Harry Newton's In Search of The Perfect Investment, Technology Investor. Harry Newton
AM ET, Friday, December 4, 2009: The Fed believes
low interest rates will encourage companies to borrow and banks to lend. Strange
idea. Meantime, you and I are suffering because of the dearth of income-earning
opportunities. Playing with NOW accounts, bank CDs, and even muni bonds is hardly
worth the time to fill out the paperwork. Richard Russell suggests some utilities
-- Southern (SO), Duke Energy (DUK), Consolidated Edison (ED), Pinnacle West (PMW)
and Pepco Holdings (POM) make sense. I check this morning. All five are paying
over 5% in dividend yield. Pepco is paying over 6%. I wouldn't touch PMW.
I believe it will go higher. But gold is faith
-- not logic. Gold is reading tea leaves and emotions. The question you need
to ask: Is gold a bubble or will more people flee to it? It's up 55.4% in the
last year and 14.6% in the last 30 days. In January, 1980 it topped out at $825.50
an ounce -- about $2,300 in today's dollars -- (it's now over $1200) and then
sunk to $298 by June 1982. Richard Russell, gold bull, writes:
Gold is now
like a "wrecking ball," smashing through everything in its way.
On the Comex there's a huge short interest in the Commercials, in large investors
(usually the funds) and in the small investors. Gold is pushing the shorts
to the wall as I write. Now we hear stories of Barrack gold closing its hedge
book by buying billions of dollars of gold. We hear of nations standing in
line to buy the rest of the IMF gold that's for sale. We hear news of various
central banks reversing their anti-gold stand and now buying gold instead
of selling it.
So far, the
only populations that are buying gold are the Chinese and Indians and probably
other Asians. As gold flows to China and the developing nations, it's a sign
that the East is growing stronger and the West is growing weaker. The only
policy the US government has regarding gold is stupidly to deny its power
and validity. Example, the Treasury values its huge gold hoard at 42.20 an
ounce. The Washington establishment remains blissfully ignorant of the very
meaning of gold.
A fellow called
Babak, gold bear, writes on Seeking
Gold is up 37.5%
for the year (so far) and up 70% from its November 2008 low. Thats especially
impressive compared to the S&P 500 which is only up 23% for the year.
So how long can this out performance last?
One of the most
adamant and unapologetic gold bulls for the past few years has been and continues
to be David Rosenberg of Gluskin Sheff. Recently Rosenberg opined that gold
could even rise to +$2000 levels:
If China were
to lift their gold reserves to 5,000 tonnes, which is equivalent to about
two years of global production, that shift in demand would boost the gold
price by $800/oz to around $2,000 ($1,978) based on our models. If China moves
towards 10,000 tonnes, well, that would end up taking the gold price to $2,623/ounce
if our calculations are in the ballpark.
word here being, if. Dashing the hopes of gold bugs, Hu Xiaolian, the vice-governor
at the Peoples Bank of China, called gold a bubble and threw cold water
on the idea that the Chinese central bank would increase their gold reserves.
But even an
unabashed gold bull like Rosenberg concedes that a correction is imminent.
For one, fund flows into gold have ballooned: gold holdings in ETFs is now
1766 tons, thats an increase of 48% from last year. Even if we ignore
that, there is an unmistakable whiff of giddy optimism from several gold sentiment
If we reduce
this to a high school analogy, it is difficult to be a rebel and stand out
when everyone else is rebelling. And if we ignore those high falutin
gold sentiment indicators, the chart is screaming MANIA! as gold rises into
a parabolic blow off (again).
And if we ignore
that, then there is the data from the Commitment of Traders reports which
are showing a record high in net long positions for speculators:
That is the
footprint left by giants like John Paulson, Paul Tudor Jones II and other
hedge funds who have piled into this trade.
The thing is,
an immediate 25% correction would only serve to take us back to long term
support. During golds 8 year bull market, it has almost always managed
to ricochet off its 200 day moving average. The only exception was in 2008
when price pierced that support by 25%.
But just like
an airplane losing its engines in mid-flight, gold wont plummet straight
down. So were looking at a possible correction between 20-40%. When
that will come about, I dont pretend to know.
And most importantly,
such a correction would not negate the long term bull status of gold but merely
be another short term correction, just like the many weve seen before.
bad is it? The Paris restaurant La Tour dArgent will sell 4
percent of its 450,000-bottle wine collection, a first since the restaurant
opened in 1582.
shopping? Try bargaining. Try offering 15%
to 20% lower. You'll be surprised how many shops, these days, will say, YES.
awesome foreign airports that make ours look awful. They include
Incheon, South Korea, Singapore Changi, Abu Dhabi, Munich, Amsterdam's Schipol,
Click on Green
I didn't have anything in Dubai. But they did
build the worlds largest tower (not completed), an indoor ski slope, a
honeymoon suite with a live whale shark, the flamboyant Plastik club that billed
itself Exclusively For The Filthy Rich And Aesthetically Perfect,
and a beach with underground refrigeration
because the sand was too hot..
Dubai turned out
to be a nightmare for many. Here's the story of a couple from Canada:
can't speak. Every time she starts to tell her story, she puts her head down
and crumples. She is slim and angular and has the faded radiance of the once-rich,
even though her clothes are as creased as her forehead. I find her in the
car park of one of Dubai's finest international hotels, where she is living,
in her Range Rover. She has been sleeping here for months, thanks to the kindness
of the Bangladeshi car park attendants who don't have the heart to move her
on. This is not where she thought her Dubai dream would end.
Her story comes
out in stutters, over four hours. At times, her old voice witty and
warm breaks through. Karen came here from Canada when her husband was
offered a job in the senior division of a famous multinational. "When
he said Dubai, I said if you want me to wear black and quit booze,
baby, you've got the wrong girl. But he asked me to give it a chance. And
I loved him."
All her worries
melted when she touched down in Dubai in 2005. "It was an adult Disneyland,
where Sheikh Mohammed is the mouse," she says. "Life was fantastic.
You had these amazing big apartments, you had a whole army of your own staff,
you pay no taxes at all. It seemed like everyone was a CEO. We were partying
the whole time."
Daniel, bought two properties. "We were drunk on Dubai," she says.
But for the first time in his life, he was beginning to mismanage their finances.
"We're not talking huge sums, but he was getting confused. It was so
unlike Daniel, I was surprised. We got into a little bit of debt." After
a year, she found out why: Daniel was diagnosed with a brain tumour.
One doctor told
him he had a year to live; another said it was benign and he'd be okay. But
the debts were growing. "Before I came here, I didn't know anything about
Dubai law. I assumed if all these big companies come here, it must be pretty
like Canada's or any other liberal democracy's," she says. Nobody told
her there is no concept of bankruptcy. If you get into debt and you can't
pay, you go to prison.
realised that, I sat Daniel down and told him: listen, we need to get out
of here. He knew he was guaranteed a pay-off when he resigned, so we said
right, let's take the pay-off, clear the debt, and go." So Daniel
resigned but he was given a lower pay-off than his contract suggested.
The debt remained. As soon as you quit your job in Dubai, your employer has
to inform your bank. If you have any outstanding debts that aren't covered
by your savings, then all your accounts are frozen, and you are forbidden
to leave the country.
our cards stopped working. We had nothing. We were thrown out of our apartment."
Karen can't speak about what happened next for a long time; she is shaking.
Daniel was arrested
and taken away on the day of their eviction. It was six days before she could
talk to him. "He told me he was put in a cell with another debtor, a
Sri Lankan guy who was only 27, who said he couldn't face the shame to his
family. Daniel woke up and the boy had swallowed razor-blades. He banged for
help, but nobody came, and the boy died in front of him."
to beg from her friends for a few weeks, "but it was so humiliating.
I've never lived like this. I worked in the fashion industry. I had my own
shops. I've never..." She peters out.
Daniel was sentenced
to six months' imprisonment at a trial he couldn't understand. It was in Arabic,
and there was no translation. "Now I'm here illegally, too," Karen
says I've got no money, nothing. I have to last nine months until he's out,
somehow." Looking away, almost paralysed with embarrassment, she asks
if I could buy her a meal.
She is not alone.
All over the city, there are maxed-out expats sleeping secretly in the sand-dunes
or the airport or in their cars.
you have to understand about Dubai is nothing is what it seems,"
Karen says at last. "Nothing. This isn't a city, it's a con-job. They
lure you in telling you it's one thing a modern kind of place
but beneath the surface it's a medieval dictatorship."
For the full article
from the English newspaper, the Independent, click here.
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 on this site. Thus I cannot endorse any, though
some look interesting. If you click on a link, Google may send me money. Please
note I'm not suggesting you do. Read more about Google AdSense,
here and here.