In Search of the Perfect Investment

Europe is a disaster, says Business Insider. It’s not. That’s journalism hype. What is important is this report from them.

Yields Hit Record Low. The yield on the German 10-year bond fell below 1% for the first time in history. Low yields in Europe remind us that the current 2.4% yield on the 10-year U.S. Treasury note is actually relatively high. In other words, those European bonds actually make U.S. bonds look cheap, meaning that yields have room to go lower.

 Funny thing. Every one of my friends and every one in the media (press and bubblevision) has predicted interest rate movements. and they’ve all been wrong.

Some of my friends even buy the classic “bet” — TBT, figuring it will go up with the interest rates.

TBT has been among the worst “investments” of the past year.

 It’s time to secure a nice, cheap mortgage. One costing you under 4%. They’re still available from your friendly local bank. I have such a bank. Email me if you’d like to know more. I don’t get a commission on this, sadly.

Short car loans?

The New York Times reports, “The upswing in the auto industry is tied to a surge in high-cost auto loans to uncreditworthy borrowers.” So I think of shorting securitized car loans.

My friend Dan says I’m crazy:

Hi Harry. My boyfriend’s family has been in the car loan business for 50 years, happily and profitably. They pay their private investors 6% a year and loan the money out (through auto dealers) at 12%. They’re regulated under “finance company” laws as opposed to more stringent banking laws. They tell me that almost no one in the business securitizes their loans because there’s no standard for matching the collateral, no standard loan terms, and no government incentive to help car buyers by buying or guaranteeing their loans. And they also tell me that people with little or no credit almost never default on their car loans. Their mortgages and credit cards, yes, but not their cars–for a reason you’ll see in a sec.

The reason my boyfriend’s family has been in business so long–and the reason you shouldn’t think of shorting this business–is that, unlike mortgage collateral, in the event of default a car lender’s collateral can be reclaimed in the time it takes to walk up someone’s driveway, unlock a car door, and drive the car away. No notice. No lawyers. No courts. (I had the thrill of doing this a couple times for a bank ages ago. And it’s the reason people don’t default on their car loans: they need their cars!) Also unlike mortgage collateral, auto collateral at any point in the loan pay-down is usually worth at least the loan principal, so as long as they can keep their operating expenses down auto finance companies can pocket a huge chunk of that 6% spread.

Additionally, unlike banks car finance companies don’t borrow short and loan long, so they never get hurt by the general interest rate increases that can kill a bank. Instead they borrow from private investors by issuing medium-term notes of roughly the same duration as the loans they make. This duration-matching hedges them almost perfectly.

That’s the micro-economics. The macro-economics present an even more compelling reason not to go short this business. In fact it might be a reason to INVEST in it if you ask me. Interest rates–and therefore the spread between the rate at which lenders raise capital and the rate at which they lend it–is the lowest in history. If you shorted this business you’d be expecting that spread to continue to narrow, which is like betting Apple is going to be the biggest company in the world forever. Well it’s just not. Car lenders will make bundles if interest rates rise, because all their assets are short- to medium duration, and this duration matches that of their cost of capital. In other words their gross profit will rise without any rise in operating costs:  an investor’s wet dream.

So much for that idea.

New idea: My friend, Todd, became one of these:

I asked him if he received a plaque and a certificate for his wall. No, he said. But he had been inundated with emails from plaque and certificate companies. I wondered if they kicked back a piece of the action to Barrons? Todd commented “that was quite the conspiracy theory.”

The print industry has fallen on hard times. Neat idea, Barrons.

Next year it will be Barron’s Top 10,000 advisors. The certificate and plaque business suddenly appeals.

If you’d like to be appointed “Intellect of the Year,” (or anything else) send me $20 and I’ll send you a certificate, a neck identity card, a badge for your lapel, a nice lucite embedment for your desk.

If you do it in the next five minutes, I’ll double the offer and send a “Favorite Wife” certificate along also.

Dumb Harry.

They advertise CarCaddy on TV for $10. I thought it was a good idea. It sits next to your car seats and stops crap falling through.

And the offer seemed fair:

But by the time I’d filed in the form, the price had risen to nearly $30.

Forget it. There are people who fall for these misleading infomercials?

The Lake

Paddy had long heard stories of an amazing family tradition. His father, grandfather and great-grandfather had all been able to walk on water on their 18th birthday.

On that special day, they’d each walked across the lake to the pub on the far side for their first legal drink.

So when Paddy’s 18th birthday came, he and his pal Mick, took a boat out to the middle of the lake, Paddy, stepped out of the boat ….and nearly drowned!

Mick pulled him to safety. Furious and confused, Paddy went to see his grandmother ..

“Grandma,” he asked, “Tis me 18th birthday, so why can’t I walk across the lake like me father, his father and his father before him?”

Granny looked deeply into Paddy’s, troubled blue eyes and said,”Because ye father, ye grandfather and ye great-grandfather were all born in December, when the lake is frozen, and ye were born in August, ya idiot!”

Harry Newton who likes salt. Good news: The Wall Street Journal today reports,

Low-Salt Diets Shown to Pose Health Risks
Findings Are Latest Challenge to Benefits of Aggressively Low Sodium Targets

Read all about it here.