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Harry Newton's In Search of The Perfect Investment Technology Investor. Harry Newton Previous Columns
9:00 AM EST, Monday, July 27, 2009. As I wrote on Friday, "I like what the market is doing, i.e. going up. But the fundamentals (especially company earnings and employment) don't support this heady action. I'm not making a call, simply being cautious."

Today's survival key is to obey our inviolate 15% stop loss rule. If this thing starts to crater -- and it easily could -- you want out ASAP.

On Friday Bloomberg ran a piece headlined "Stock Trading Slowdown Is Steepest in Two Decades." Bloomberg wrote, "Stock trading in the U.S. hasn’t slowed this much midyear in at least two decades, causing some investors to worry that the steepest Standard & Poor’s 500 Index rally since the 1930s will fizzle."

From Blackstone's recent annual meeting:
What We Got Wrong:

(1) We expected a normal recession, not a collapse;
(2) We expected tighter credit, not failure of our financial system;
(3) We forgot some lessons of the past;
(4) We let the continuing ebullient activity around us undercut our resolve;
(5) We made too many new investments.

To me, the BIG lesson is liquidity. We all need investments which we can sell when things go awry. That makes marketable securities -- like traded stocks and bonds -- especially appealing.

This recession is different, employment wise. From Sunday's New York Times: by superb reporter Roger Lowenstein.

The New Joblessness
The U.S. economy is not only shedding jobs at a record rate; it is shedding more jobs than it is supposed to. It’s bad enough that the unemployment rate has doubled in only a year and a half and one out of six construction workers is out of work. What truly troubles President Obama’s economic advisers is that, even adjusting for the recession, the contraction in employment seems way too high. As one administration official said, “This has been a very steep job loss.” One proof, he added, is that the country is deviating from the standard (among economists) jobs predictor known as Okun’s Law.

Steven Ahlgren of the New York Times

In the 1960s, Arthur Okun, a prominent economist, claimed to have discovered a mathematical relationship between the decline in output (that is, goods and services produced) and the rise in unemployment. It held up pretty well until recently. But this time around, although the decline in output would have predicted a rise in unemployment to 8 percent, the actual jobless rate has soared to 9.5 percent. So this recession is killing off jobs even faster than the things — like automobiles, houses, computers and newspapers — that jobholders produce.

The Federal Reserve now expects unemployment to surpass 10 percent (the postwar high was 10.8 percent in 1982). By almost every other measure, ours is already the worst job environment since the Great Depression. The economy has shed 6.5 million jobs — nearly 5 percent of the total, far outstripping the 3 percent that were lost in the early ’80s. Economists fear that even when the economy turns around, the job market will be stagnant. Keith Hall, the commissioner of the Bureau of Labor Statistics, sums it up as “an ugly picture out there.”

Explanations for the collapse of the great American job machine begin with the marked absence of what is called labor hoarding. Usually during recessions, firms keep most of their employees on the payroll even as business slows, in effect stockpiling them for better days. In the current downturn, hoarding seems to have gone into reverse. Not only are firms laying off redundant workers, but they seem to be cutting into the bone. Hall says the absence of hoarding means that firms do not expect business to pick up soon. This is supported by other evidence, like a doubling in the number of involuntary part-time workers (there are nine million of them) and the shrinking workweek, now 33 hours — the shortest ever recorded. Presumably, before companies start to rehire laid-off workers, they will ask their current employees to work more.

Those who hope for a rebound argue that employers, frightened by the financial shocks and the credit crisis of last fall, effectively panicked. That is, they cut deeper than necessary. And that may be.

But layoffs are only part of the story. The problem isn’t just that so many workers have received pink slips but also that companies are failing to hire. And this, unfortunately, has been a trend for most of the past decade (unnoticed, perhaps, because the mortgage bubble was papering over latent weaknesses). At the end of the Clinton era, which also marked the end of a decade-long boom, companies that were opening or expanding operations added nearly 8 workers for every 100 already on the payroll. During the recession of 2001, the figure dropped to 7 per 100: optimistic firms were a bit less optimistic. The surprising fact is that when the recession ended, the percentage stayed at 7. “We never got our groove back,” asserts Mark Zandi of Moody’s In the current recession, the rate has fallen to 6 per 100.

It’s hard to give a definitive explanation for this trend, but among the reasons are a decline in innovation in the aftermath of the tech boom, leading to fewer new businesses, and the aging of the population. More people have dropped out of the work force, and a smaller work force tends to dampen job totals. The percentage of adults who are working has fallen from 64 at the end of the Clinton era to only 59.5 now. Some of those dropouts are retirees, but some may be responding to the economy’s declining dynamism. Traditionally, it was a mark of Americans’ resiliency that, when times were tough, they relocated from state to state and region to region. Now, according to the Census Bureau, mobility is at an all-time recorded low. Perhaps people with underwater mortgages cannot afford to move. Perhaps the areas they used to move to, typically the Sun Belt, are too devastated by foreclosures. But the vaunted ability of the U.S. economy to renew itself seems a little tarnished. Maybe it’s no accident that this time around, folks on the unemployment line are staying there longer.

In terms of its impact on society, a dearth of hiring is far more troubling than an excess of layoffs. Job losses have to end sooner or later. Even if they persist (as, say, in the auto industry), the government can intervene. But the government cannot force firms to hire. Ultimately, each new job depends on the boss’s belief — or hope — that sufficient work will materialize. It’s a bit of black magic also described as confidence. Over the years, it is why America has not only attracted immigrants (whose arrivals are now slowing) but also generated more opportunities and — favorite word of politicians — hope for those born here.

The administration’s tilt toward so-called sustainable new jobs, in green energy and such, shows that it understands what is at stake, both for the country and for its political fortunes. Whether its plans will bear fruit is, of course, another matter. Along with double-digit unemployment, the country is facing a second potential scare headline: falling wages. Even during recessions, businesses don’t like to lower pay, because it reduces morale. But layoffs are also a downer. And in this recession, employers ranging from the State of California to publishers (including this newspaper) have cut back on pay. In effect, job losses have been so severe that businesses have been forced to spread the pain. In June, overall wage growth was zero. Zandi thinks the United States could see negative wage growth. ...

SearchMe blows through $44 million plus. It's not easy to raise money in today's world. Here's a story about an ertswhile well-funded promising startup. After going through $43.6 million, Visual search engine SearchMe has been looking for a new round of financing with no luck. CEO Randy Adams wrote to Michael Arrington of web site TechCrunch on Friday::

You are correct, we haven’t closed the financing. We knew when we started the company that to compete with the likes of Microsoft, Google and Yahoo,it was going to take at least $100 million, half to build the back end across thousands of servers and half to get distribution (maybe more with Microsoft spending $100 million on Bing advertising alone). What we didn’t plan on was the terrible downturn in the economy which made it impossible to raise another $50 million to get distribution (mainly through toolbar deals). In this economy nobody wants to invest that kind of money in a company that is pre-revenue, even if the net result is potentially a multi-billion dollar company.

There are some positive things though. In the process of trying to engage strategic investors we discovered that our tech really resonates with the people in the emerging broadband TV market where you will soon be able to easily access all the internet’s video on your TV. Directories don’t scale well so you’ll absolutely need search to find things to watch and visual search for multi-media content works much better than a list of links on your TV which you can’t read from 10 feet away. We are putting together some deals with chip vendors and set top box manufacturers to port the software over to their platforms and we are going to concentrate on that market going forward.

So the plan now (unless a buyer or white knight jumps in at the last moment) is to significantly downsize, take the site down for a while (probably tomorrow) and refocus the tech in a space where we don’t have to have 3,000 servers costing a million a month to run on the back end. We are going to have to do some serious restructuring to deal with our debt and recapitalize with a different capital structure but at the end of the day we should be able to create a healthier company with a MUCH lower burn rate, with the IP intact and a significant distribution channel. Headcount will go from 45 in the current company to probably about 10 in the new one which is very difficult for everyone but unfortunately necessary. We’ve brought back our former recruiter, Deva Santiago, to handle placement for those affected employees and we have some great talent so I’m sure they will get snapped up pretty quickly.

The site is off. Search for and you now get

The New Yorker on health-care.
The piece includes "Pretty much everybody who believes that health care should be a human right, not a commercial commodity, and who makes a serious study of the abract substance of the matter, concludes that the best solution ... (is) what's called a single-payer system, in which everybody is automatically covered. By the same token, pretty much everybody who believes the same thing, and who makes a serious study of the concrete politics of the matter, concludes that a change so sudden and so wrenching -- and so threatening to so many powerful interests --- is beyond the capacities of our ramshackle political mechanisms. The American health-care system is bloated, wasteful and cruel. Under the health-insurance-reform package now being bludgeoned into mishapen shape on Capitol Hill, it wil still be bloated, wasteful and cruel, -- but markedly less so." Here's the relevant part:

New York City subway activities. Photo taken on Friday afternoon:

The lady on the left is reading a book on her Kindle. The lady on the right is reading her email on her iPhone. She used to have a BlackBerry but finds the iPhone more user friendly.. She travels overseas often. She turns off the iPhone's voice (roaming charges are outrageous). But she gets email for free anywhere she can get on WiFi -- pretty well in most places.

Windows 7 is not exciting.
Anything is better than Vista. And that's why the tech press is thrilled. But there are major isssues why you will not want to upgrade. If you continue to use Windows XP (as I do), your move to 7 will be a total nightmare. In fact, Microsoft recommends for people like us that we buy a new PC. And even with our new PC, many of our old peripherals -- like printers -- may not work. We'll be forced to buy and install new ones. This has happened before. I keep an old Toshiba laptop on hand to run an old HP scanner. That scanner runs under Windows 2000. It doesn't work under Windows XP.

Windows 7's only "big" improvement over XP is its 30 second bootup. For more, read
Ten Reasons Why People Will Upgrade To Windows 7.

The fortune teller.
In a dark and gloomy room, the fortune teller was startled by what she saw in her crystal ball. She looked up at her customer, sitting across the table. 'There's no easy way to say this, so I'll just be blunt. Prepare yourself to be a widow. Your husband will die a violent and horrible death this year.'

Visibly shaken, the woman stared at the psychic's lined face, then at the single flickering candle, then down at her hands. She took a few deep breaths to compose herself. She simply had to know. She met the fortune teller's gaze, steadied her voice, and asked: 'Will I get away with it?

Woody Allen on sex.
That [sex] was the most fun I ever had without laughing.

Sex without love is an empty experience, but as empty experiences go, it's one of the best.

Love is the answer - but while you're waiting for the answer, sex raises some pretty interesting questions.

My brain - it's my second favorite organ.

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, though some look interesting. If you click on a link, Google may send me money. Please note I'm not suggesting you do. That money, if there is any, may help pay Michael's business school tuition. Read more about Google AdSense, click here and here.