Harry Newton's In Search of The Perfect Investment
8:00 AM EST, Thursday, October 9, 2008:
My favorite magazine comments on the mess:
friend, the analyst, prays the Economist would actually publish this cover.
He figures then would be the perfect time to buy stocks. His theory: the press
always gets it wrong.
its largest bank. In recent days, there have been trading halts in Brazil, Russia
and Indonesia. The world is a mess.
Everyone is looking
for "total capitulation." This happens when investors despair and
dump everything in a widespread total panic. This total capitulation signals
the market bottom, making it safe to buy equities again. No one believes this
has happened yet. Hopes are running high for coming days. October is famous
for its stockmarket crashes -- 1929, 1974, 1987, 1997 and 2002.
is we'll have a big bounce (maybe today), then a big crash. Then it will be
safe to start buying again.
Everyone has their
theories. Mine remains: Cash is King. When in doubt, stay out. (Thank you, Todd.)
What we do know
about recent weeks:
+ There have been
no buyers. What one guru calls a "Buyers' Strike." (Everyone's money
is in treasurys, also spelled treasuries.)
+ The only BIG
sellers are hedge funds anticipating huge redemptions. And they're dumping their
erstwhile favorite stocks.
The big lesson
I take away from 2008 will be the necessity for speed. Nothing works
"long-term" any longer. I now believe I should change my inviolate
15% stop loss rule to 8%. Also I need to be much more conservative about profits.
If I make a little profit, I should take it instantly, if not sooner.
In today's ultra-volatile world, there is no long-term. Repeat that: There is
I continue to
like some of the Ultra-Short funds, including (there are others)
weekend reading: This new book is a fast read.
The title is a cute play on the flat world of Thomas Friedman and curved balls
+ Liquidity ..
is not much more than confidence.
+ The lifeblood of the global system was suddenly at risk as investors poured
their funds into the one short-term investment deemed trustworthy -- three month
U.S. Treasury bills. Why is that dangerous? It means that the financial market's
liquidity is drying up. ... In a similar way during Great Depression, investors
and savers stuffed their money into mattresses.
+ Consider the
example of UBS, Switzerland's largest bank and one of the largest financial
institutions in the world. During the 2007-2008 subprime crises, the Swiss central
bankers discovered, to the utter dismay, that the total financial exposure of
just one of their banks, UBS, amounted to more than 2 trillion Swiss francs.
.. Yet Switzerland's entire GDP is only 475 billion Swiss francs. ... The liabilities
of one bank alone are more than four times the size of the entire economy.
attractive are muni bonds? Talented investor
advisor, Paul Lobosco, questions my semi-love for muni bonds:
I read your
column this morning. I am a little concerned about munis, Harry. Not a lot
concerned, but a little. Here's why:
The insurance companies that gives some bonds an AAA rating are at risk.
Ratings agencies are under enormous political pressure NOT to downgrade certain
bonds, especially in New York. Such a downgrade would place significant additional
costs on issuers;
When the Governor of California holds his hand out for $7 billion, that sounds
like prologue to the rest of the country.
the credit crisis in general.
So, why do munis look attractive? Because prices have declined, right? Why
have prices declined? Value trap, perhaps?
Personally, I think smart money has been on the sell side of munis, generally.
Municipalities might have a tough time making certain payments. As one example,
it's not hard to picture a half-empty, brand new Yankee Stadium next year,
is it? Wouldn't that increase the chances of default on that particular bond?
I don't know, I'm just thinking about it.
In a fiscally conservative world, municipal bonds should not even exist. We
should save the money thru taxes for whatever purpose, and spend it as it
comes in. But America, and its politicians, want instant gratification. Spend
now, pay later. That's the entire premise for the muni market. Seems to me
that at times like this, with a massive credit contraction underway, default
risk would rise for such an arrangement. I'm pretty sure that part of the
bailout package was meant to address this.
The reason I'm sending you this is because I know you've had money in munis;
too much might be another form of 'yield chasing', as you put it. I have a
decent amount of client monies in munis and I'm not pulling any triggers.
It's just worth another look. I am not the #1 expert on this topic.
to spend your (taxpayer) money, in style. And
we thought Washington could manage this. From the Washington Post:
Gets More Government Bailout Cash
Only one day
after it was revealed that AIG had sprung for a $440,000 spa vacation shortly
after getting an $84 billion government-loan bailout comes this report: The
government is loaning AIG another $38 billion.
AIG, the world's
largest insurer, said it has already drawn down $61 billion on its $84 billion
line of credit from the government. AIG's financial products division got
into the mortgage-backed securities market and incurred billions in losses,
sending the entire company teetering toward bankruptcy. The $84 billion loan
was meant to help prop up AIG.
The New York
branch of the Fed Reserve will borrow $37.8 billion in investment-grade securities
from AIG in exchange for the cash.
During a hearing
before the House Oversight committee on Tuesday, it was revealed that just
last week, about 70 of the company's top performers were rewarded with a week-long
stay at the luxury St. Regis Resort in Monarch Beach, Calif., where they ran
up a tab of $440,000, ...
outside, Dana Point, California
and interior court
Henry Waxman (D-Calif.) showed a photograph of the resort, which overlooks
the Pacific Ocean, and reported expenses for AIG personnel including $200,000
for rooms, $150,000 for meals and $23,000 for the spa, Whoriskey wrote.
Today, AIG chief
executive Edward Liddy defended the vacation by pouring gasoline on the fire.
Such trips "are standard practice in our industry," Liddy said,
no doubt thrilling every other major insurance company.
In a letter
to Treasury Secretary Hank Paulson, obtained by ABC News, Liddy said the vacationers
were largely independent insurance agents who had sold well for AIG.
assure you that we are re-evaluating the costs of all aspects of our operations
in light of the new circumstances in which we are all operating," Liddy
wrote. "We understand that our company is now facing very different challenges
-- and that we owe our employees and the American public new standards and
From the Reuters
grilled former top executives at a hearing, Rep. Elijah Cummings, a Maryland
Democrat, said: "They were getting facials, manicures and massages,
while the American people were footing the bill."
new question in my life: Do I really need to subscribe to the paper
version of the Wall Street Journal? Upside: I can read it all online. Downside:
Guilt that I didn't read all of it, and disposing of the heavy newspaper. Today
I'm putting it the paper Journal on hold for a two weeks. Will I survive?
message of sympathy from Main Street to Wall Street.
comment on the present political scene: From
the wonderful New Yorker Magazine.
I met him twice. He was charming. He did have the most beautiful eyes on the
planet. My wife loves this true story.
A Michigan woman
and her family were vacationing in a small New England town where Paul Newman
and his family often visited.
One Sunday morning,
the woman got up early to take a long walk. After a brisk five-mile hike, she
decided to treat herself to a double-dip chocolate ice cream cone.
She hopped in
the car, drove to the center of the village and went straight to the combination
bakery/ice cream parlor. There was only one other patron in the store: It was
Paul Newman, sitting at the counter having a doughnut and coffee.
The woman's heart
skipped a beat as her eyes made contact with those famous baby-blue eyes.
The actor nodded
graciously and the star-struck woman smiled demurely.
together! She chides herself. You're a happily married woman with three children,
you're forty-five years old, not a teenager!
The clerk filled
her order and she took the double-dip chocolate ice cream cone in one hand and
her change in the other. Then she went out the door, avoiding even a glance
in Paul Newman's direction.
When she reached
her car, she realized that she had a handful of change but her other hand was
Where's my ice
cream cone? Did I leave it in the store? Back into the shop she went, expecting
to see the cone still in the clerk's hand or in a holder on the counter or something!
No ice cream cone was in sight..
With that, she
happened to look over at Paul Newman.
His face broke
into his familiar, warm, friendly grin and he said to the woman, 'You put it
in your purse.'
case you missed this brilliant Saturday Night Live skit.
To see the clip, double click on the photo. Or click
The is one of
funniest and most politically searing comedy sketches ever. The seven-minute
sketch featured a mock news conference of Democratic Congressional leaders on
the bailout bill, during which Nancy Pelosi and Barney Frank inadvertently acknowledge
that it was Congress that blocked reform and effective oversight of mortgage
giants Fannie Mae and Freddie Mac.
is an organization whose members have an IQ of 140 or higher. A few years ago,
there was a Mensa Convention in San Francisco, and several members lunched at
a local cafe.
they discovered that their saltshaker contained pepper and their pepper shaker
was full of salt. How could they swap the contents of the bottles without spilling,
and using only the implements at hand?
Clearly this was
a job for Mensa!
The group debated
and presented ideas, and finally came up with a brilliant solution involving
a napkin, a straw, and an empty saucer. They called the waitress over to dazzle
her with their solution.
they said, "we couldn't help but notice that the pepper shaker contains
salt and the salt shaker..."
the waitress interrupted. "Sorry about that." She unscrewed the caps
of both bottles and switched them.
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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