Harry Newton's In Search of The Perfect Investment
9:00 AM EST, Wednesday, January 21, 2009: All
over America there are hurried conference calls to discuss "assets"
that have suddenly stopped being assets. The "assets" might be the
Hancock building which I own a tiny piece of and has now defaulted on $700
million of debt. See today's Wall
Street Journal. Or it may be semi-developed land in California or
Arizona, which I also own tiny pieces of and you now can't sell for love or
money. And then there are the companies who can no longer borrow the money
they always borrowed from their bank. Several things permeate the calls:
The assumptions on which the investments were made are now all wrong.
Rents have fallen, not risen. Tenants have left, not arrived.
The firms that organized the deals are in trouble. Most have no new deals
in over a year. Paying the rent and the salaries are now increasingly difficult.
The owners dump in their personal net worth to keep the firms alive, but that
money is running out.
Investors are desperate, suddenly facing the likelihood that their personal
net worth has declined dramatically -- perhaps to zero. I hear of houses up
for sale and erstwhile-rich investors "going back to work." I hear
serious ignorance. It's amazing how many investors put their money into things
they knew little about and understood even less. I've concluded that financial
sophistication is no higher among people who have money than people
The skyrocketing cost of borrowing money -- if you can find it. I routinely
hear rates of over 20%. You can go on ETRADE and find debt you can buy yielding
over 20%. Some of it looks pretty good, though I don't own any. My risk profile
is presently ultra-conservative. That means I'm scared. Cash is King. I remember
my mantra: When in doubt, stay out.
Lenders are confused. Should they foreclose and take over yet more
assets they have zero knoweldge of, skills or interest to manage? Should they
let the borrower / owner continue to manage the property, albeit with a little
more communications than in the past.
theory (also called conventional wisdom) is that in five years all the assets
will miraculously become valuable and liquid. Nirvana will, once again, prevail.
Frankly, I doubt
it. Let me put on my economist's hat. In the past ten years, we "hollowed"
out our economy, exporting much manufacturing to concentrate on finance, which
we were allegedly good at. We invested our own and the world's monies. For
a long time there was too much money for too few opportunities. So we made
up opportunities. The more we made up, the more became increasingly dubious
and risky. Sub-prime was just one area. In the end, the financial business
was 20% of our GDP and created hundreds of thousands of high-paying jobs.
That business is now finished. Our investment banks are no more. Our commercial
banks are broke, in desperate need of capital to shore up their balance sheets
and to keep the FDIC from closing them down or, worse, nationalizing them.
-- which I've written about before -- became startlingly evident yesterday
when State Street bank fell 56%, Bank of America fell 29%,J.P. Morgan Chase
fell 21% and Citigroup declined 20%. Those are huge one-day falls. As a result,
the Dow fell 4% and the S&P 500 fell 5.3%. My friends tell me we've breached
a technical point and we're now going even lower on the stockmarket.
Obama's Inauguration. Impressive words. I cried a couple of times.
I pray he can pull this off. For the video.
For the transcript.
Now that's a crowd -- over a million.
Open Tennis began this past weekend. The
huge time difference makes this ideal for TiVo. Enjoy. (M Men, W = Women,
D = Doubles. All times EST.)
most embarrassing moment.
In Sydney, Australia,
one of the radio stations pays $1000-$5000 for people to tell their most embarrassing
stories. This one netted the winner $5000.
I was due later
in the week for an appointment with the gynecologist. Early one morning I
received a call from the doctor's office to tell me that I had been rescheduled
for early that morning at 9:30 a.m.
I had only just
packed everyone off to work and school, and it was already around 8:45 a.m.
The trip to his office took about 35 minutes, so I didn't have any time to
spare. As most women do, I like to take a little extra effort over hygiene
when making such visits, but this time I wasn't going to be able to make the
full effort. So I rushed upstairs, threw off my dressing gown, wet the washcloth
that was sitting next to the sink, and gave myself a quick wash in "that
area" to make sure it was at least presentable. I threw the washcloth
in the clothes basket, donned some clothes, hopped in the car and raced to
I was in the
waiting room only a few minutes when I was called in. Knowing the procedure,
as I'm sure you do, I hopped up on the table, looked over at the other side
of the room and pretended that I was in Paris or some other place a million
miles away. I was a little surprised when the doctor said, My, we have made
an extra effort this morning, haven't we?" but I didn't respond.
When the appointment
was over, I heaved a sigh of relief and went home. The rest of the day was
normal...some shopping, cleaning, cooking, etc. After school when my six-year-old
daughter was playing, she called out from the bathroom, "Mum, where's
my washcloth?" I told her to get another one from the cupboard.
"No, I need the one that was here by the sink. It had all my glitter
and sparkles in it."
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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