Harry Newton's In Search of The Perfect Investment
Newton's In Search Of The Perfect Investment. Technology Investor.
8:30 AM EST, Wednesday, November 21, 2007: This
morning, I woke up with a stiff back. But I woke up. I'll stretch, and my stiff
back will go away. Tomorrow I'll give thanks for my stiff back (and the fact
I'm still alive.) I'll also give thanks for my wife and two kids, and for portfolio
diversification. When you manage a portfolio you can neither control
nor predict -- which is what all of us do -- you give thanks for diversification.
This is the tool that saves our tushy when things get squirrelly -- as they
are now. I also give thanks for obsession. Being obsessive about due diligence,
being obsessive about being extra-nice to your customers, being obsessive about
your kids' education and being obsessive about CHECK, CHECK, CHECK are key success
traits. Obsession works.
moved over $99 yesterday: On its way to $150. You've
heard me say that before. I'm a cracked record. My oil guru, Jim Kingsdale has
just posted a new piece on his
Strategies web site. In it he says,
The media is
focused on oil as never before. Will it breach $100? Will it decouple from
the dollar? Will it cause a recession? What does the giant Brazilian discovery
mean? And of primary interest, how much oil could the world really produce
if it tried its hardest? Oil is becoming the medias new Paris Hilton
and its getting a little hard to decipher the noise from the news. But
The most interesting
thing to me is how oil moved in the past week against a negative news background.
The IEA reduced its forecast for oil demand last week, a U.S., if not global,
recession was looking increasingly likely, and the weekly oil numbers failed
to deliver the expected inventory decline. What happened? Oil dropped from
the mid-90s all the way down to
nearly $91. And then it bounced
right back up.
A second interesting
move was a noticeable reduction in the degree of backwardization in the strip,
the series of oil futures prices going out five years. Backwardization means
the prices are lower in later periods. It suggests that traders believe high
prices are a more near term phenomenon than one that will persist. The opposite
is called contango and the market seems to switch between the
two for reasons that are not clear to me, or, as far as Ive been able
to discern so far, to anyone else either. If anyone knows of a good analysis
of this, Id love to get a reference to it. Anyway, over the past week
or so, the out months of oil contracts have gotten stronger than the front
What these two
actions say to me is that oil is damn strong and looking to get stronger in
the more distant future. Why? The real answer: nobody knows. But for what
its worth, I think its not because we might bomb Iran (we wont),
or because Pakistan may fall apart (it might), or because speculators are
speculating (they are). It is simple because the reality of Peak Oil is becoming
understood by more and more people. Its sinking in that demand for oil
is simply stronger than supply and that eventually supply will reach a peak
and not be able to grow any further. People are starting to get it.
You can see
that in the news. Not so much The Wall Street Journals front-page story
on 11/19, which said that global production might max out at 100 mb/d in a
few years (theyre still in denial; it will max out at a good deal less
than that). But more because of the story a few days earlier quoting the Russian
oil minister to the effect that Russian production will grow about 2% a year
through 2010, instead of 10% as in the past. The logical conclusion from that:
with the Russian economy growing at 7%, Russian oil exports will be declining.
It is no small matter that Russian exports will decline from here because
Russia produces more oil than any other country in the world.
In fact, declining
exports are the essence of the story behind rising oil prices. They result
not just from the exporters increasingly difficult production challenge
of getting enough oil out of the ground to offset the natural declines in
older fields. But just as important, as I have said before, declining exports
also have a psychological basis, which is the new trend toward Hoarding. Underlying
Russias slow projected growth, for example, is a series of decisions
made in the Kremlin that Russia will not encourage (or allow) as much investment
as is needed to maximize oil production.
a big part of the stalling growth of oil production today even though no country
will admit to it. They blame lack of investments (Russia) or fear that alternative
fuels will reduce future oil demand (Saudi Arabia) or the need to fund social
programs instead of oil production investments (Chavez). But the reality is
that they all look at the world and see the same thing: oil is becoming more
scarce so its better to keep more of it in the ground for future sale
or domestic use. They also, incidentally, notice that the U.S. has prohibited
drilling off our coasts or in our Alaskan nature preserve, which looks like
an excuse by the smartest guys in the room to hoard. I wish we
actually were that smart.
to the impressive strength of the oil price, another thing to notice is that
while the oil price has been rising, stock prices have been falling, including
to a lesser degree oil stocks. How ominous is that?
read JIm Kingsale's entire piece.
Remember the new (and still uncompleted) apartment
building on New York's Central Park West overlooking the park? The development
was so successful, the developers, selling off the plans, raised the prices
on the apartments 19 times.
The typical price
for the apartments was $2,500 a square foot. My friend paid $5,000 a square
foot for one of the bigger apartments. Someone has just offered him $8,000 a
square foot. And he hasn't moved in yet. I don't make this stuff up. Meantime,
someone who bought a 2,700 square foot apartment for $6.7 million is trying
to sell his apartment for $12.5 million -- and might well get it.
those beaten-down biotechs will come back, one day: Put
a handful of these biotechs -- Ziopharm, Vioquest, Hana Biosciences, Manhattan
Pharmaceuticals -- in a portfolio that's labeled, "Don't look at
until 2011." Here's what these four have in common: First, they're
all way out of favor, beaten down to near-oblivion. All biotech is. Second,
they've all sprung from Paramount
BioSciences, a company run by an obsessive called Lindsay Rosenwald.
Third, they've all got promising drugs, none of which have been approved, but
some will be -- around 2011. At least one will succeed beyond your and my wildest
expectations. A portfolio of these four would make a great bar mitzvah present.
favorite magazine cover of late:
That's Chuck Prince of Citigroup, Jimmy Cayne of Bear Stearns, John Mack of
Morgan Stanley and Stan O'Neal of Merrill Lynch. Now you know why they're called
brokers. They'll all make you broker. And they did.
perfect turkey receipe -- sick 1.
1. Cut aluminum
foil into the desired shapes.
2. Arrange the turkey in the roasting pan, position the foil carefully.
3. Roast according
to your own recipe and serve.
4. Watch your
we're being sold -- sick 2
Big Bird -- The sickest cartoon -- sick 3
finally, the sickest Thanksgiving story of them all -- sick 4
man named John received a parrot as a gift. The parrot had a bad attitude and
an even worse vocabulary. Every word out of the bird's mouth was rude, obnoxious
and laced with profanity. John tried and tried to change the bird's attitude
by consistently saying only polite words, playing soft music and anything else
he could think of to "clean up" the bird's vocabulary.
was fed up and he yelled at the parrot. The parrot yelled back. John shook the
parrot and the parrot got angrier and even ruder. John, in desperation, threw
up his hands, grabbed the bird and put him in the freezer. For a few minutes
the parrot squawked and kicked and screamed.
there was a total quiet. Not a peep was heard for over a minute. Fearing that
he'd hurt the parrot, John quickly opened the freezer door. The parrot calmly
stepped out onto John's outstretched arms and said "I believe I may have
offended you with my rude language and actions. I'm sincerely remorseful for
my inappropriate transgressions and I fully intend to do everything I can to
correct my rude and unforgivable behavior."
John was stunned
at the change in the bird's attitude. As he was about to ask the parrot why
he had made such a dramatic change in his behavior, the bird continued,
"May I ask
what the turkey did?"
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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