Harry Newton's In Search of The Perfect Investment
Technology Investor. Auction Rate Securities. Auction Rate Preferreds.
9:00 AM EST Wednesday, August 6, 2008: Oil
is falling. (It always falls before an election. Surprise. Surprise.) The stockmarket
shot up yesterday. And Nuveen has gotten a bunch of institutions to buy its
new securities called Variable Rate Demand Preferreds (VRDP).
It will use the money to redeem its locked Auction Rate Preferred Securities
-- some of which I own and have been stuck in since mid-February when the auctions
failed. I'm happy this morning. For more, AuctionRatePreferreds.org.
are stories this morning that Citigroup may cut a deal with regulators in which
it may be forced to buy back the auction-rate securities (ARS) it sold clients,
presumably at face value. That deal may cost Citigroup $5 billion, plus a possible
fine of $100 million. Coming up with these monies will strain its balance sheet.
I can see more of these auction rate securities "deals" with regulators
for other companies -- including Merill Lynch, UBS, Allianz,
PIMCO, and Wachovia.
The market seems
to think that the crisis is over for the financials. It's dead wrong. It's barely
NEW YORK, Aug
3 (Reuters) - The United States is in the second inning of a recession that
will last for at least 18 months and help kill off hundreds of banks, influential
economist and New York University Professor Nouriel Roubini told Barron's
in Sunday's edition.
Taxpayers will pay a big price for helping bail out the rest of the financial
services industry as well, Roubini said -- at least $1 trillion and more likely
The banks will become insolvent because of mounting losses as a result of
the housing bust and because they have only written down their subprime loans
so far, he said. Still in front of them are their consumer-credit losses,
for which they lack the reserves, Barron's reported.
He also said
there are hundreds of millions of dollars outstanding in home-equity loans
that could be worth zero, too.
other real estate loans, which have not been written down -- like commercial
and large tract land developments out west. For the full Barron's piece, Hundreds
of Banks will fail, Roubini tells Barron's.
thoroughly depressed: Read
Economic Free Fall?
from the latest issue of The Nation. Excerpts:
danger is that the national economy will weaken further and spiral downward
into a negative cycle that feeds on itself: as conditions darken, people hunker
down and wait for the storm to pass--consumers stop buying, banks stop lending,
producing companies cut their workforces. That feeds more defaulted loan losses
back into the banking system's balance sheets. This vicious cycle is essentially
what led to the Great Depression after the stock market crash of 1929. I offer
not a prediction but a warning. The comparison may sound farfetched now, but
US policy-makers and politicians are putting us at risk of historic deflationary
forces that, once they take hold, are very difficult to reverse.
A more aggressive
response from Washington would address the real economy's troubles as seriously
as it does Wall Street's. Financial firms have lost capital on a huge scale
-- more of them will fail or be bought by foreign investors. But Wall Street
cannot get well this time if the economy remains stuck in the ditch. Washington
needs to revive the "animal spirits" of the nation at large. The
$152 billion stimulus package enacted so far is piddling and ought to be three
or four times larger. Instead of sending the money to Iraq, we should be spending
it here on getting people back to work, building and repairing our tattered
infrastructure, investing in worthwhile projects that can help stimulate the
economy in rough weather.
directors are "pathetic." I shorted Yahoo. It's up a little.
I feel confident. These guys are like the gang who couldn't shoot straight.
From today's New York Times.
Five Yahoo directors,
including Jerry Yang, the chief executive, were re-elected to the board with
much higher protest votes than previously reported, indicating strong shareholder
dissatisfaction with the companys performance and its failed merger
negotiations with Microsoft.
On Tuesday, Yahoo issued a new tally of its directors election, showing
that investors representing 33.7 percent of votes cast at the annual meeting
on Friday withheld votes from Mr. Yang. Yahoos chairman, Roy J. Bostock,
received a 39.6 percent no vote. Ronald W. Burkle received a 37.9
percent no vote; Arthur H. Kern, 31.7 percent; and Gary L. Wilson,
it indicates a high degree of shareholder dissatisfaction, said Michael
Klausner, a Stanford Law School professor who specializes in corporate law
and governance. He said the percentage of votes withheld was particularly
high given that Institutional Shareholder Services, the influential proxy
advisory firm, recommended to shareholders that they re-elect all Yahoo board
members. The percentage of votes withheld from these directors is higher than
On Friday, Yahoo
reported Mr. Yang had 14.6 percent of votes withheld, while Mr. Bostock had
20.5 percent; Mr. Burkle, 18.8 percent; Mr. Kern, 22.1 percent; and Mr. Wilson,
The new tally
does not change the outcome of the election. It was issued after an independent
firm conceded an error in transmitting votes on behalf of clients.
Mr. Kern and Mr. Burkle are on Yahoos compensation committee, which
approved a controversial plan to retain employees. Critics said the retention
plan made any acquisition of Yahoo more costly. Mr. Bostock and Mr. Burkle,
as well as Mr. Yang, were heavily involved in the negotiations with Microsoft.
the new tally after Broadridge Financial Solutions, a brokerage services firm
that transmitted votes on behalf of some Yahoo shareholders, said it had made
a truncation error that resulted in the underreporting of votes
withheld from several directors. As a result, 200 million shares that had
been cast against some Yahoo directors were voted for them.
the vote after a request on Monday from Capital Research Global Investors,
one of Yahoos largest shareholders and a unit of the Capital Group Companies.
Gordon Crawford, an influential portfolio manager for Capital Research, which
owns about 6.2 percent of Yahoos shares, has been sharply critical of
Yahoos board and management, and advised funds under his control to
withhold votes from several directors.
Investors, a separate unit of the Capital Group Companies and Yahoos
largest shareholder, with a nearly 10 percent stake, also withheld votes from
some directors. Capital
Research asked for a re-examination after the initial vote tally suggested
the number of votes withheld from some directors was too low.
that the votes be properly counted, Capital Research sent a message
to Yahoo management that it is still walking on eggshells, said Ross
Sandler, an analyst with RBC Capital Markets. They are under an extreme
amount of pressure to unlock value and do it in the near term.
to Mexico sounds blissful.
From reader Barry Merchant:
Harry and, like you, still playing as much tennis as I can singles
and doubles, 4 times a week. I just retired last week from my chiropractic
practice and at the end of this month my wife and I are packing up the two
cats and moving to San Miguel de Allende, Mexico where we are building a modest
house for about $300k. The taxes will be $150 a year. Well be joining
Doc Severenson, the Tonight Show band leader and entertainer John Davidson
in enjoying beautiful weather that averages 75 to 85 degrees all year round
with low humidity. And there are plenty of red clay tennis courts that are
great to play on. Theyre slow enough to give you time to get to the
ball and theyre easy on the legs. You would love it! If youre
ever so inclined, you should come down and visit. Our house will be ready
by next Spring and youre always welcome.
All best wishes
Harry. I hope you live to 125 and on your 125th birthday I can challenge you
to a tennis match!
San Miguel de Allende, Mexico
The day after his mother-in-law disappeared in a kayaking accident, a Canadian
man answered his door to find two grim-faced Mounties. "We're sorry sir,
But we have some information about your mother-in-law," said one Mountie.
"Tell me! Did you find her?" the anguished husband sobbed.
The Mounties looked
at each other. One said, "We have some bad news, some good news, and some
really great news. Which do you want to hear first?"
Fearing the worst,
the ashen husband said, "Give me the bad news first."
The Mountie said,
"I'm sorry to tell you, Sir, but this morning we found your mother-in-law's
body in the bay."
"Oh my God!"
exclaimed the husband. Swallowing hard, he asked, "What's the good news?"
The Mountie continued,
"When we pulled her up, she had twelve 25-pound snow crabs and six good-size
lobsters clinging to her."
Stunned, the husband
demanded, "If that's the good news, what's the GREAT news?"
The Mountie said,
"We're gonna pull her up again tomorrow!"
An older gentleman had an appointment to see the urologist who shared offices
with several other doctors. The waiting room was filled with patients.
As he approached
the receptionist's desk, he noticed that the receptionist was a large unfriendly
woman who looked like a Sumo wrestler. He gave her his name.
In a very loud
voice, the receptionist said, 'YOU WANT TO SEE THE DOCTOR ABOUT IMPOTENCE, RIGHT?'
All the patients
in the waiting room snapped their heads around to look at the very embarrassed
He recovered quickly,
and in an equally loud voice replied, 'NO, I'VE COME TO INQUIRE ABOUT A SEX
CHANGE OPERATION, BUT I DON'T WANT THE SAME DOCTOR THAT DID YOURS.'
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,
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