Harry Newton's In Search of The Perfect Investment, Technology Investor. Harry Newton
AM ET, Tuesday, December 15, 2009: I played
singles tennis for two hours yesterday. I thought to myself, "This is grossly
self-indulgent. I could spend the two hours researching great investment opportunities."
But the last time I spent too much time, I lost too much money. Anyway, what
is the pleasure of money if it's not to play tennis and feel good from the exercise?
Half my friends are croaking from new diseases. The other half are carrying
too much weight (and too little exercise) and soon will be croaking from new
learned: Patience is good. Saying you'll pay no more is good. Sometimes,
it actually drops to your price. It did yesterday on one item.
is me after Friday's bike accident: A vital
screw holding handlebars to the handlepost snapped. And I hit the pavement face
first. Not a pretty site. (Both me and the pavement.)
The screw was
1/8" in diameter. It should have been at least 1/4." and it should
have been hardened. It was a serious manufacturer defect. But I never figured
it out, until it was too late. The only lesson is that black swan events always
happen. And somehow -- with cash, patience, good health and a helmet -- you'd
better be prepared.
The world today
reeks of black swans -- from Greece to Britain, Ireland, Greece, Spain, Dubai
and now Austria. Commercial real estate ails are being blithely ignored by investors
as they rush to re-capitalize our banks, allowing them to repay TARP and themselves
finance spokesman Barnaby Joyce said publicly he believes the United States
government could default on its debt, triggering an ''economic Armageddon''
which will make the recent global financial crisis pale into insignificance.
Tim Backshall, chief strategist at Credit Derivatives Research, noted the
price (of credit default swaps implies) that the US was more likely to default
on its obligations than Japan, Germany, France, Quebec, the Netherlands
and several Scandinavian countries.
Read more on Crikey.
Cash and gold
remain king. There are places to put cash that don't pay nothing. But you got
to kiss a lot of frogs. I'm being enigmatic deliberately.
When they saw
my new face, everyone asked "What happened to you?"
My usual response
was "My wife hit me with a golf club."
responded with a question, "She waited all these years?"
to gold. Yesterday Nouriel said it was fool's
stuff. Today Richard Russell says there's a place for it. I agree with Russell.
There is a place for it:
2009 -- Since the start of 2000, China's official gold reserves have grown
by 167% to 1,054 tonnes, now the world's fifth largest central-bank hoard.
That contrasts with the US Treasury sitting pat at 8,133 tonnes (the world's
largest single hoard) and Western European banks selling around one-fifth
of their "legacy" holdings so far this decade, (now down below 12,016
tonnes). Courtesy of the BullionVault.com.
is one of the very few economists who predicted the world meltdown. That call
made Roubini famous. In the magazine, GQ, a full-length article about Roubinin
appears. (It's not available online -- Harry.) Quote -- "Roubini
is talking about a complete rebalancing of the global economy, something that
hasn't happened since 1945. Second, his hopefulness pertains to the world
economy as a whole rather than to the US specifically, for Americans. Roubini
imagines a future of weak recovery and increasing thrift -- of tight credit,
high unemployment, and of oil prices rising while overall growth remains weak,
possibly "70s-style stagflation."
This sounds very much like PIMCO's Bill Gross's description of the coming
(or perhaps already upon us) "new normal."
-- Buying and accumulating gold must be seen as a LONG-TERM proposition. I
can tell you that gold is going much higher, but I can't tell you when. I
can tell you what to buy -- gold bullion coins -- but I can't tell you when
it's going to go into its bubble phase. By the same token, I can tell you
that the dollar will go into its "water fall phase," but I can't
tell you when.
Don't buy gold
to "make a killing." Buy gold as a permanent store of wealth, and
one that can't go bankrupt. Rich people understand that.
eventually come to a boil, but the time of the boiling is never obvious. Apply
that thinking to the gold bull market.
China is now
the leading gold miner and producer in the world. China is actively encouraging
its people to buy and accumulate gold. And I wonder how long it will be before
the US government imitates China. Yes, I foresee the time when the US government
(as stupid as it's been, so far) will do a reverse and encourage the American
people to buy and accumulate gold.
and most of the Asian central banks still have only a small percentage of
their reserves in gold. All of these nations want to increase the gold percentage
of their reserves. There was an announcement over the weekend that the Russian
central bank was adding to its gold reserves.
US mutual funds
are now adding small quantities (percentages) of gold to their portfolios.
In most cases, the funds are buying gold for insurance. They will hold small
quantities of gold over the long term.
and oft-quoted men like Warren Buffett and Bill Gross will never mention investing
in gold. This is because buying gold is seen as unpatriotic. After all, buying
gold implies that you are abandoning the US dollar or at least hedging against
dollars and all fiat currency.
The Fed and
the Treasury must have some secret strategy for paying off America's fantastic
liabilities (debt) but nobody knows what it is. Many scenarios are now being
bandied about and some advisories claim to know "Bernanke's secret plan."
The unfunded liabilities are now so huge (far above $50 trillion) that rumors
of an eventual reneging on our debts are being seriously talked about. After
all, the US reneged on settling its debts in gold, much to France's anger
(France was calling in our gold as fast as it could) when President Nixon
shut the gold window. The US will no longer part with any of its (our) gold.
Like the Chinese,
I'm a learner. Over the weekend I talked to a lot of people, and I read a
lot. Following are some of the things I learned.
got any cash. Everybody I talk to needs cash. The Fed has spewed out trillions
of Federal Reserve Notes (we call them dollars), but where in hell are these
dollars? Joe the plumber doesn't have any. In fact, the poor guy can hardly
pay his bills. So who's got the blasted cash?
(2) The banks
have the cash, over a trillion dollars of it. And they aren't lending it out.
The banks don't want to mark their toxic mortgage loans to market -- rather
the banks are trying to build up cash reserves to ensure that they will stay
(3) In hard
times, nobody trusts anyone. And these are hard times. The banks don't trust
prospective borrowers, so the banks don't lend. At the same time, nobody trusts
the banks. Big time savers no longer trust overseas tax havens like Switzerland
(whose secrecy laws have become a joke) so they've cut back on sending money
are trying to store assets outside "the system" meaning the tax
system, so they are buying gems and objects of art and storing them where?
I don't know, you tell me.
(5) The stores
don't want to lay out money. So they're taking more and more expensive items
in on consignment. The wholesalers and manufacturers are expected to hold
and finance the merchandise.
people are moving out of the state of California. It's becoming an exodus.
California is broke, and the state's taxes are killing the people with any
means or income. If you want to start a business in California, don't do it.
Rather think Nevada or Texas.
(7) The American
people have developed a deep hatred for Wall Street and for Washington. Americans
are furious when they hear about the salaries and bonuses being handed out
by Wall Street. Goldman Sachs is seen as a greedy, unprincipled monster. The
talk radio hosts are livid, they want to throw both the Democrats and Republicans
out of the Congress and the Senate. The greedy banks are trying to get out
of from under the control of TARP (they want to give the borrowed money back)
so they can hand out big bonuses to their people again.
(8) Rents are
too high and "out of reality" for most small retail shops and for
most small businesses. The landlords are "out of it," and they're
living in the past. We're heading for a collapse in commercial rents and commercial
real estate prices. The store tenants are experiencing a dramatic drop in
traffic, and the high rents are killing them. The tenants are moving or going
out of business.
(9) Eating out
has become a luxury and a discretionary past-time. The new conservatism is
hurting most of the restaurants badly with many across the nation seeing their
revenue off as much as 40%. The fast food chains are cutting prices to survive.
McDonalds has a new $1.00 breakfast sandwich.
seems to know what Obama-health plan is all about. It's too complicated. Most
people (including doctors) are highly suspicious of the government taking
over America's health. Include me in that group.
are building about Obama's Afghanistan policy. Most people are afraid that
we're getting into another Vietnam.
(12) When auction
companies have truly expensive items to sell (large diamonds, masterpiece
paintings), they now skip New York. The big money auctions are now taking
place where the big money is -- in Hong Kong or Switzerland. The middle and
wealthy classes are growing very rapidly in China. Chinese buying of gems
and jade is surging. The Chinese understand intrinsic wealth as do Indians.
In India it's said there's billions in gold in private hands.
$580 billion stimulus plan has sent China's economy into super-high gear.
The result is a glut of new factories and an overall state of over-capacity.
The over-capacity is a force for deflation as China's production capabilities
ratio is now way out of whack (I wrote this over the weekend and I noticed
that the Wall Street Journal had a piece on it this morning). Silver is far
too cheap in relation to gold. One ounce of gold now buys over 60 ounces of
silver. Nevertheless, as the chart below shows, gold continues to climb in
relative strength against silver. Many silver experts believe that ultimately
owners of silver will make a killing. Very possibly (I like silver), but I
prefer holding gold. No central banks holds silver. The monetary metal of
the current period is gold, although it was not always so.
This is the
"great invisible crash." Below we see the broad Wilshire 500 index
compared (ratio) with gold. Gold is the time-honored standard, and the Wilshire
(a proxy for all US stocks) is collapsing in relation to gold. It's ominous
and it's definitely deflationary. Almost everything in the world that is tradeable
is declining against gold.
Below we see
a long-term perspective of the S&P Composite. Note the V-shaped bottom
in 2009. This V-shape reversal pattern is typical of the start of a correction
in a primary bear market rather than the start of a new bull market. Bear
market bottoms usually take the form of sideways movements in the averages
lasting for a few months or more. Note that the S&P has crossed below
its rising trendline. This is suggestive of a top forming, but the top will
take time. The top of a corrective rally is usually accompanied by good news,
the kind of news that tends to lure amateurs into the market.
Gift Guide. Covers books, home, DVDs, video games, electronics, music,
theater, style and travel. From the New
York Times. I just bought my wife a Samsung LN32B650. That's a small
32" LCD. But it fit her chosen space beautifully. It's a gorgeous TV. Bought
for $800 from Abt.
I bought the Canon
Powershot SD1200 for Susan for $149 also from Abt.
The SD1200 weighs five ounces. My beloved Canon G10 weighs 15 ounces. The SD1200
doesn't have all the bells and whistles of the G10, but it has a lot of them
(like 10 megapixels versus 14.7 for the G10) and takes perfectly fine photos.
The G10 costs $470.
Tiger Woods "humor".
It is near the Christmas break of the school year. The students have turned
in all their work and there is really nothing more to do. All the children are
restless and the teacher decides to have an early dismissal.
answers the questions I ask, first and correctly can leave early today."
said 'Four Score and Seven Years Ago'?"
can open his mouth, Susie says, "Abraham Lincoln."
right Susie, you can go home."
said 'I Have a Dream'?"
can open his mouth, Mary says, "Martin Luther King."
right Mary, you can go."
Johnny is even
madder than before.
said 'Ask not, what your country can do for you'?"
can open his mouth, Nancy says, "John F. Kennedy."
right Nancy, you may also leave."
Johnny is boiling
mad that he has not been able to answer to any of the questions.
When the teacher
turns her back Johnny says, "I wish these bitches would keep their mouths
The teacher turns
: "Who said that?"
Woods. Can I go now?"
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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