Harry Newton's In Search of The Perfect Investment
Newton's In Search Of The Perfect Investment. Technology Investor.
8:30 AM EST, Tuesday, November 27, 2007: I
continue to not like what I see -- unless you're shorting. What are your
leading indicators? Mine are:
The consumers (about 70% of our GDP): Housing and retail sales tell me what
the consumer is doing. It's not pretty. I read of a possible two million
house foreclosures. That's a lot of families' lives being destroyed because
of dumb, misleading and outright fraudulent sales practices.
2. The businesses: I look at the stationery stores. Staples is the biggest.
It just reported third-quarter profit fell 5.3% on slowing sales at its
U.S. and Canadian stores. Office Depot, the second-largest office- supplies
retailer, said last week that third-quarter earnings dropped 9% as sales
and profit declined at its North American stores.
Good idea to stay
away from equities (as I keep hammering) -- unless you're shorting them. How
rewarding is that? This piece from The Financial Times (the pink paper):
hedge fund wins subprime bet
hedge fund has made more than 1,000 per cent return this year by betting against
US subprime home loans, making it one of the worlds best-performing
funds of all time.
set up in Santa Monica last year by Andrew Lahde, last week passed the 1,000
per cent mark, after fees, following the latest leg of the credit market turmoil.
The fall in the value of subprime-linked securities has boosted a group of
funds which spotted the problems in advance.
to use derivatives to short, or bet against, low-quality US home loans taken
by a select group of hedge funds last year appears to have become the most
profitable single trade of all time, making well over $20bn in total so far
this year. John Paulsons New York-based Paulson & Co, the biggest
of the group with $28bn under management, is said by investors to have made
$12bn profit from the trade already.
Lahde, whose fund is one of the smallest specialists shorting subprime, has
now begun to return money to investors, telling them in a letter: The
risk/return characteristics are far less attractive than in the past.
In his letter,
Mr Lahde said he expected the collapse in value of subprime mortgage-linked
securities to be repeated for bonds backed by commercial property loans in
a deep recession which he also predicts.
entire banking system is a complete disaster, he wrote. In
my opinion, nearly every major bank would be insolvent if they marked their
assets to market. He also said he would be putting some of his own
profits into gold and other precious metals.
Mr Lahde has
used the phenomenal returns to boost his business, launching a fund to bet
against commercial real estate this autumn -- which made 42 per cent in its
first two months - and is in the process of creating a third fund to
short credits with a broader mandate.
first fund, US Residential Real Estate Hedge V Class A, soared 712.8 per cent
in the year to the end of October, before this months sell-off pushed
it past the 1,000 per cent mark.
There is no
reliable data on how many other funds have made 1,000%, or ten times the investment,
in a year. But RAB Capital, London hedge fund manager, shot to prominence
in 2003 when it returned 1,475.5% in its Special Situations fund, which now
runs $2.4bn and is the biggest shareholder in troubled bank Northern Rock.
top performers include Paulsons Credit Opportunities fund, up 550.8
per cent to the end of October, and the Subprime Credit Strategies fund run
jointly by Texas-based Hayman Capital and Corriente Advisors, up 526.5 per
market is in a correction. This comes from today's
USA Today and pretty well sums up where we are today in stockmarkets:
In a sign of just how bad the recent selling has been on Wall Street, the
broad U.S. stock market sold off again Monday and is now down more than 10%
from its high the first drop of that magnitude in nearly five years.
Standard & Poor's 500 index is officially in a "correction,"
defined as a loss of 10% or more from a recent peak. It plunged 2.3% Monday
to 1407.22, erasing its 2007 gains and leaving it 10.1% below its Oct. 9 all-time
high of 1565.17.
is significant because it means the weakness in the stock market is broad-based.
The Dow Jones industrial average and Nasdaq composite are also sporting declines
of 10% and 11.1%, respectively.
me is how fast it happened," says Brian Gendreau, investment strategist
at ING Investment Management.
The swift reversal,
Gendreau says, can be attributed to continued turbulence in the credit markets
and big losses at many of the world's banks caused by a wave of mortgage defaults.
Wall Street is worried the housing meltdown will cause a recession.
surfaced again Monday. HSBC, Europe's biggest bank, said it was injecting
$35 billion to support two of its structured investment vehicles, or SIVs,
which have been hurt by the seizing up of credit markets. HSBC, according
to an analyst at Goldman Sachs, might also have to write down $12 billion
to cover losses in subprime mortgages and home equity loans issued in the
still a lot of concern with future write-offs," Gendreau says. "Until
we get a better read on how much damage the credit crisis has done to the
economy, stocks will go sideways at best."
which on average occur once a year, have been scarce since the bull market
began in October 2002. But investor reaction to the current double-digit slide
is similar to past corrections. Investors have become more defensive and are
shunning risk. "People are a little afraid," says Chris Johnson,
chief investment strategist at Johnson Research Group.
is flowing out of stocks and into U.S. Treasury bonds, considered among the
world's safest investments, says Mario DeRose, fixed income strategist at
Edward Jones. The benchmark 10-year Treasury note has been rallying. Monday,
its yield, which moves in the opposite direction of price, plunged to 3.84%,
from 4.00% Friday its lowest yield since March 2004.
flight to quality," says DeRose. "People are getting more risk-averse."
means stocks are half-way to a bear market, or a decline of 20%. The 2000-02
bear wiped out half the S&P 500's value.
is at a crossroads," says Johnson. "Right now we are teetering between
a bull and bear market."
funny is this? I bid the printing of my dictionary
to China, confident that I'll save big-time. The China printer bids 10% more
than it costs in the States. I ask why? He says they prefer to do all-color
books -- not books like dictionaries with only black printing on the inside!
The Chinese are going after high-value, pricey books. .
Travel tips: Your odds on misplacing or outright
losing your checked baggage are increasing, according to recent research by
The New York Times. Here's a combination of my ideas and the Times'
+ Don't check
any bags. Be frugal with your packing. I went recently to Istanbul without checking.
+ 60% of all mishandled
bags are because they failed to make connections. You can take your own bags
off and recheck them -- if you have sufficient time.
+ UPS your luggage ahead of your trip. Make sure you call your hotel to check
they'll accept your bags. I write "Arriving Guest" on the tag. That
way they give my bags to the bellhop. FedEx will overnight your bags. But they
+ Be early. Lots
of bags dont make the flight because they are checked in late, or barely
+ Don't check
anything valuable. If your bag is permanently lost, the liability limit is $3,000
for a domestic passenger. But that does not mean you walk up to the counter
and collect the cash. Airlines will want proof of what was lost, like receipts.
+ Don't buy large
presents. If you must, send them ahead.
+ Put identification
on and inside your bag. Include your cellphone number and your email
Bag missing? Go
quickly to the bag counter and make a report. Later, if your bag has not surfaced,
go to the airport. On a chaotic holiday weekend, with bad weather, hundreds
of bags can pile up. They are not the first priority of an airline trying to
get its fleet and employees where they belong.
question of semantics.
elderly couple, who were both widowed, had been going out with each other for
a long time. Urged on by their friends, they decided it was finally time to
discuss marriage. So they went out to dinner and had a long conversation regarding
how their marriage might work. They discussed finance, living arrangements,
and so on. Finally, the old gentleman decided it was time to broach the subject
of their physical relationship. "How do you feel about sex?" he asked,
she said, responding very carefully, "I'd have to say - I would like it
The old gentleman
sat quietly for a moment, then looking over his glasses, he casually asked,
"Is that one or two words?"
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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