In Search of the Perfect Investment

I am long mortgage REITs — AGNC, NLY and MITT — and a few other select (but not many) stocks, like Con Edison. I am short some stocks, including Radio Shack, Research in Motion (BlackBerry), and JPMorgan. Because I am old (I turn 70 on Sunday), most of my liquid assets are in muni bonds, and cash or cash-like things, like CDs in Australia. I also have a sizeable investment in syndicated real estate, most of which pays a dividend. I don’t think this is “The Perfect Allocation.” But since I don’t have a day job, Susan and I have to live on the dividends from what we have — hopefully without touching the principal.

In business, I took bets on “sure” things — those I understood  and those I could control — by cutting expenses, marketing and selling more aggressively, etc.  When I sold the business I moved into the arena of “investing,” which I now see as gambling — not something I can control, nor predict. Something that makes me very uncomfortable.

I relate to “value” investing. Finding stocks that make great products and do great things, e.g. Apple and Nike. But I fear the economic and sentiment environment often kills their deserved appreciation.

I have, of late, felt more comfortable predicting demises — RadioShack, Besy Buy, etc.  Hence my huge chart of preferred shorts yesterday. Naturally the day I run my latest big list of shorts, the market rallies and all my shorts lost money. But, to compensate, my mortgage REITs all rose handsomely. On balance yesterday was very profitable, at least on paper. Diversification pays.

Still, I look to the economic scene — India and China slowing, Europe in a mess, the U.S. slowing (in employment and technology). And I say, this chart is likely to keep falling:

The New York Times this morning asked a bunch of chartists what they thought about the immediate future. They weren’t positive. the headline on the story was “Analysis: Wall Street Due for Further Dip? Charts Say Yes.” To read it, click here.

Europe is the big unknown. Will they fix themselves or let it all fall apart? Today I read of the Greek government running out of money to pay its employees. Which encourages even more Greeks not to pay their taxes. I read of a run on banks in places like Greece, Spain and Italy. Heck would you want your money in an ailing European bank, despite your monies being allegedly insured to 100,000 euros. And now comes word that Germany is a concern — its industrial output is declining and it mightn’t be so safe.  From Business Insider this morning:

Investors hoping to avoid the turmoil of the euro crisis have been pouring their money into German bunds and assets, expecting nothing but a safe place to store their money. And with German economic data continuing to come in strong, these have seemed like safe assets.

But are they, really?

Carmel Asset Management’s Jonathan Carmel gave this massive presentation on German exposure to the potential outcomes of the eurozone crisis, and concluded that “Germany is riskier than you think.”

Since the beginning of the European Monetary Union, German banks and the government have been expanding their exposure to peripheral Europe. No matter what how the crisis ends-fiscal union or euro break-up-dealing with the consequences is likely to be expensive for Germany.

Here are two charts from Carmel’s presentation:

You can view the entire presentation — what Business Insider says  “Click here to find out why Germany will probably lose no matter what.” Here’s their choice of photo to illustrate their gruesome story:

Where do we go from now?

Your guess is as good as mine. You know mine. What’s yours? Drop us all a comment below.

Meantime, there are great tennis matches from Paris.

Harry Newton who is excited by the explosion of new startups he’s seeing, but depressed at their management’s ability (or more precisely lack of ability) to market and sell their wares. All seem to believe that within 15 months they’ll sell out to Google, Facebook or Apple for $100 million. How could I pass up such a great investment opportunity? No is a word I’m getting really good at saying. The big key is to never to explain why. If you do, you’ll spend the rest of your days being told that your arguments are big-time wrong.  Which they may be. But today, the sun is shining, The birds are chirping. Perfect tennis weather. Who needs to be told he’s an idiot?