Previous Columns
8:30 AM Tuesday, November 30, 2004: As expected, when God closes a door, she opens a Window. (Please no more emails about He or She.) Suddenly the world is awash in investment opportunities, including:
1. A talented money manager, who deserves more money. I like his philosophy.
2. A revolutionary paint company that only gets better the more due diligence I do.
3. Two promissory notes -- one yielding 13% a year and the other 8.5%. Both of which pay more than the cash I have sitting there at 2% to 2.5%.
4. A real estate syndication in California that has the characeristics I love -- great location, great tenants, stable returns and great looks. The building has sex appeal.
5. An oil and gas company with remarkable potential.
6. A real estate investment magazine in Phoenix.
7. A bottling company in Brooklyn.

Some of these I have already committed to. I have three concerns:
1. Due diligence. How much is enough? The ancient question. It all takes time which distracts from important things, like tennis.
2. How much of my time do I want to spend on each of them? Some need me. Others will thrive without me.
3. How much should I stay in cash? Stupidity and the dollar are two concerns. Read on.

Stupidity is a prime concern. This morning I read Jonathan Hoenig's "Investing for Dummies" article on SmartMoney.com. Excerpts:

"THERE'S SOMETHING ABOUT having money that makes people do incredibly foolish things with it. Think of it as the investment version of the "wealth effect": Uncomfortable with savings and hesitant to sit on cash, many people insist on putting 100% of their assets to work, and not a penny less. This constant need to be invested prompts them to make investment decisions for exactly the wrong reasons. ..."

My second concern is the dollar. It's going down. The only question is whether the decline is "orderly" or "disruptive." No one has been able to predict that. Many hedge funds are betting against the dollar. I haven't, though I've written for months that the dollar will continue falling. The last time we had a problem was 1987 and that helped pull down stock prices by 25% in a single day. Frankly, I wouldn't object to that happening, since that would be a great time to step in and buy, though that would not be pleasant for my present meager portfolio. The markets obviously recovered nicely from the 1987 crash.

Business Week has a piece this week called "Why The Dollar Is Giving Way -- The problem: America's yawning deficits -- and foreign investors' waning interest in financing them." Excerpts:

"What's going on with the dollar? After falling steadily for the better part of two years, the greenback showed signs of stabilizing in the spring and summer. Massive dollar purchases by Japan and other Asian central banks, hopes that the U.S. trade deficit was peaking, and expectations that the Federal Reserve would hike interest rates rapidly all combined to put a floor under the U.S. currency.

But in the last few weeks that floor has suddenly given way. The dollar is once again on the decline, dropping to a record low vs. the euro, a four-year low vs. the yen, and a seven-year low against the South Korean won. Behind the latest downdraft: a stubborn U.S. trade deficit that refuses to stop climbing and growing hints from Japan, China, and other Asian nations that they might be willing to countenance an appreciation of their currencies to help narrow the shortfall. Moreover, Washington's lack of concern about the plunge has added fuel to the fire. Treasury Secretary John W. Snow has all but ruled out action to stop the dollar's decline, while Federal Reserve Chairman Alan Greenspan suggested on November 19 that a fall is inevitable. Put it all together, concludes Robert D. Hormats, vice-chairman of Goldman Sachs International (GS ), and "it's an invitation to sell the dollar."

So far the drop has been largely benign. Despite the dollar's 5% slide against major currencies in the last month and a 25% fall since its peak in early 2002, the global economy has continued to grow, and stock and bond markets have been steady. But history suggests that caution is in order. Currency markets are prone to excess -- and an uncontrolled fall of the dollar would be good for no one. It would disrupt financial markets worldwide and undercut global growth. "You could have a couple of rough patches," says ex-Fed official Edwin M. Truman. ...

At the heart of the dollar's difficulties is the ballooning U.S. current account deficit and the growing wariness on the part of foreign investors and central banks to finance it. Thanks in part to sky-high oil prices, the U.S. deficit looks on course to hit a record $600 billion this year. At close to 6% of America's gross domestic product, that's up from $496.5 billion last year and $421.7 billion in 2002....

Foreign investors and central banks are already showing signs of fatigue in funding that ever-rising U.S. shortfall. According to Treasury Dept. data, foreign investors bought a net $158 billion worth of long-term U.S. securities -- both stock and bonds -- in the third quarter, while foreign central banks purchased $42.4 billion. That's down sharply from the $176.3 billion and $91.3 billion they bought, respectively, in the first quarter.

In a speech in Frankfurt on November 19, Greenspan predicted that foreign investors would eventually get their fill of dollar assets and that a lower greenback and higher U.S. interest rates would be needed to keep them investing. That may be what's happening now. According to Catherine L. Mann of think tank the Institute for International Economics in Washington, global investors are chock-full of dollars after a buying binge that pushed the U.S. currency's share of their stock-and-bond portfolios up to nearly 50%, from 30% in the early '90s.

Even foreign central banks are diversifying their portfolios. "They have made a strategic decision that the dollar is vulnerable," says David Gilmore of consultant Foreign Exchange Analytics. First Deputy Chairman Alexei Ulyukayev of Russia's central bank rocked currency markets on Nov. 23 when he suggested that the bank might sell off some of its dollars for euros. "Most of our reserves are in dollars, and that's a cause for concern," he told reporters in Moscow. "Looking at the dynamics of the euro-dollar rate, we are discussing the possibility of changing the reserve structure."

Russia is hardly alone. Signs are growing that Asian central banks might be willing to cut back on their dollar purchases and allow their currencies to appreciate against the dollar. Japan so far has allowed the greenback to fall toward 100 yen without stepping into the market to stop it. That's in sharp contrast to earlier this year, when it bought a massive $140 billion in the first quarter alone to push the dollar above 110 yen. Behind the apparent shift in strategy: a growing confidence in the durability of Japan's recovery. South Korea, too, has let its currency appreciate, by some 7% over the last month, though it has since stepped into the market to stabilize the won.

Still, the big kahuna is China. Faced with a $160 billion trade deficit with China alone, the U.S. has been pressing Beijing to loosen its hold on its currency, which has been pegged at 8.3 to the dollar since 1994. At the Group of 20 meeting in Berlin, Central Bank of China Governor Zhou Xiaochuan said Beijing is "reviewing its old foreign-exchange control systems." What's most likely, experts say, is that China will accept a small appreciation of its currency sometime in the next six months by widening the range in which the yuan trades.

In anticipation that a Chinese move will lead to a regionwide currency revaluation, hedge funds and other speculators have sold U.S. dollars short and loaded up on South Korean won, Taiwan dollars, and Japanese yen. According to data from the Chicago Board of Trade, speculators were short the dollar on nearly 275 million futures contracts on Nov. 16, compared with 90 million on September 28. The selling began in late September as China's attendance at its first meeting of the Group of Seven industrial nations fanned speculation that Beijing would make a move on its currency. It accelerated after President George W. Bush's reelection on November 2 as speculators bet that the Bush Administration would not stand in the way of a further dollar decline and also would do little to bring down the U.S. budget deficit. ...

Provided the dollar's fall is gradual, it should prove manageable for the world economy. But that doesn't mean there won't be some dislocations. The higher inflation and interest rates brought on by the weaker dollar will mean that U.S. consumers will have less money in their pockets to spend. And U.S. companies will find it harder to make acquisitions overseas. "Many of us will feel a little bit poorer," says Kenneth S. Rogoff, former International Monetary Fund chief economist and now a professor at Harvard University. But Japan and Europe could be hit harder unless they take action to boost domestic demand to offset the loss of their exports.

Of course all bets would be off if the dollar suddenly nose-dived, dragging U.S. stock and bond prices down with it. That would raise the risk of a global recession. After all, it was a currency clash between the U.S. and Germany in 1987 that helped trigger the crash that pulled down stock prices by nearly 25% in a single day. Policymakers take note: When it comes to currencies, it pays to be careful."

Independence Community Bank (ICBC) is up for sale. Maybe. ICBC is one of the few permanent parts of my portfolio -- if there is such a thing as permanent. But it's been there through thick and thin. As I've written, I like their service (I'm a customer). I like their management. I play tennis with their CEO and am partners with him on the local (small) tennis court. Yesterday there were rumors the bank is up for sale. I've always thought that eventually the bank would be sold -- for a minimum of $45. Frankly, I'll be disappointed if the bank is sold. Though I will have made a nice profit, what will I do with the money? The best news is that some of my readers took my advice and bought into ICBC. As Reverend Ike said, "the best thing you can do for the poor is not to be one of them." And that's my goal for the readers of this column.



The typo. So what's new?
A new young monk arrives at the monastery. He is assigned to help the other monks in copying the old canons and law of the church, by hand. He notices, however, that all of the monks are copying from copies, not from the original manuscript. So, the new monk goes to the head Abbot to question this, pointing out that if someone made even a small error in the first copy, it would never be picked up. In fact, that error would be continued in all of the subsequent copies.

The head monk, says, "We have been copying from the copies for centuries, but you make a good point, my son." So, he goes down into the dark caves underneath the monastery, where the original manuscript is held as archives in a locked vault that hasn't been opened for hundreds of years. Hours go by and nobody sees the old Abbot. So, the young monk gets worried and goes downstairs to look for him. He sees him banging his head against the wall, and wailing "We forgot the 'R', we forgot the 'R'. "His forehead is all bloody and bruised and he is crying uncontrollably.

The young monk asks the old Abbot, "What's wrong, father?

"With a choking voice, the old abbot replies, "Celebrate, the word is Celebrate!"

Harry Newton

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:
First, 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. My email address is . You can't click on my email address. You have to re-type it . This protects me from software spiders scanning the Internet for email addresses to spam.

I have no role in choosing the Google ads. Thus I cannot endorse any, though some look mighty interesting. If you click on a a link, Google may send me money. That money will help pay my kid's tuition bills. Read more about Google AdSense, click here and here.
Go back.