Harry Newton's In Search of The Perfect Investment
Newton's In Search Of The Perfect Investment. Technology Investor.
8:30 AM EST Thursday, January 10, 2008: The
best news is that all of this will pass. All preceding financial crises have.
The bad news is that there will be more bad news. What started as bum subprime
loans has now morphed into a full-blown bank credit crisis. Loans by banks are
the oil that lubricates the economy, keeps its wheels turning. Without that
oil, the gears will grind to a halt, factories won't be built, buildings won't
be constructed, people will lose their jobs, etc. All previous financial crises
were finite -- we knew how much Mexico needed to right itself; we knew how to
stem Long Term Capital Management's problem; we knew how save Russia, Latin
America and the Asian countries' crises. Finite bundles of money did the trick.
Here there is no finite. Losses have been announced but many believe that what
we've seen so far is the tip of the iceberg. New capital has been raised by
the banks but many believe much more will need to be raised. There is
a possibility that several financials may actually fail.
this is hastening economists' recession predictions. Yesterday Goldman Sachs
forecast lackluster first and second quarters in 2008 followed by two negative
third and fourth quarters, leading in total to a miserable 0.8% growth in GDP
for all of 2008. Economists define recession as two quarters of falling GDP.
There are other definitions. The classic one is that when my neighbor loses
his job, it's a recession. When I lose my job it's a depression. A lot of people
are about to lose their jobs -- Goldman figures unemployment will rise to 6.2%
by the end of 2008. It's presently at 5%, which most economists consider full
worst performing stockmarket sector in 2007 was financials. Many wealthy investors
believe that bottom fishing financials now makes huge sense. Many have approached
their financial advisors for confirmation of their (the investors') brilliance.
These requests caused one big investment banker to hold a conference call yesterday
addressing the one big question: "Is now the right time to buy financials?"
The answer, after an hour of rigorous analysis was a resounding NO. Or, to put
it in Wall Street-speak, "The balance of risk has us waiting for a more
compelling entry point."
key problem is "lack of visibility." That's Wall Street-speak for
"we don't know how much the banks have lost on subprime lending, nor do
we know how much they're about to lose on credit cards. With housing in the
shitter (a technical term) and jobs evaporating, the consumer is suffering a
rough ride and it's spreading. To wit, to quote Cnet,
took a hit Tuesday after the company's CEO told investors that a weak economy
is hurting the company's landline and broadband business. Randall Stephenson,
AT&T's CEO, said Tuesday during a Citigroup investor conference that the
company was forced to cut off some of its broadband and landline customers
in the consumer segment in the fourth quarter because they were not able to
pay their bills. The news shook investors, and the stock dipped $1.87, or
4.5 percent, to $39.16 per share at the closing bell.
responding to a question posed by an analyst who asked whether the weak economy
had affected AT&T's business. And essentially Stephenson, said yes it
had. "We're really experiencing some softness on the consumer side of
the house from the economy," Stephenson said.
In short, you
can expect more bad news, from financials (Capital One cut its 2007 earnings
forecast this morning) and more bad news from others, like companies selling
detest uncertainty. It would rather know bad news,
no matter how horrible, than live in the uncertainty of more, undefined bad
There was one
good news yesterday. The Dow bounced 146 points, crossing back over its support
line, stemming technical analysts' extreme fears for now. I don't personally
place much faith in yesterday's bounce. All bear markets are characterized by
occasional violent daily bounces. Here is an update of yesterday's chart.
As I've said to the point of hoarseness, I don't like this market. You should
only be in it under two circumstances:
1. Shorting stocks,
like financials or highly-priced technology stocks.
2. Owning individual
stocks that have something special going for them -- e.g. an upcoming FDA approval.
For now, your
involvement in the stockmarket should be minimal to none. You should be accumulating
piles of cash. Remember:
+ Cash is king.
+ When in doubt,
+ Start a new
business. It's easy to hire people, but hard to raise money.
+ Focus on the
+ Go play tennis
(or even golf). Take a six month vacation.
about your short-term cash? I talked about
short-term muni bond floaters. I received this email from reader,
Don Verlench, who sent me an email he received from his son-in-law:
MNG and finally having some cash for once, I log on to tdameritrade to see
what interest rate I'm getting. According to the site, it's a whopping .2%...yes
as in 2/10's of a percent! Then I check the margin rates: for borrowing $20k,
I get to pay tdameritrade a whopping 10%!
So let me get this straight, they can use my cash and pay me .2%, but when
I borrow their cash it's 10%??? wtf!
I get ticked
and start checking around. I came across a relatively new online broker based
in Chicago called OptionsXpress. They have a lot of positive press, and they
pay 3% on cash and charge 7-8% for margin.
So before I
liquidate my account, I give tdameritrade a chance at keeping my business.
Well after 20 minutes on the phone and two different account reps, they offer
me 4.5% interest on any cash I have sitting, along with 8% on margin!! I felt
like I was dealing with used car guys but it just amazed me how much their
"policy" changes when you negotiate!
So the morale
of the story is: you don't get what you deserve, you get what you negotiate!
By the way,
I just checked and the money markets are not FDIC insured. So I could potentially
lose money if these things are invested in the toxic underworld of subprime
Ah. ah. Now you
see "the problem." No one any longer trusts what they're invested
in. You don't. I don't. The banks don't. Without trust, things are grinding
to a halt. That's not good.
Want to see a real productivity improvement? Check
out the digital X-ray at your dentist. You stick this thingee in your mouth.
They click a button and instantly your dentist's computer screen pops up with
an image of your defective teeth. It's magic. It's fast and it exposes you to
70% less x-ray. Your dentist no longer uses chemicals to process the images
of your defects. Three dentists eyed my x-ray of my offending teeth and (if
I may use a bad analogy) were chomping at the bit.
I asked, "Is my mouth a disaster?"
They pondered my question and one answered, "No, Harry. It's an annuity."
it will be tax-time.
Moishe, the owner of a small Kosher New York deli, was being questioned
by an IRS agent about his tax return. He had reported a net profit of $80,000
for the year.
Why don't you
people leave me alone?' the deli owner said. 'I work like a dog, everyone in
my family helps out, the place is only closed three days a year. And you want
to know how I made $80,000?'
'It's not your
income that bothers us," the agent said. "It's these travel deductions.
You listed ten trips to Israel for you and your wife."
the owner said smiling. "Well... we also deliver."
high cost of health care
Two immigrants meet on the street.
'How's by you?'
'Could be worse.
I have been sick. It's costing me a fortune. Why, in the past month, I've spent
over $10,000 on doctors and medicine.'
'Ach, back home
on that kind of money, you could be sick for two years."
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
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