Harry Newton's In Search of The Perfect Investment
9:00 AM EST, Columbus Day, Monday, October 13, 2008:
Australia's stockmarket rose 5.5% today. Its banks
have less toxic debt and -- most importantly -- the Australian government just
guaranteed every nickel on deposit in every Australian bank. Why
we limit ourselves to $250,000 -- giving agita to every business with a bank
account -- is beyond my tiny brain.
We're due for
a rally. If you still have any equities left --- shame on you -- the rally will
give you an opportunity to dump them. Because after that, this quarter is shaping
up to be really horrible. Factors, in no particular order, include:
1. The end of
the short selling ban.
2. Margin calls.
You cannot believe how dumb some executives are, or how much chutzpah they have.
Examples from a New
York Times piece
On Friday, Aubrey
K. McClendon, the chief executive of Chesapeake Energy, issued a statement
saying he had been forced to sell all of his 33.5 million shares in Chesapeake
because of a margin call.
Sumner M. Redstone,
the chairman of Viacom and CBS, disclosed that he would sell $400 million
in shares in those companies to pay down a loan. For shareholders, margin
calls can be painful, forcing them to liquidate portfolios at exactly the
worst moment, as stocks are near panic lows.
in July, with Chesapeake trading above $60 a share, Mr. McClendons stake
in the company was worth more than $2 billion the vast majority of
his net worth, which was reported at $2.1 billion in last years Forbes
400. But to meet last weeks margin call, Mr. McClendon sold his entire
stake, at prices ranging from $15 to $22.
The margin calls
are flooding investors and hedge funds today.
3. Hedge fund
redemptions. Why suffer the pain, the uncertainty? Get out. All the usual reasons
for losing faith in your erstwhile high-flying,high risk-taking hedge fund manager.
Now all you want is capital preservation.
4. Falling commodities
prices. Oil, nickel, iron ore, etc.
5. Business retrenchments.
With bank loans effectively shut, businesses will have to survive on the money
they generate from sales. This is actually possible. I did it for 27 years.
But a lot of businesses are far more capital intensive than mine was and will
have great difficulty. See the Sequoia presentation below which it gave to its
portfolio companies. Sequoia told its companies to stay lean and lean and to
forget raising capital.
6. Municipal governments
in crisis. California, noted for its spendthrift ways, asked the Feds for $7
billion bailout. Every other state or town is trying to figure where it stands.
The picture isn't pretty. There will be lots of firings and uncleaned streets.
7. Falling profits.
The car makers' woes are out. But there are many other industries that haven't
reported their woes, yet.
8. Excess production
capacity. For more, see the Sequoia presentation below.
I spent the weekend
reading the financial press feeling down or playing tennis and feeling up. You
can read the usual suspects online, the Wall Street Journal, Bloomberg, the
New York Times, the Economist, etc.
You can now watch
old TV shows and interviews on the Internet. The technical quality is remarkably
good. The interview will often give boredom a whole new meaning. My conclusion:
No one has any meaningful answers, though it is fun to watch billionaire George
Soros peddling his new book. "Buy my book, please."
Stuff to listen
+ Paul Volcker
on Charlie Rose.
+ Warren Buffett
Stuff to watch:
+ Sequoia Capital's
Slide Presentation of Doom. Here is the first slide.
Stuff to read:
New books rushed out. I suspect Smick's is better. Soros tends to push his old,
for the day. Seen on a church way down south.
If you want to
make up your own sign, go to www.churchsigngenerator.com/
couple walking out of the divorce court, the wife is crying her heart out.
Husband says '
Oh for God's sake stop crying, you're still my sister'
Tasmania is an island at the bottom of Australia. On this map, it's in red.
I've never been there. I'm told it's pretty.
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
click on my email address. You have to re-type it . This protects me from software
scanning the Internet for email addresses to spam. I have no role in choosing
the Google ads on this site. Thus I cannot endorse, though some look interesting.
If you click on a link, Google may send me money. Please note I'm not suggesting
you do. That money, if there is any, may help pay Michael's business school
tuition. Read more about Google AdSense, click
here and here.