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8:30 AM Friday, April 29, 2005: The torture of a thousand cuts. A tiny respite, then another slash and another. The stockmarket remains not the place to be. Few geniuses can successfully pick stocks in this awful market, which yesterday yanked down 128 points on the Dow and 31 on the Nasdaq.



The stockmarket's concern is focused on:
1. Slowing growth. The economy slowed sharply in the first three months of the year, the government reported yesterday, expanding at its slowest pace in two years. Growth was at an annual rate of 3.1%, much slower than the 3.8% of the last quarter of 2004. Higher energy prices dragged down spending by businesses and consumers. Charts from The New York Times.

2. Fear that the Fed might actually accelerate its rate increases and those rate increases might further dampen growth. From today's Wall Street Journal,

"Is the Fed trying to pop the housing bubble?

That's the impression you get from even a cursory read of an extraordinary and largely overlooked speech last week from Federal Reserve Governor Donald Kohn.

Mr. Kohn, one of 12 voting members of the Federal Open Market Committee, offered a novel reason for Fed interest-rate increases: to help wring out imbalances in the economy that extend from a big trade deficit to a low savings rate to surging home prices.

"By increasing the return to saving and by damping the upward momentum in housing prices, rising interest rates should induce an increase in the personal savings rate, and thereby lessen one of the significant spending imbalances we have noted," Mr. Kohn said in a speech at the Levy Economics Institute of Bard College.

Mr. Kohn was speaking for himself, not the entire Federal Open Market Committee. But if this were FOMC policy, it would represent a potentially significant shift. Most people probably think the Fed's job is to raise and lower interest rates to cool or heat up the economy. Mr. Kohn offers a more expansive and perhaps activist role for the Fed in curbing economic imbalances and bubbles, and says the Fed shouldn't be overly concerned with some of the potential economic fallout.

"…(W)e should not hesitate to raise interest rates to contain inflation pressures just because it might set off a retrenchment in housing prices, just as we were willing to keep rates unusually low as house prices rose rapidly. Nor should we hesitate to raise rates because higher rates mean higher debt-servicing burdens for the current account, the fiscal authority, or households."

It makes continued sense to short this stockmarket. But it doesn't make sense to stay away from real estate investing.

Do what you know and love: My friend Joel has a day job. He is a successful investment banker. He has a night job, building a spec house. This year he will make more money from his night job. He loves building houses. He reads housing magazines for fun. He built himself a house in New York's Hamptons to be near his daughter and his grandchildren. He saw opportunities. He and his partner friend borrowed money from a local bank and spec built a "top of the line" house. Big 25' x 50' pool, pool house, Viking appliances, beautiful floors and granite countertops, etc. To figure what turned buyers on, Joel interviewed every local broker. The house will cost Joel and his partner $5 million. It's not finished. But they already have an offer for $7.5 million -- which they'll close on.

This is my second million-dollar-plus-profit real estate story this week. They seem to be everywhere. Yesterday a broker at New York's Corcoran Group reported that she had received 17 offers in just ten days after listing a 1550 square foot residential loft. She's in contract with the highest offer, which is 21% over the asking price.

There's no way this real estate "bubble" will burst with the ferocity of The Tech Wreck of 2000-2002. Prices may ebb. But they won't plummet. For the savvy real estate investor, there are plenty of opportunities. And now to my shameless commercial. The latest issue of Personal Real Estate Investor Magazine is out. It's a really good issue. Click on the button on the left. Subscribe now and the publisher will send you the latest issue as a bonus. In case you're wondering why all the enthusiasm? Simple, I'm the editor-in-chief.

There are people who believe Google will hit $400. Google is one I missed. It's always seemed too pricey and still does. There's no question that it is leading a revolution and deserves revolutionary pricing. This weekend's Economist has this fascinating piece:

The online ad attack.

Google's new advertising service could make the Internet an even more valuable marketing medium

THIS year the combined advertising revenues of Google and Yahoo! will rival the combined prime-time ad revenues of America's three big television networks, ABC, CBS and NBC, predicts Advertising Age. It will, says the trade magazine, represent a “watershed moment” in the evolution of the Internet as an advertising medium. A 30-second prime-time TV ad was once considered the most effective form of advertising. But that was before the Internet got going. This week, online advertising made another leap forward.

This latest innovation comes from Google, which has begun testing a new auction-based service for the more sophisticated advertising of brands, rather than of just individual products. Both Google and Yahoo! make most of their money from advertising. Auctioning keyword search-terms, which deliver, along with their own search results, sponsored links to advertisers' websites, has proved to be very lucrative. Advertisers like these links because, unlike with TV ads, they pay only for directly measurable results. They are charged when someone clicks through to their own website.

Both Google and Yahoo!, along with search-site rivals such as Microsoft's MSN and Ask Jeeves (recently bought by Barry Diller's InterActiveCorp), are developing much broader ranges of marketing services. Google, for instance, already provides a service called AdSense. This works rather like an advertising agency, automatically placing sponsored links and other ads on third-party websites. Google then splits the revenue with the owners of those websites, who can range from multinationals to individuals publishing blogs, as online journals are known. (AdSense is how I get the ads on the left of this page. -- Harry)

Google's new service extends AdSense in three ways. Instead of Google's software analyzing third-party websites to determine from their content what relevant ads to place on them, advertisers will instead be able to select the specific sites where they want their ads to appear. This provides both more flexibility and more precision, says Patrick Keane, Google's head of sales strategy. Firms trying to raise awareness of a brand often want a high level of control over where their ads appear.

The second change involves pricing. Potential advertisers must bid for their ad to appear on a “cost-per-thousand” (known as CPM) basis. This is similar to TV commercials, where advertisers pay according to the number of people who are supposed to see the ad. But the Google system delivers a twist: CPM bids will also have to compete against rival bids for the same ad space from those wanting to pay on a “cost-per-click” basis, the way search terms are presently sold. Google already calculates likely CPM values for the ads that it places on other people's websites.

Advertisers promoting a brand sometimes only want to get a name and an image in front of consumers, and not necessarily have them click through to a website. Moreover, click-through marketing tends to be aimed at people who already know they want to buy something and are searching for product and price information. Brand, or “display”, advertising is more often used to persuade people to buy things in the first instance.

The third change is that Google will now offer animated ads—but nothing too flashy or annoying, insists Mr. Keane. Google has long been extremely conservative about the use of advertising; it still plans to use only small, text-based ads on its own search sites. But many of its AdSense partners might well be tempted by the prospect of earning a share of revenue for display and animated ads too, especially as such ads are likely to be more appealing to some of the big-brand advertisers.

With the spread of broadband providing faster connections, so called “rich-media” ads, which can contain animation, video and sound, are already becoming more widespread. And these are just the sort of ads favored by companies trying to build their brands.

This could fuel online ad growth even further. As overall advertising spending continues to recover from the slump that began in 2001 after the bursting of the technology bubble, the Internet has become the fastest growing advertising medium. Worldwide ad revenue on the Internet grew by 21% in 2004 to $13.4 billion, and it is expected to continue at that pace for the next few years, says ZenithOptimedia, a research firm (see chart). Google and Yahoo!, the two most widely visited sites, are reaping many of the rewards. Google recently announced a net profit of $369m in its first quarter from revenue that soared to $1.3 billion, up 93% compared with the same period a year earlier. Yahoo!'s first-quarter net profits more than doubled to $205m on revenue of $1.2 billion, up 55% from a year earlier.

Terry Semel, Yahoo!'s boss, believes there is a lot more growth to come as firms become even more familiar with online advertising. He happily points out that many big firms still allocate only 2-4% of their marketing budgets to the Internet, although it represents about 15% of consumers' media consumption—and is growing. Many young people already spend more time online than they do watching TV.

If Google can prove that bidding for display ads works, then its rivals are bound to follow with similar services. This could shake the industry up even more. DoubleClick, an online-marketing specialist which helped pioneer the delivery of simple banner ads to websites, was sold this week in a deal worth more than $1 billion to a private-equity firm, Hellman & Friedman. Even though its prospects recently brightened, DoubleClick put itself up for sale after facing fierce competition.

Other innovations in online marketing are said to be in the pipeline. Local search and its associated advertising opportunities are one huge growth area. Sites such as eBay, the leading online auctioneer, and Craigslist, which hosts local sites, are soaking up large amounts of classified advertising for everything from used cars to job vacancies that once might have gone to newspapers. Yahoo! is expanding rapidly into entertainment, with film and video clips providing another avenue of advertising. This week, Yahoo! appointed another top executive to its media group, fueling speculation that the website may start to produce its own entertainment content. That should seriously worry TV broadcasters, who are already losing viewers and ad revenue to the Internet.

The logic of traveling:
On a NW Airways flight from Atlanta, GA. a middle-aged, well to do woman found herself sitting next to a man wearing a skullcap (also called a yarmulke). She called the attendant over to complain about her seating.

"What seems to be the problem Madam?" asked the attendant.

"You've sat me next to a Jew!! I can't possibly sit next to this disgusting person. Find me another seat!"

"Please calm down Madam," the attendant replied.

"The flight is very full today, but I'll tell you what I'll do. I'll go and check to see if we have any seats available in club or first class."

The woman shoots a snooty look at the snubbed Jewish man beside her (not to mention many of the surrounding passengers).

A few minutes later the attendant returns. The woman cannot help but look at the people around her with a smug and self satisfied grin.

The flight attendant then says..."Madam, unfortunately, as I suspected, economy is full. I've spoken to the cabin services director, and club is also full. However, we do have one seat in first class."

Before the lady has a chance to respond, the attendant continues..."It is most extraordinary to make this kind of upgrade, however, and I have had to get special permission from the captain. But, given the circumstances, the captain felt that it was outrageous that someone should be forced to sit next to such a person."...

With which, she turned to the Jewish man sitting next to her, and said: "So if you'd like to get your things, sir, I have your seat in first class ready for you..."

At this point, the surrounding passengers stood and gave a standing ovation while the Jewish man walks up to the front of the plane.

A couple has a dog that snores.
Annoyed because she can't sleep, the wife goes to the vet to see if he can help.

The vet tells the woman to tie a ribbon around the dog's testicles and he will stop snoring.

"Yeah, right!" she says.

A few minutes after going to bed, the dog begins snoring, as usual.

The wife tosses and turns, unable to sleep. Muttering to herself, she goes to the closet and grabs a piece of red ribbon and ties it carefully around the dog's testicles.

Sure enough, the dog stops snoring! The woman is amazed.

Later that night, her husband returns home drunk from being out drinking with his buddies. He climbs into bed, falls asleep, and begins snoring loudly.

The woman thinks maybe the ribbon might work on him, so she goes to the closet again, grabs a piece of blue ribbon, and ties it around her husband's testicles.

Amazingly, it also works on him! The woman sleeps soundly.

The husband wakes from his drunken stupor and stumbles into the bathroom. As he stands in front of the toilet, he glances in the mirror and sees a blue ribbon attached to his privates.

He is very confused and as he walks back into the bedroom, he sees the red ribbon attached to his dog's testicles.

He shakes his head and looks at the dog and whispers, "I don't know where we were, or what we did, but, by God, we took first and second place!"


Harry Newton

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. Thus I cannot endorse any, though some look mighty interesting. If you click on a link, Google may send me money. That money will help pay Claire's law school tuition. Read more about Google AdSense, click here and here.
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