In Search of the Perfect Investment

I continue to like Treehouse Foods: They make private label food for retailers who increasingly want their own label. Excellent management. Strong institutional and management ownership. Small public float. Improving financials:

When stocks get oodles of great press, they go up. The iPad is out officially this Saturday.

When stocks get oodles of bad press, they tend to lag.

Personally I think Google’s China problems will eventually blow over and the stock will go back to over $600. But it won’t happen quickly. Today I hear China is blocking all access to Google. The whole China thing has opened a strange inconsistency in the way Google does business. The China Argument is allegedly about censorship. But it’s not. Google was happy to censor its China searches until it got hacked from China — by the government or by private sources? No one really knows. To conform to local laws, Google  censors its search engine in many countries, including France, Germany and Australia.

Big dividend yields in REITs and other financials. My dear friend loves high dividend-paying stocks. He shared with me some of his picks. I don’t think he’ll mind my sharing them with you:

I-shares: CYE, DSU, HYF, PFF, PHK and PTY.
Healthcare: LLY and PFE.
Financials: AGNC, CBL, CIM, CMO, EPR, HTS, IVR, KRG, LXP, MSB, NLY, PBT and RSO.
Technology:ALSK, FTR, T, VZ and WIN.
Basic Materials: BP, ERF and PVX.

The yields on these range from 4.1% to 19.9%. Most are in the double digits.

Serious inflation is not here, yet. Much money has stayed in cash on the sidelines for fear of runaway inflation and skyrocketing interest rates. They haven’t happened. Interest rates and inflation remain historically low, despite the permabears. Two factoids:

1. From Thomas Hoenig, president of the Federal Reserve Bank of Kansas City and the lone dissenter in last week’s meeting of the Fed’s Open Market Committee.

When I was named president of the Federal Reserve Bank of Kansas City in 1991, my 85-year old neighbor gave me a 500,000 mark German note. He had been in Germany during its hyperinflation, and told me that in 1921, the note would have bought a house. In 1923, it would not even buy a loaf of bread. He said, ‘I want you to have this note as a reminder. Your duty is to protect the value of the currency.’ That note is framed and hanging in my office. (Quoted in Bernanke Running Amuck by Martin Weiss.)

2. From Wikipedia, a chart of U.S. inflation:

Why your kids need to read Too Big To Fail. You don’t need to pass an IQ test to buy a nice suit, rent a corner office or act omnisciently (and arrogantly). But suits and arrogance sure help if you’re making a career out of finance. The best present you can give your children is a stern, caveat emptor, warning about Wall Street. When my son Michael was 16, I took to visit a banker in Switzerland. The man recommended that I lie, cheat and steal — especially from the U.S. government. Michael was stunned. Now he’s reading The New York Times’ Andrew Ross Sorkin book on how the idiocy of top management in our top banks caused the recent financial meltdown, and the loss of so many billions of dollars in investor monies.  This is Michael’s second Caveat Emptor (buyer beware) financial experience.

You can pick the book up as an ebook for $9.99 for your PC (no Kindle needed) at Barnes and Noble or for your Kindle at Amazon. The hard cover is around $20 from the same sources. Personally I like Barnes and Nobles’ free software BN Reader, which lets me read it on my PC.

Dad –

Too Big to Fail is an engrossing read. I am only about a quarter of the way into the book (actually 27% according to my Kindle) but it reads quickly and is akin to a romance novel for finance geeks and investors alike. I am guessing many of your readers have already fallen trap to it.  (Anne is already rolling her eyes at how much I am reading it).

The story so far is essentially about two interesting and obviously interrelated topics:

1. The failings of Wall Street’s top leadership. The book starts by profiling each of the big banks’ CEOs – both their personal histories and their actions building up to the credit meltdown.

2. The incestuousness of Wall Street and Washington. The financial world’s leadership is by approximately 20 people who all knew each other, worked together, etc. It is an old boys club.

None of this is news but hearing the first hand accounts – the author, Andrew Ross Sorkin got great access  — is pretty eye opening. My eyes were especially opened about a few things:

These top leaders made incredibly bad and obviously irrational decisions. Their poor judgment was across the board and had many causes (blindness to reality due to years of unbelievable excess, pure hubris, believing “it couldn’t happen to me,” etc, etc).  Their hiring and firing decisions were the most irrational of them – just look at Lehman’s former CFO, Erin Callan.

Everyone is truly obsessed with Goldman Sachs – – other bankers, politicians, etc. The air of power and eliteness, clearly backed up by financial performance, makes everyone jealous and forces them to do unbelievably stupid things. It seems like many banks took on higher risk via more leverage just to see if they could out earn Goldman.

None of these actors would know reality if it hit them in the face. They don’t understand what the American people are going through and frankly don’t care. They throw around money and its trappings in ridiculous ways.  Many literally just didn’t “get it” with the widespread public annoyance around at their pay packages and severances. Heck, I could run Merrill Lynch into the ground for $40 million a year too.

Many of the leaders didn’t understand finance. They literally didn’t understand what was on their balance sheet and what wasn’t, and what the ramifications were.

I will report back more later but you should read it. You won’t learn much other than gossip, at least not in the first 27%, but it will keep you awake, which is saying something considering your ability to sleep.

And despite your hatred of the Kindle, I continue to love mine. A few major benefits:
+ The book was $9.99 vs. nearly $20 for hardcover
+ The Kindle is not a heavy huge book I can’t hold up
+ I can read it surreptitiously at my desk at work.

Love you,
Michael

China is becoming an Internet nightmare. And not just to Google. I receive about 50 emails a day offering me savings on “name brand” products. All the emails come from China. I am afraid to “unsubscribe” since that will alert them to my email address actually going to a live person. And then that email address has value.  They can then sell it.

I tried tracing the ownership of the Internet domain from which the emails are coming. I discovered that Yan Hua owns 652 other domains.  My emails to names I could find all came back, “return to sender.”

The BIG problem with the Internet is not the spam. Heck my spam filter gets rid of most of the irksome Chinese emails. The BIG problem is viruses you can contract which screw up your computer. I’ve warned about viruses that come in attachments. Don’t open them. I’ve not warned about viruses that come in pop-ups. Don’t click on them. The worst ones are ones that say you already have a virus and you’d better click on the pop-up to rid your PC of the virus. Don’t. The pop-up will give you a nasty virus that will give you headaches galore.

Robert McCartney is a reporter for the Washington Post. Recently, he wrote a piece which began “A loathsome computer scam crippled my laptop, and I wanted revenge.” He never got revenge. The virus came from China. You can read his agonies. Click here.

Here is what I recommend:

1. You will get a nasty virus. It’s only a matter of time.

2. You really will never be able to get rid of it — no matter how many times you run Norton.

3. The only solution is to swap out your now-corrupted hard drive with a non-corrupted identical.

This is cheap. Hard drives are insanely cheap. You need two types of backups. I’ve nagged on this before. First is a simply file by file copy of all your work.  That’s one hard drive. Use FileSync. Second, you need a clone of your working disk with all its working software. Use Acronis True Image and a hard drive identical in size to the one that’s in your PC.

Giving up on BankDirect. There are too many inconsistencies. Too many unanswered questions. When executives won’t talk to a financial blogger (i.e. me) you know there must be a rat there somewhere. Stay away from BankDirect and Texas Capital Bank, which apparently owns it.

Plotting to bring down our government. Here are eight members of the group of apocalyptic Christian militants who were plotting to kill law enforcement officers in hopes of inciting an antigovernment uprising. They were arrested yesterday. The New York Times published this wonderful picture today:

It’s time attack our Bucket List. Today, Susan and I are driving from La Quinta, California to Las Vegas, Nevada. Tomorrow we’re off for two days in Utah at

Bryce Canyon National Park, and then two days at

Zion National Park.

Passover begins tonight.

An elderly man in Miami calls his son in New York and says, “I hate to ruin your day, but I have to tell you that your mother and I are divorcing. Forty-five years of misery is enough.”

“Pop, what are you talking about?” the son screams.

“We can’t stand the sight of each other any longer,” the old man says. “We’re sick of each other, and I’m sick of talking about this, so you call your sister in Chicago and tell her.” And he hangs up.

Frantic, the son calls his sister, who explodes on the phone, “Like heck they’re getting divorced,” she shouts, “I’ll take care of this.”

She calls her father immediately and screams at him, “You are Not getting divorced! Don’t do a single thing until I get there. I’m calling my brother back, and we’ll both be there tomorrow. Until then, don’t do a thing. Do You Hear Me?” And she hangs up.

The old man hangs up his phone and turns to his wife. “Okay,” he says,” They’re both coming for Passover and paying their own airfares.”

Harry Newton will see you next when he emerges from the West, on Monday, April 5. That’s next Monday. I added some useful stuff to the right hand column.