Harry Newton's In Search of The Perfect Investment
9:00 AM EST, Halloween, Friday, October 31, 2008: And
the end of the worst month in the stockmarket ever.
makes investing so difficult today is that so few things seem to be working
and so many seem to become total disasters in the flash of an eyelid
-- especially those investment strategies designed to be ultra-conservative
-- e.g. gold, oil, commodities and "safe" foreign currencies, like
the Australian dollar. And last night -- I read that my distress real
estate fund -- actually lost money in the September quarter. How can that be?
That thing is meant to do well when everything else is doing awfully. That distress
fund is my BIG real estate hedge. (Good thinking, Harry.)
I counsel you (yet again): Please resist the temptation to put your money to
work. Cash remains king. Putting your money to work is one of Wall Street's
totally stupid (but erstwhile effective) expressions designed to part us from
our heard-earned money.
the great philosopher Todd and his famous aphorism: Better to right and out,
than wrong and in.
I start today
with my belief that the U.S.'s economy is super-resilient and that we will get
out of this mess and eventually return to "business as usual," though
borrowing will be harder, asset values will be constrained and taxes will be
The biggest bear
of them all is Professor Nouriel Roubini. His dire predictions would be less
irritating if they hadn't been so right. Here are the main elements of Nouriels
Tsunami of corporate
defaults; 2-year U-shaped U.S. recession that threatens to turn into an L-shaped
one if policymakers do not regain control of the financial system; global
re-coupling to the U.S. will advance from non-U.S. markets to non-U.S. real
economies not even the strongest emerging markets such as Brazil and
China will escape global re-coupling; vicious cycle of deflation
in goods markets, labor markets, commodity markets, financial markets, corporate
and household earnings, and aggregate demand; de-leveraging to reduce excess
debt in municipalities, households and some firms; U.S.
stock markets declining another 20-30%, bottoming fall 2009 at the
earliest, then moving sideways for years post-recession if growth remains
anemic as it did in Japan after its 1990s real estate and equities bust; U.S.
unemployment rise to reach 8-9%; the demise of the shadow banking system.
commodities, U.S. and international equities, housing, and the USD are quite
risky right now. Seek safety in cash or cash-like instruments such as T-bills
and bonds of safe, large governments. Though he believes the U.S. dollar will
retain its reserve currency status for decades, its status will gradually
My Danish friend
I have owned
1,8 kg of gold since Denmark was near bankruptcy in 1980 when gold was $800/ounce.
It remains one of my worst investments ever, but it serves the double purpose
of reminding me hereof, and being an insurance policy should the Hal Turners
be shown to have been right.
Hal Turner? Mr.
Turner is a white supremacist, anti-semite who has concocted a theory that the
American government is about to replace the U.S. dollar with something called
the Amera, and in the process wipe out all the U.S. government obligations (i.e.
its treasuries) and make the U.S. dollar worthless. To view his conspiracy theory,
Harry: I dumped my commodities fund at the end of September. I read
Oct. 31 (Bloomberg)
-- Commodities headed for their worst month since at least 1956 on concern
that a slump in global economic growth will sap demand for raw materials.
CRB Index of 19 raw materials has plunged 23 percent this month, the steepest
decline in at least a half-century. Crude oil is set for a record monthly
drop, copper its biggest retreat in two decades and gold its worst performance
in 25 years.
is at last ending -- the worst month in commodity history,'' said Eugen Weinberg,
an analyst at Commerzbank AG in Frankfurt. "Investors are expecting lower
growth for the longer term and that is putting prices under pressure.''
how bad is global trade? Item:
Britannia Bulk Holdings went IPO in June at $15. Last night it closed
at one penny. -- one of the great IPO collapses of all time.
Britannia is a
real company with real assets -- ships. It schleps stuff like coal and does
a perfectly admirable job. Except that nobody wants its schleping services any
longer. Britannia no longer rules the waves. Try this morning's story from Business
The end of
Baltic Dry freight rate index fell below 1000 for the first time in six years
and last night it fell another 40 points to 885. In June the index was 11,900,
so it has fallen 93 per cent in a few months a crash far worse
than anything ever seen in the stockmarket.
The spot daily
rental for a Capesize ship is now $6,365, down from $234,000 per day over
the space of a few weeks. Maybe that previous price was absurdly inflated,
but at $6,365 it is just $365 above the average daily cost of crews and fuel.
As a result
the worlds ports are filling with empty ships because shipowners cant
afford to run them, as well as some full ships because the owners of the cargo
wont unload without a bank letter of credit, which banks are refusing
are starting to file for bankruptcy in increasing numbers as they breach loan
covenants, and a shipping researcher, Andreas Vergottis of Tufton Oceanic
has told Bloomberg that a fifth of the worlds dry bulk companies may
soon have negative net worth because the market for secondhand ships has collapsed
and the value of their fleets is below outstanding debt.
loan agreements, shipping companies debt covenants have loan to value
ratios that are typically 70 per cent. As the value of their fleets decline,
banks are making margin calls.
expected, US GDP fell in the September quarter by 0.3 per cent. The
only reason it wasnt worse was government spending, which added 1.1
per cent to the rate of GDP change. There was another 0.6 per cent from private
inventories that is, unsold goods.
In any case,
US economic data is always rushed out quickly, based on guesswork, and then
revised later. Most of the guesses in this mornings figure look optimistic,
so it is very likely to be revised downwards.
Even on this
mornings optimistic estimate, it is the first year-on-year decline
in GDP since 1991, so this recession is already worse than 2001 and clearly
has a long way to go.
that in 1990-91 and 1980 and 1973 and 1961 for that matter the
monetary and fiscal authorities were more or less in control. Or rather
they started it.
were caused by central bank and government efforts to control inflation. This
time its all about a spontaneous collapse in private sector credit and
governments around the world are desperately trying to counteract its effects
with interest rate cuts, liquidity injections and fiscal stimulus.
except the IMF. It is imposing the most horrendous conditions on bailout loans
to bankrupt countries.
As the rest
of the worlds official interest rates come down, Icelands this
week went up 6 per cent, from 12 to 18 per cent, as a condition of its $US2
billion rescue package.
Belarus, Pakistan and Ukraine are now facing the most excruciating choice:
default on their debts or ask the IMF for money at the expense of crushing
their economies under the weight of a massive increase in interest rates.
As Ambrose Evans-Pritchard
writes in last night's London Telegraph: A deflationary strategy of
this kind could prove counterproductive or worse if applied
in enough countries simultaneously. It would defeat a key purpose of the rescues,
which is to stabilise the global financial system. ...
world in general has recoupled (if it was ever decoupled) and
the removal of hedge fund investments in their currencies, government debt
and sharemarkets will, in many cases, result in deeper recessions in those
countries that in the US where it all started.
Which is why
global shipping has collapsed: it is the harbinger of the end of the era of
trade, in which third-world labour costs kept first world inflation down and
allowed interest rates to fall and stay low and debt to be increased to an
of importing deflation (or, more precisely, disinflation) from developing
nations especially China and India relied on trade: raw materials
in; finished goods out.
The fall in
freight rates for both dry bulk carriers and container ships is telling us
that its over.
I think the conclusion
is too harsh. But then, "too harsh" has proven too accurate in recent
Lenovo laptops. I
love Lenovo's tiny, powerful X61 laptop. My son carries it to school. I carry
it to the tennis court. Lenovo has discontinued the X61 in favor of new ones
that don't sport my favorite laptop accessory -- a pointing stick. You can pick
up some neat X61 bargains at Lenovo's
best investment of 2008: Auction rate preferreds.
Yesterday I got the last of them redeemed at par. I got all my money back with
interest. Some days they were paying me over 10% -- triple tax-free. Heh, that's
better than a slap in the belly with a cold fish. And the best news? My money
was locked up from mid-February to yesterday. So I couldn't be tempted to do
anything stupid with it. Right now it's sitting in cash.
you selling something? Do it fast. Item:
owner Wayne Huizenga is looking to run a hurry-up offense and unload a 45%
share of his NFL franchise before 2008. Huizenga is eager to finish a deal
as quickly as possible to sell 45% or more of his stake in the Dolphins to
co-owner Stephen Ross because he anticipates a Barack Obama win in the presidential
election could result in a doubling of his capital gains tax bill, according
to the Sun-Sentinel.
do it this year or you do it next year, the difference is humongous because
of the taxes," Huizenga told the Sun-Sentinel.
that his capital gains tax from the sale would double under Obama. But the
Obama camp disagreed, telling the Sun-Sentinal that the Democratic candidate's
plans are to raise the capital gains tax maximum from 15% to 20%, an increase
of 33%, not the doubling that Huizenga fears. The top rate would be for families
earning more than $250,000 or individuals earning more than $200,000.
bad jokes for our times:
+ How do you define
A banker who irons five shirts on a Sunday.
+ What do you
call 12 investment bankers at the bottom of the ocean?
A good beginning.
+ Resolving to
surprise her husband, an investment banker's wife pops by his office. She finds
him with his secretary sitting in his lap. Without hesitation, he starts dictating,
"...and in conclusion, gentlemen, credit crunch or no credit crunch, I
cannot continue to operate this office with just one chair."
+ What's the difference
between investment bankers and London Pigeons?
The pigeons are still capable of making deposits on new BMW's
+ What's the difference
between an investment banker and a large pizza?
A large pizza can feed a family of four.
Q: Why are all
MBAs going back to school?
A: To ask for their money back.
+ I had a check
returned marked "Insufficient Funds"
Mine or the bank's?
+ What have Icelandic
banks and an Icelandic streaker got in common?
They both have frozen assets
+ Money talks.
Trouble is, mine only knows one word - Goodbye.
+ "This is
worse than a divorce. I've lost half my net worth and I still have my wife."
+ How do you successfully freeze your financial assets?
Invest in an Icelandic bank.
+ I bought a toaster
They gave me a bank.
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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