Harry Newton's In Search of The Perfect Investment
Newton's In Search Of The Perfect Investment. Technology Investor.
8:30 AM EST, Tuesday, September 4, 2007: What
a great weekend. There were two big benefits -- oodles of exercise for me playing
and watching tennis and oodles of business for the makers of SPF 30 suntan cream,
who sold me lots of it.
two years of cash at hand: When everybody runs
for the doors, assets get sold in
a panic and their prices plummet. Two years of the cash you need for expenses
is now my rule. The Economist's Buttonwood explains liquidity:
and the short of it.
ILLIQUIDITYthe difficulty of selling assets at a reasonable priceis
at the heart of all financial crises. The market turmoil of the past few weeks
is proving that maxim, albeit in novel and interesting ways.
system has been transformed over the past 25 years, with the emergence of
new investors (hedge funds and private-equity groups) and new instruments
(derivatives and structured products). But what look like incredibly sophisticated
strategies on the surface can still be very simple at heart. Investors have
been doing what banks have done over the centuries, borrowing short and
lending long. Or, to put it another way, they have borrowed in liquid
form and invested the proceeds in illiquid assets.
Most of the
time this strategy works, because illiquid assets offer a premium return to
compensate for the higher risk. It has been given an extra kicker over the
last two decades by the Great Moderation in the global economy.
Falling inflation and steady growth have meant that periods of economic turmoil
have been shorter than expected, causing less pain to investors.
But the markets
never rest. As more money flowed into risky assets, the excess yields on
offer were reduced. Investors were tempted to use more and more borrowed money
to enhance the returns. That left them very vulnerable to any abrupt change
of structured investment vehicles (SIVs) are a case in point. These are specialist
funds, kept separate from their parent company's balance sheet, that invest
in illiquid assets, such as securities backed by subprime mortgages. They
funded those long-term investments by borrowing short-term in the money markets,
in the form of commercial paper. Other investors were happy to buy that commercial
paper because it was asset-backed, in the form of the mortgage
worried about the value of the mortgage-backed debt, are boycotting the commercial
paper. The amount of paper outstanding has fallen by $181 billion in two weeks,
according to Société Générale, a French bank.
This has driven the vehicles on an increasingly desperate hunt for funding.
On August 28th Standard & Poor's, a rating agency, downgraded one SIV,
Cheyne Finance, and gave warning that it may be forced to sell all of its
The effect is
rippling through the system. First, forced liquidations push down the price
of assets, hitting confidence further. Second, some of these SIVs were either
set up by, or have back-up lending facilities with, banks. So banks are ending
up back on the hook. Third, these unwanted assets are putting additional strain
on banks' balance sheets, which forces them to restrict their lending. It
all adds up to a classic liquidity crisis. ...
may have been increased by the lack of transparency in the modern financial
system. No one is sure who owns what, so investors are treating all counterparties
with suspicion. And the much-touted advantage of the system the way
that risk has been dispersed looks less convincing now that banks have
been saddled with the cost of funding private-equity buy-outs and SIVs.
In the past,
liquidity crises have been solved by the emergence of a confident buyer with
deep pockets, such as John Pierpont Morgan in 1907. But who could it be this
time? Pension funds and insurance companies no longer have the flexibility,
while hedge funds are facing tighter funding and the prospect of redemptions.
That leaves the sovereign wealth funds of China and the Middle East. But even
if they want to buy in bulk, do Western governments want to let them?
save everything in Outlook: Microsoft's Outlook
has become the most popular business program, used by everyone for their email,
for managing contacts and for organizing their lives in calendars. However,
Outlook is a baby program, a poorly-designed afterthought by Microsoft to juice
up an unchanged version of Office. No one at Microsoft foresaw how popular it
would become, or, worse, how much of their lives users would store in Outlook.
Outlook stores everything in one humungous file -- typically called "Outlook.pst."
That's the file you must back up regularly -- at least once a day. That's
the file you must clean regularly. Delete crap. Delete junk mail. Permanently
delete all your deleted files. Save large attachments outside Outlook and "compact"
the file regularly.
you've deleted crap and removed big files, you compact the file Outlook.pst:
Right-click Personal Folders. Left-click Properties. Click Advanced. Click Compact
Essential Mac utilities. from ComputerWorld magazine. click
bought two TVs for the new house: I bought the Samsung 50"
Model HLT5076s for my office. It's a heavy DLP that I won't hang on the
wall. I believe DLPs deliver the best picture for all inputs, especially normal,
non-HDTV. I bought the Panasonic TH-50PZ700U 50" plasma for mounting
on the bedroom wall. Both sets will show 1080p -- the top standard in HDTV.
At $1,300, the Samsung costs $1,000 less than the Panasonic. But all large-screen
TVs are coming down in price. I bought both from Amazon. They were a lot
cheaper than Best Buy, offered free shipping and didn't charge tax. We'll
see if they arrive in one piece.
hyperinflation is unreal:
It's now running at 7,634.8 percent a year. One million Zimbabwean dollars
is now worth only $US5.50, probably less by the time you read this. Sadly, you
can't short the Zim dollar. No one wants to be on the other side of that bet.
No suitcase is safe: Thefts
from checked luggage have risen dramatically since the Transportation Security
Administration demanded all checked suitcases be unlocked. The New York Times
has a piece on it today.
To my brain, there are only solutions: Carry with you what you need. Or send
your luggage ahead by UPS or FedEx.
Tennis Open. This is the "official" TV schedule. But it's
not the way it comes down. Yesterday some CBS stations saw the Jerry Lewis Tel-A-Thon,
not the tennis. Last night's Federer match got switched from USA network to
CNBC. All this confuses my poor TiVo. My TiVo never got to record the Federer
match. But my friend marveled at how my DirecTV was showing tennis while his
was showing Jerry Lewis. I explained: Lie to DirecTV about where you are.
If you tell them, you're in New York City, they'll give you New York City local
TV channels. If you tell them where you really are -- upstate New York, they'll
give you Albany channels, where they were playing Jerry Lewis, not tennis.
strife, and a logical solution.
Husband (a doctor) and his wife are having a fight at the breakfast
Husband gets up in a rage and says, "And you are no good in bed either,"
and storms out of the house.
Later he realizes he was nasty and decides to make amends and rings her up.
She comes to the phone after many rings, and the irritated husband says, "What
took you so long to answer to the phone?"
She says, "I was in bed."
"In bed this early, doing what?"
"Getting a second opinion."
the bridge to Hawaii.
A man was riding his Harley along a California beach when suddenly
the sky clouded above his head and, in a booming voice, the Lord said, "Because
you have tried to be faithful to me in all ways, I will grant you one wish."
The biker pulled
over and said, "Build a bridge to Hawaii so I can ride over any time I
The Lord said,
"Your request is materialistic. Think of the enormous challenges for that
kind of undertaking; the supports required for reaching the bottom of the Pacific
and the concrete and steel it would take! It will nearly exhaust several natural
resources. I can do it, but it is hard for me to justify your desire for worldly
things. Take a little more time and think of something that could possibly help
The biker thought
about it for a long time. Finally, he said, "Lord, I wish that I and all
men could understand women; I want to know how she feels inside, what she's
thinking when she gives me the silent treatment, why she cries, what she means
when she says nothing's wrong, and how I can make a Woman truly happy."
The Lord replied:
"Two lanes or four?"
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 .
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