Harry Newton's In Search of The Perfect Investment
AM EST, Wednesday, November 26, 2008: As our economy switches from
credit based to a prepaid, cash only, we're looking at likely major disruptions
to supply -- supermarkets without food because the supermarket couldn't pre-pay
its delivery bills, supplier and customer firms suddenly closing down because
their banks refused to extend working credit, and deals falling apart because
the buyer was denied access to credit by his bank. This is not Harry's
Mad Doomsday Scenario. This is the likelihood based on what I'm hearing
and seeing in recent days.
you're running a business, you need to plan for disruptions. You need to keep
major cash at hand. Our banks are acting increasingly irresponsible. They
are denying business loans -- loans that would previously have gone through
without a murmur. They are calling loans to be repaid that previously they
would have routinely rolled over. Paulson has bungled the bailout by doling
out money without conditions, such as "You banks should lend this money.
You should change the incompetent management that got you into today's mess,
China cut its key lending rate by the most in 11 years -- less than three
weeks after unveiling a $586 billion stimulus plan and cutting taxes for exporters.
. Lending rate in the U.S. is already effectively zero and our government
is printing dollar bills like there was no tomorrow.
worldwide are trying to avoid the calamity of the Great Depression. I'm not
forecasting that disaster. I do believe that things will get a lot worse before
they get any better. And that we all should be prepared with cash and reduced
expenses. It's sad to note that what cured the Great Depression was not government
bailouts, huge infrastructure construction or tax reductions, but the Second
this interview with Jeremy Grantham. He's one of our most successful
investors. For years, Jeremy Grantham, pre-eminent value investor, has been
the Cassandra of the investment community with warnings of financial and market
disaster. Grantham still sees danger in the global economy, but he has turned
a little bullish on the U.S. blue chips. In this, his first television interview,
Grantham tells Consuelo Mack why he is buying some stocks, what types and
what he sees ahead for the global financial system. As you listen to the interview
(done on November 21) you will find some interesting statements:
+ Two to one
the stockmarket will be down quite a lot next year. The S&P 500 could
hit 600 some time next year. (It closed last night at 857.)
+ Earnings globally
will be crushed in the next year or two.
+ This is going to be much worse than what I ever thought.
+ Most interesting
stocks are U.S. blue chips. But don't rush in. You need a seven year investing
was the major culprit. Putting an Ayn Rand liberal in charge of regulating
the U.S. financial system made no sense.
+ Being prepared
for the unexpected is where we should all be. The unintended consequences
could be severe.
+ Our economic
history is dominated by great bubbles.
Click on the
image for the video. Turn up the volume.
wholesale destruction of wealth continues.
Debt and falling asset prices lie at the root of our present wealth destruction.
As the value of assets decline, so the equity in the asset is squeezed. As
the values decline further, the equity is quickly wiped out. And as the value
declines further, so the borrower now owes money to the lender. This has happened
in recent weeks with margin calls from brokers. It's led to selling of good
and bad stocks -- anything to raise the money owed the brokers. But it's also
happening with companies which borrowed with covenants -- rules the borrower
must follow, or the lender gets his money back instantly, if not sooner.
1 is a company called LandAmerica Financial Group (LFG). This is its chart.
Yes, you read
right. A little over a year ago this NYSE listed company was selling for over
$108 a share. Last night it closed at 91 cents. That's 99% down. That means
this company has gone from a market cap of $1.7 billion at its peak to last
night's $14.1 million.
What does it
do? According to Wall Street Journal online, "The Company's products
and services facilitate the purchase, sale, transfer, and financing of residential
and commercial real estate. These products and services are provided to a
broad-based customer group, including residential and commercial property
buyers and sellers, real estate agents and brokers, developers, attorneys,
mortgage brokers and lenders and title insurance agents."
One of the things
LandAmerica does is to facilitate 1031 exchanges. Under our insane tax code,
you don't have to pay taxes on real estate you sold at a profit if you buy
another property quickly. You defer your taxes. You can defer them forever
if you keeping buying property. There are rules. One of them is that you must
deposit your proceeds with an authorized company like LandAmerica. And at
December 31, 2007 LandAmerica had "escrow and 1031 exchange money of
more than $3.2 billion." According to LandAmerica's web site:
has earned a Financial Strength rating of A- from both Standard & Poors
+ LandAmerica maintains an Investment Grade debt rating from S&P and
+ LandAmerica is the sole owner of an industrial bank which is used for
many 1031 Exchange transactions. This wholly owned bank holds a four star
rating from BankRate.com for one-, two-, and three-year CD deposits. All
deposits are FDIC- insured.
This week LandAmerica's
"valued" customers received a letter saying effective November 24,
it "is accepting no new customers and is terminating its operations."
It seems all the $3.2 billion is, well, sort of gone.
From the letter, "...portions of the 1031 funds are invested in illiquid
auction rate securities. Our inability to sell or borrow against these securities
has precipitated our decision to terminate operations. ... The auction rate
securities..., which were sold to us by certain financial institutions, were
highly liquid for many years. ...The auction rate securities market froze
earlier this year, and that extenuating circumstance prevents us from liquidating
Yes, dear "valued"
customers you haven't lost your money. It's just locked up in securities we
can't sell. And we're not standing behind our wholly-owned 1031 exchange subsidiary
that took your money. We're letting it go. Tough luck "valued" customers.
I also got stuck
in auction rate securities but New York Attorney General Andrew Cuomo forced
my brokerage firm to pay me out in full at par. I'm not too sure what happened
at LandAmerica. I'm guessing they got stuck in student loan auction rate securities,
the most toxic kind. LandAmerica's VP in charge of LandAmerica 1031 Exchange
Services, William Gessner seems to have disappeared.
William J. Gessner, esq. His LandAmerica phone number is 202-312-5126.
I don't have
to reiterate my warnings: Watch where you put your money. Don't believe the
ratings agencies. The agencies get paid by the people they rate. What do you
expect? Realistic ratings?
reason to support Innocence Project.
more than 19 years in prison for a murder prosecutors now agree he didn't
commit, Steve Barnes has rejoined his family just in time for Thanksgiving.
Barnes walked out of Oneida County Court a free man Tuesday after a judge
ruled that advanced DNA testing cleared him of raping and killing 16-year-old
Kimberly Simon in 1985.
and bruised body was discovered along the Mohawk River in Whitestown in
September 1985. More than two years would pass before Barnes was charged
with raping and killing Simon, an acquaintance who was a few years behind
him at Whitesboro High School.
Tried in 1989,
Barnes was convicted of rape, sodomy, depraved indifference murder and two
counts of murder related to the underlying sexual crimes.
claimed they saw Barnes with Simon near the crime scene. Police said they
found an imprint of Simon's jeans on dirt covering Barnes' pickup truck.
And a jail inmate testified that Barnes had discussed the girl's death.
from semen was recovered, the samples were too small to provide conclusive
evidence, prosecutors said. DNA testing technology was only a few years
old in the 1980s and quite limited.
Projecta national organization that takes up cases of wrongful convictiontook
up Barnes' case in 1996 and twice persuaded authorities to re-examine the
DNA evidence. The first results were inconclusive, but the latest tests
used a procedure more advanced in dealing with deteriorated or limited genetic
technology had existed in 1985, Steve Barnes would never have even been
arrested," said District Attorney Scott McNamara. He said the new tests
"definitively excluded" Barnes as a suspect and made his case
he was not angry at anyone for 20 years of lost freedom. "They say
life begins at 40," Barnes said, drawing cheers from crowd of family
and friends who pressed around him.
Project, a nonprofit group founded in 1992 to exonerate innocent prisoners,
has helped free more than 200 people.
The Australian Poetry Competition had come down to two finalists,
a university graduate and an old aboriginal. They were given a word, then
allowed two minutes to study the word and come up with a poem that contained
the word. The word they were given was ' TIMBUKTU .'
First to recite his poem was the university graduate. He stepped up to the
microphone and said:
the desert sand
Trekked a lonely caravan
Men on camels two by two
Destination - Timbuktu .
The crowd went
crazy! No way could the old aboriginal top that, they thought. The old aboriginal
calmly made his way to the microphone and recited:
Me and Tim
a huntin' went
Met three whores in a pop up tent
They were three, and we was two
So I bucked one, and Timbuktu .
recent New Yorker cartoon.
joy. The family will be there. Kiss and hug
them. I'll see you again on Friday.
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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