Harry Newton's In Search of The Perfect Investment
9:00 AM EST, Tuesday, October 28, 2008:
Dumb. Dumb. Dumb. Find me an investor with money in a money market fund. He'll
swear to me that his money is 100% safe because it's insured by the Feds. Let
me disillusion you: It's not. Here's what the Department of Treasury says on
The U.S. Treasury
Department has established a Temporary Guarantee Program for Money Market
Funds. Under this program, the U.S. Treasury will guarantee to investors that
they will receive $1 for each money market fund share held as of close of
business on September 19, 2008.
If you put money
into your favorite money market fund after September 19 (like yesterday,
for example) it is not insured.
This does not
mean that all money market funds will "break the buck," i.e.
lose you money. It means that if you have money with a fund, you'd better check
what it invests in. Remember Alice? A word is anything I want it to be. Your
money market fund could be a safe money market fund, investing only in treasuries
or it could be an unsafe money fund investing in everything from good corporate
bonds to bad corporate bonds.
In short, Check,
The only safe
investment today is U.S. Government treasuries. They're yielding basically
nothing because everyone is fleeing to them. Why the Federal Government doesn't
extend its insurance program on money market funds is beyond my brain to figure.
I refer you to yesterday's column which included a small section, "The
government is seriously mismanaging this crisis."
bear market is spiraling even lower: Call it
forced selling. Call it indiscriminate selling. Call it desperation. Whatever
you want. People and institutions are dumping what they own. (There are always
short-term "pops" in bear markets. I see futures are up this morning.)
The latest selling
comes from Calpers. This news is important because it's the biggest. It's selling
because it must -- because it doesn't have enough cash. Remember my lectures
about "Cash is King." Read the story from yesterday's Wall Street
Stock Amid Rout to Raise Cash for Obligations
By CRAIG KARMIN and JOANN S. LUBLIN
largest public pension fund, known as Calpers, is unloading stocks in a falling
market to make sure it has enough cash to meet its obligations.
come as the California Public Employees' Retirement System has had to raise
cash to fulfill commitments to private-equity firms and real-estate partners.
The giant fund's predicament is another sign of how the market selloff is
tightening the screws on pension funds nationwide. Many other pension funds
have similar partnerships and could also confront liquidity strains.
Members of the
board investment committee at Calpers held a closed-door session on Monday
and discussed ways to raise more cash, according to people familiar with the
matter. The issue was brought to the attention of the committee after members
of the investment staff expressed concern, a person with knowledge of the
keeps less than 2% of its assets in cash, but the recent demands have forced
it to raise that level.
receives more than enough cash from employers and members to cover its monthly
benefit obligations" to retirees and other beneficiaries, a Calpers spokeswoman
conditions, pension funds count on some private-equity partners to distribute
investment gains, while pensions owe some partners more capital. During the
recent market selloff, however, distributions have dried up while capital
calls continue. That's created a mismatch and a cash strain.
Since the credit
markets have tightened up and real estate and alternative investments aren't
very liquid, Calpers has been compelled to sell off stocks to raise large
sums quickly. Those sales are turning paper losses into realized losses.
it had $188.8 billion under management as of Wednesday, down 21% from the
end of June. The fund, which said it had about 63% of its assets in global
stocks at the end of August, has been punished severely by the stockmarket
that some of Calpers's troubles are of its own making. The pension fund is
the main investor in a partnership that is expected to lose much of its nearly
$1 billion investment in LandSource, a venture that owns thousands of acres
of undeveloped residential land north of downtown Los Angeles and that filed
for bankruptcy protection in June.
fund also has been without two of its top leaders, the chief executive officer
and chief investment officer, since they resigned at midyear. The fund has
been operating with interim people in those key positions.
tried to fill the CIO spot first, but without any luck. A former fund official
said that candidates were reluctant to take the job while the permanent CEO
position remained vacant. Calpers is now focusing on landing a CEO first,
recently hired a search firm and hopes to have its new leader in place by
December, people familiar with the matter say. The fund intends to have a
CIO by no later than February.
a politically well-connected attorney and the former California chief deputy
treasurer, is serving as interim CIO. She appears to be the only top Calpers
official vying for the CEO job, according to people familiar with the situation.
She doesn't have the investment experience that is common for a CIO of a large
fund, which critics say puts Calpers at a further disadvantage during this
particularly severe market crisis.
investment office is being capably managed by our interim CIO and her team
of seasoned investment professionals," the spokeswoman said.
1.6 million former and current public employees as members whose benefits
are contractually guaranteed. If the fund suffers large investment losses,
it has little choice but to hit up employers -- such as cities and counties
-- to increase their contributions. Calpers recently indicated plans to raise
the contribution level starting in 2010 and 2011, unless the recent investment
losses can be reversed. The fund estimates that employers would have to pay
an additional 2% to 4% of their payroll to Calpers if the June fiscal year
ends with returns of negative 20%, which the fund recently hit.
I redeem my hedge fund? Many investors have
stuck by their hedge fund/s, believing that their hedge fund manager was smarter
than the rest. It's true some have performed better than others. Here's a chart
to compare yours against:
This chart is
not comprehensive. It only reports on those hedge funds which reported. The
ones doing really badly did not report. Some hedge funds also are up mightily
this year. They're the ones that saw the contagion coming and sold short or
bought financial instruments that worked when disaster came. What you learn
from this inadequate chart (the best I have) is that some hedge fund "styles"
have done better than others. I talked to a hedge fund manager yesterday. He's
a value investor, a "fundamentalist." As he freely admitted, "my
skills are useless in this market of great values, but indiscriminate selling.
amazing statistic: Yesterday the Japanese Nikkei hit a 25-year low.
That means that if you had owned an index fund mirroring the Nikkei from 1983,
you would have seen absolutely no gains. This is a frightening statistic. No
wonder the Japanese put their money into the U.S. Their society is a mess. They
don't make sufficient babies. They don't allow immigration. They're getting
older. A friend quipped to me yesterday, "Do the math. In 400 years there'll
be one person in Japan."
money to be made in shorting. I've harped on the ProShares UltraShorts.
But they also, for the more conservative, have Shorts. ProShares has a
162-page October 1 prospectus out, which is actually quite useful.
You don't need
index funds to short. You can pick a sector that's doing awfully -- e.g. cars.
appliances, retailing. steel, coal, commodities and short your favorite misery.
Cramer last night was surprisingly negative on U.S. Steel, almost begging his
viewers to short U.S. Steel, even at its present depressed level.
your clocks and your computers. Daylight savings
time hasn't happened yet. But some of my computers and some of my "wireless"
clocks think it has. Why our wonderful government screwed around with -- of
all things -- daylight savings time -- is beyond me. Congress clearly has some
of the world's stupidest people. Today I read that Senator Ted Stevens of Alaska
is guilty of failing to disclose $250,000 of gifts. A miserable $250,000 and
the guy is going to lose his 40-year Senate seat and probably go to jail as
well. You have to be a total idiot! For what purpose?
from the Government. I'm here to help you. My
friend Dan has alerted me to the world's funniest video. It's clean, tasteful
and very funny. It teaches you, in simple, helpful language, how to install
your new TV converter box. Click
Politicians are a lot like diapers.... they should be changed frequently
and for the same reason. -- Robin Williams.
new camera: There are three types of digital
cameras. First, the tiny point and shoots. Second, the heavy single lens reflex.
Third, the new "in-between" line, as best exemplified by Canon's new
G10. There is no single camera for all seasons. For traveling light, I recommend
the new $300 Canon SD880. I have written about the SD850, which I own and love.
The SD880 is an updated version. There is also a $400 SD990. But you don't need
best in-between line camera is the Canon G10 with a $465 street price. It's
bigger and heavier than the SDs. You can still carry it in your pocket. But
it has some huge advantages. (Think of it as an Leica rangefinder.) Some specifics:
No shutter lag (if you remember to pre-focus). Lots of external controls. Custom
and manual setting, allowing you to tweak your photos to perfection. Big optical
zoom. Huge 14.7 megapixels. A hot shoe for an additional flash. (The on-board
flash is puny.) And -- one thing I really love -- you can take movies, as long
as one hour, in remarkably poor light.
back. Note huge 3" screen.
from the top. Note the three useful knurled controls -- for adding or subtracting
exposure, ISO and mode changing.
I'm having a ball
playing with my new G10.
the video. It really is funny.
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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