Harry Newton's In Search of The Perfect Investment
Newton's In Search Of The Perfect Investment. Technology Investor.
8:30 AM Monday, September 26, 2005: Let's
start with the economic picture. Cumberland Advisors writes:
news: Money is pouring into startups. From the New York Times, "It's
a really good time to be an entrepreneur," said Peter Thiel, who helped found
PayPal, which eBay bought for $1.5 billion in 2002. "If you have a halfway
decent idea, you can get it completely funded." Mr. Thiel, who runs a hedge
fund called Clarium Capital, has invested in more than a dozen start-ups over
the last several years. "I don't know if there's even been a time quite like
this," he said, "when it's been so great to be an entrepreneur but not
so great to be an investor, given all the competition out there."
Rita on top of Katrina means all the stuff we revised a few weeks ago is out-of-date.
Initial Ritrina bullets:
1. Ritrina has impacted a multi-state region and we do not have the flooding
reports yet from what will be two feet of rain in some places. This means
somewhere between 5% and 10% of the nation's GDP is directly
2. For the 4th quarter of 2005 and the 1st quarter of 2006 we believe the
real growth rate for US Gross Domestic Product (GDP) will be under 2%. We
may be flirting with a recession.
3. The stimulus rebuilding effect will be minimal until the middle of next
year. We will start to see its positive side in the 2nd Quarter of 2006. The
huge amount of money coming from government will actually be spent slowly.
There is a lot of time between an appropriation and the payment to a contractor.
4. Non-energy corporate profits are headed lower for many sectors. The
risk to financials is rising. Investors must take great care if bottom
fishing in stocks. They could catch a falling knife.
5. High energy cost is now imbedded into next spring. Household natural gas
and heating oil bills will be shockers. This is not just about gasoline.
We estimate that the country's personal energy bill has risen from 4%
of Disposable Personal Income in early 2004 to over 6% now. We also
estimate that 6% will persist well into next year. Note: we cannot find
a shift of this much, this fast, in recent history.
6. Some energy companies are going to report monster profits this quarter.
Congress and state officials will launch calls for windfall profits taxes
and price controls. Hawaii has put them in place on wholesale gasoline;
Assemblyman Van Drew in NJ has a proposal in the legislature. If enacted,
these will only make a bad situation worse. The market can ration energy with
a price mechanism much better than a government official. We learned that
once in the early 1970s before this current crop of politicians reached adulthood.
We hope we don't repeat the error.
7. Interest rates on bonds are headed higher. All the forthcoming debt
issuance gives bond yields an upward bias. Bond portfolios remain defensively
8. The Fed has a bigger dilemma ahead. By the November meeting, The Fed will
see the negative results of Ritrina in the data. It will also see that the
Fed's preferred inflation measure, the market-based, core Personal Consumption
Expenditure deflator (PCE), remains below 2% (1.6% right now). The Fed Funds
Rate is 3.75%. That puts the "real" rate above 2% without any additional
hikes. What Alan Greenspan does as a Ritrina swansong will make interesting
From a talented chart watcher (if
there is such an animal):
He writes, "Keep an eye on crude as I have attached a perfectly formed H&S
that, if it breaks, stocks will surely get a major boost."
in Apple's Nano? From Business Week:
iSuppli tore apart a Nano to figure out what makers provide its parts. One
big loser was Synaptics, supplier of touch-sensitive chips that are key to
the original iPods click wheel. In the Nano, Synaptics was nudged aside
by an Apple-designed wheel using chips from Cypress Semiconductor. A winner:
PortalPlayer, whose audio chips were in hard-drive based iPods but dropped
in Apples first flash memory player, the iPod Shuffle. A specially made
PortalPlayer chip made it into the Nano. Few who purchase a 2-gigabyte Nano
(retail price: $199) will be shocked that, according to iSupplis Chris
Crotty, it has a 50% gross profit margin before marketing, distribution, and
other costs. Crotty pegs the cost of parts at $90.18, plus $8 for assembly.
Apple got a 40% break on flash memory from Samsung, he says. That price will
challenge rivals. But it could also give them supply headaches: Apple agreed
to buy 40% of Samsungs flash-chip output.
Muni-preferreds? Pars. You can earn 2.5% to
2.75% triple tax-free with these things. They're the best place to put cash.
Absolutely no principal risk and a decent return -- if you happen to live in
a high-tax state and city -- like I do. Write a Rodney Madden, a reader:
Your muni floaters
are the firm your assets are held name for them. Nuveen calls them "muni-preferreds"
and I custody assets at Schwab and buy them from there. I also use a Schwab-Goldman
product and they are called "Pars." It's funny because the comments
you make regarding brokers in this business are dead on. Most of the brokers
that I compete against won't even begin to offer something like cash management
even though it's in the best interest best of the client.
For income I also use Canadian royalty and business income trusts and also
the Canadian REITs. As long as one builds a diversified portfolio of these
and are not just exposed to oil/natgas or commodities in general then you
can flatten the volatility out. Their considered "qualified dividends"
in the eyes of the IRS because their actively managed trusts. US trust are
for the most part passive. Reits in Canada yield 7%+ and are considered qualified
dividends as well. Their real estate market is not as over-valued as the US.
US based Reits are ordinary income."
Solar for your new house? Not without subsidies, deep pockets and
faith. From Barrons:
good news is that as the industry has grown, the retail cost of solar energy
has dropped an average of 6%-7% a year for the past 15 years, says Rhone Resch,
director of the Solar Energy Industries Association, a trade group. Within
10 years, Resch says, solar should reach parity with the average retail electricity
not your grandpa's solar," says Ron Pernick, the principal of Clean Edge,
a Portland, Ore.-based research firm. He figures the costs of production have
been dropping about 18% for every doubling of output -- and output is doubling
every two or three years. Still, the industry isn't at parity yet. Resch says
solar power, at 22-23 cents per kilowatt, costs about twice as much as the
average retail price of electricity in the U.S.
Keep in mind,
too, that installing a solar system requires a large upfront capital investment
that may require some creative financing. Putting a solar system on your roof
with enough cells to run your house could set you back $25,000-$30,000. You
do get to lock in costs, though: Resch likens it to buying a car and paying
for 25 or 30 years of gasoline upfront.
your own back.
I pulled my back playing tennis a week ago. My back goes "out" every
8-12 months and comes back in a week or so. This book has been useful:
The book's findings:
1. Slouching and bad, lazy posture is a key contributor.
2. Don't sit for long. Get up and stretch regularly.
3. When seated, stick something like a lumbar roll in the small of your back.
4. Simple exercises make huge sense. The book has a regimen.
with a warning: This is a $255 Moview triple LCD monitor stand. It
took me most of Saturday to mount three Viewsonic monitors on it. Final result
is fine. Big key is not to loosen the screws. If you do, you'll lose
the screws inside the columns and you are literally screwed. I lost one. Better
deal: Build yourself a stand and simply use the monitors' own stands. The key
to this is figuring the stands' height first. Most monitors are designed to
work with a desktop and a flat desk. I'm using a laptop, which means I must
lift the monitors at least 9 inches off the table.
To buy this kludgey thing, click
forget to ask: Following my column, a reader writes:
things they say to Tech Support:
forget to ask" should be a mantra: I bought my wife a cannon SD 300 at
Best Buy on our tax free day here in MA, I got a few extras.
At the register I asked if there were any rebates, coupons or magic words
I could say that would get me an extra discount. The clerk replied, you just
did -- he knocked off $10 just for asking. Then 2 weeks later, the camera
was $50 cheaper, I went back with my receipt and they refunded to me the $50
-- no questions asked. (I quite often get discounts just for asking nicely.)
Tech support: What kind of computer do you have?
Female customer: A white one...
Click on the 'my computer' icon on the left of the screen.
Customer: Your left or my left?
good afternoon, this is Martha, I can't print. Every time I try, it says 'Can't
find printer'. I've even lifted the printer and placed it in front of the monitor,
but the computer still says he can't find it...
Customer: I have
problems printing in red...
Tech support: Do you have a color printer?
Customer: Aaaah....................thank you.
What's on your monitor now, ma'am?
Customer: A teddy bear my boyfriend bought for me in the supermarket.
Customer: I can't
get on the Internet.
Tech support: Are you sure you used the right password?
Customer: Yes, I'm sure. I saw my colleague do it.
Tech support: Can you tell me what the password was?
Customer: Five stars.
Are you running your computer under windows?
Customer: "No, my desk is next to the door, but that is a good point. The
man sitting in the cubicle next to me is under a window, and his printer is
"Okay Bob, let's press the control and escape keys at the same time. That
brings up a task list in the middle of the screen. Now type the letter "P"
to bring up the Program Manager."
Customer: I don't have a P.
Tech support: On your keyboard, Bob.
Customer: What do you mean?
Tech support: "P".....on your keyboard, Bob.
Customer: I'M NOT GOING TO DO THAT!!
Recent column highlights:
+ Blackstone private equity funds. Click
+ Manhattan Pharmaceuticals: Click
+ NovaDel Biosciences appeals. Click
+ Hana Biosciences appeals. Click
+ All turned on by biotech. Click
+ Steve Jobs Commencement Address. The text is available:
Click here. The full audio is available. Click
+ The March of the Penguins, an exquisite movie. Click
+ When to sell stocks. Click
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. Thus I cannot endorse any, though some look mighty interesting.
If you click on a link, Google may send me money. That money will help pay Claire's
law school tuition. Read more about Google AdSense, click
here and here.