currencies move partly because
of fundamentals -- like deficits and interest rates -- but heavily because of
what large, irrational investors, called Central Banks, do with their money.
They don't do it for sane, business reasons. They do it for political reasons.
For example, China shouldn't be buying US treasuries. It's a dumb investment
decision. But it buys them an insurance policy that Congress won't do something
that might jeopardize the jobs of all the millions of Chinese workers making
things to sell in WalMart, and in turn jeopardize the jobs of all those top
Chinese political leaders, should the workers get upset at not having a job.
have been spectacular successes in trading currencies -- like George Soros'
bet against the pound, which netted him a billion plus. In fact, his coup had
nothing to do with great analysis or with great timing, it had to do
with great insider information. The head of the German central bank told him
over dinner that Germany was going to drop its support for the English pound.
One of the beautiful things about currency trading is that there are no rules,
regulations or laws against insider trading. And insider information, not analysis
is what affects currency markets.
Warren Buffett seems to have learned this lesson the hard way. He lost megabucks
trading currencies -- largely betting the dollar would fall. And he learned
what we've all known all along -- that the best way to play the inevitable decline
in the US dollar is to invest in good things overseas. The problem remains
finding those "good" things. America remains commercially the most
vibrant country in the world -- by far. Our businessmen are the best. (Sadly,
our politicians are among the absolute worst.)
best recent overseas plays have been four of the Vanguard funds -- the International
Value Fund (VTRIX), the Total International Stock Index Fund (VGTSX), the Emerging
Markets Stock Index (VEIEX) and the Pacific Stock Index Fund (VPADX). The best
performer has been the International Value Fund, which has 20% of its assets
in Japan, 20% in England and 4% in Canada and the rest all over the place, including
Israel and Australia. For my taste, the fund has too many stocks -- 203 at least
count. But heck, it's been working.
I like Canada. This year the Canadian dollar has risen strongly against the
US dollar and should continue to rise. I have a little syndicated real estate
there. But my favorite Canadian investments remain Canadian Oil Sands Trust,
Penn West Energy Trust, Barrick Gold and Inco, Canada's biggest nickel producer
and miner or copper. The oil sands stocks have come under pressure recently
as the word has gotten out that these companies' costs have gone through the
roof. These companies pay a crane operator $200,000 a year -- if they can find
people willing to work in these cold, boring places.
you're ready to read today's Bloomberg story:
exercise makes hefty sense. The more I exercise
the better I feel. The fewer old age ailments -- like back problems --
I seem have. The only downside -- the time. That's why I like tennis. While you're
killing someone at the other end, time flies. I can't stand treadmills. They give
boredom a whole new meaning. My son and wife
like treadmills. They watch TV while running.
to One-Year Low Versus Euro on Fed Speculation
May 8 (Bloomberg)
-- The dollar fell to the lowest in a year against the euro and reached an
eight-month low versus the yen on speculation the Federal Reserve will soon
signal a pause in raising interest rates.
bond-trading firms say the Fed will increase its benchmark rate May 10 and
then maintain it until at least August, while traders raised bets on more
rate increases by the European Central Bank. The yen led a rally by Asian
currencies after Bank of Japan Governor Toshihiko Fukui said policy makers
may increase borrowing costs on signs of ``sustained'' growth.
looking for an excuse to sell the dollar,'' said Jeremy Stretch, a currency
strategist at Rabobank Groep in London. ``If we assume the Fed will pause
on Wednesday, it's very much the case that rate spreads are no longer enough
to support the dollar.''
The dollar fell
to $1.2760 per euro at 7:10 a.m. in New York, from $1.2727 on May 5. It touched
$1.2787, the lowest since May 12, 2005. The U.S. currency dropped to 111.16
yen from 112.58. It reached 111.06, the weakest since Sept. 23 last year.
Trading in Japan resumed after a three-day holiday.
survey on May 5 showed that 65 percent of 51 traders, strategists and investors
surveyed from Sydney to New York advised buying the yen against the dollar
this week. Sixty- one percent recommended buying Europe's common currency
against the dollar.
investor Warren Buffett said he cut his foreign currency investments because
there are better ways to hedge against a decline in the dollar. Buffett, chief
executive officer of Berkshire Hathaway Inc., told investors at the company's
annual meeting on May 6 in Omaha, Nebraska, that the $4 billion purchase of
most of Israel-based toolmaker Iscar Metalworking Cos. represents a way of
``mitigating'' a fall in the dollar.
reduced his bet against the dollar in the first quarter to $5.4 billion from
$13.8 billion in December, said Iscar gets most of its earnings in currencies
other than the dollar. Buffett has been betting the U.S. current account deficit
would hurt the currency since 2002.
The U.S. currency
is down 7.8 percent against the euro and 5.6 percent versus the yen this year
on anticipation borrowing costs in Europe and Japan will rise faster than
those in the U.S.
The Fed has
raised its target rate 15 times since June 2004 to 4.75 percent, while the
ECB has lifted borrowing costs twice since the start of December, to 2.5 percent.
The BOJ has held rates near zero percent since 2001.
The yield advantage
of U.S. debt has narrowed in recent days. The extra yield of benchmark U.S.
10-year notes over German bonds dropped 7 basis points last week from a six-month
high of 1.19 percentage points on May 1. The spread over Japanese debt of
a similar maturity narrowed 13 basis points to 3.12 percentage points.
17 of the 22 securities firms that trade with the Fed, known as primary dealers,
said last week that policy makers at the U.S. central bank will lift their
target rate on May 10 for the last time until at least August.
The U.S. government
said on May 5 that the economy added 138,000 jobs in April, the least since
October. Interest-rate futures show traders are betting the Fed will raise
rates to 5 percent when they meet in two days. The chance of a further increase
to 5.25 percent at a June 29 meeting were 38 percent, down from 46 percent
the day before the jobs data.
Ben S. Bernanke told Congress on April 27 that policy makers "may decide
to take no action'' at future policy meetings. All 56 economists surveyed
by Bloomberg expect the Fed to lift rates this week.
At the same
time, traders increased bets the ECB will lift rates three more times this
year, interest-rate futures show. The yield on the three-month Euribor contract
due December has risen 3 basis points this month to 3.51 percent.
traded on the London International Financial Futures Exchange, settle to the
three-month euro interbank offered rate, which has averaged 0.16 percentage
point over the ECB rate since 1999.
Jean-Claude Trichet said May 4 that higher interest rates may be "warranted''
to stem inflation. A survey for Bloomberg LP by NTC Economics Ltd. today showed
European retail sales rose in April by the most in at least two years.
has risen this year as the nation heads for its longest run of quarterly growth
in five years. The South Korean won, Thai baht and Taiwan dollar also rallied
today on speculation faster growth in Asia will lure investors.
have jumped back into the idea of BOJ rates moving up sooner, and so they've
bought the yen,'' said Antje Praefcke, a currency strategist at Commerzbank
AG in Frankfurt.
Fukui said on
May 7 at a meeting of central bankers in Basel, Switzerland that Japan is
``completely on track for a sustained recovery.'' He added policy makers are
``quite open to the next step'' on rates, though ``we don't have any predetermined
also gained as officials in President George W. Bush's administration said
they object to what they see as an attempt by Japan to reinterpret an April
21 statement by Group of Seven nations urging faster Asian currency gains.
The officials, speaking last week, declined to be identified.
Minister Sadakazu Tanigaki told reporters in India last week that investors
had misinterpreted the G-7 statement as a call for a weaker dollar. He said
recent declines in the dollar against the yen were ``excessive.''
The BOJ on March
9 ended a five-year policy of flooding the economy with money to fight deflation,
a prelude to raising rates. Seven of 16 economists Bloomberg surveyed last
month said the bank may raise its benchmark as early as July.
Asian economies are growing faster'' than the rest of the world, said Adrian
Foster, a currency strategist at Dresdner Kleinwort Wasserstein in Singapore.
``The trend is definitely in the direction of Asian currency appreciation."
A touching Passover story:
Marilyn Monroe is attending her first Seder.
Arthur Miller asks her how she likes the Matzoh ball soup.
Marilyn answers, "I wish they could have used a different part of the Matzoh."
+ At any one time, 0.7% of the world's population is drunk.
Boston Globe named Gilbert Gottfried the world's unsexiest man. Gildbert's
claim to fame? He's the voice of the Aflac duck.
+ The average
age at which an Italian child leaves his parents' home is 28. -- New
value of hype
"Without promotion, something terrible happens: Nothing."
-- P.T. Barnum
I've been reading annual reports. I'm struck
by the banality of corporate slogans. My favorites:
"We expect more" -- XTO Energy
"Building Smiles" -- WalMart
"A brand above the rest" -- Pulte Homes
& Democracy" -- The McClatchy Company
focus" -- WSFS Financial Corporation
Disciplined Growth" -- Assurant (In 2005, sales were up 1.2%)
in progress" -- Progress Energy
you have a sense of humor?
This was Bill Maher's closing monologue the other night:
this job can't be fun for you any more. There's no more money to spend - you
used up all of that. You can't start another war because you used up the army.
And now, darn the luck, the rest of your term has become the Bush family nightmare
- helping poor people. Listen to your Mom. The cupboard's bare; the credit
cards are maxed out. No one's speaking to you. Mission accomplished.
time to do what you've always done best - lose interest and walk away. Like
you did with your military service and the oil company and the baseball team.
It's time. Time to move on and try the next fantasy job. How about cowboy
or space man?
know what you're saying - there's so many other things that you as President
could involve yourself in. Please don't. I know, I know. There's a lot left
to do. There's a war with Venezuela. Eliminating the sales tax on yachts.
Turning the space program over to the church.
And Social Security
to Fannie Mae. Giving embryos the vote.
none of that is going to happen now. Why? Because you govern like Billy Joel
drives. You've performed so poorly I'm surprised that you haven't given yourself
a medal. You're a catastrophe that walks like a man. Herbert Hoover was a
shitty president, but even he never conceded an entire city to rising water
watch, we've lost almost all of our allies, the surplus, four airliners, two
trade centers, a piece of the Pentagon, and the City of New Orleans. Maybe
you're just not lucky. I'm not saying you don't love this country. I'm just
wondering how much worse it could be if you were on the other side.
God does speak to you. What he is saying is, 'Take a hint.'
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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