Newton's In Search Of The Perfect Investment. Technology Investor.
8:30 AM Wednesday, January 5, 2005:
The stockmarket turned sharply lower yesterday for two apparent reasons.
First, some people believed that much money would magically flow into the market
in the new year because that money had been sitting idly on the "sidelines."
It didn't happen.
Second, the Fed released the minutes of its December 14 meeting, which said
nothing you didn't already know, anything that could concern you, or anything
to surprise you. I've quoted a fair bit from the Fed's statement because it's
good to see what the Fed thinks of the economy. I marked the interesting bits
information received at this meeting suggested that the economy expanded
at a moderate pace over the third quarter and into the current quarter.
Consumer spending was solid, and investment spending remained strong. Manufacturing
production increased at a modest pace, and employment gains in October and November
indicated that the labor market continued to improve gradually. Core inflation
measures remained subdued, albeit running at a slightly higher pace than last
year, owing, in part, to the indirect effects of higher energy prices.
Gains in employment
were moderate in November after a surge in October. Job growth was fairly
widespread, with the exception of slightly weak seasonal hiring in the retail
sector. Construction employment grew rapidly in November even after the outsized
gains in October due to hurricane-related repair work. In contrast, employment
in manufacturing edged lower. ...
appeared to be expanding at a more moderate pace in the fourth quarter, after
growing at a robust rate in the third quarter. ...
housing markets, buoyed by mortgage rates only modestly above their recent lows,
remained strong in October. Starts of both single-family and multifamily homes
increased and were above their third-quarter levels. Home sales remained at
near-record levels. ...
The U.S. international
trade deficit widened in October, primarily because of a surge in merchandise
imports. Economic activity in most of the major foreign industrial countries
slowed in the third quarter, and data for the fourth quarter pointed to continued
jumped in October, as hurricane damage contributed to higher prices for food
and energy. For the twelve months ending in October, consumer prices rose
considerably faster than they did in the year-earlier period. ...
decision in November to raise the intended federal funds rate 25 basis points
and its attendant public statement were apparently anticipated by the market,
so that the reaction was muted. Subsequently, higher-than-expected inflation
data, remarks by the Chairman that were viewed as pointing to future rate increases,
and the depreciation of the dollar all led market participants to price in
a somewhat steeper path for future policy. ...
In the staff
forecast prepared for this meeting, the economy was seen as likely to expand
at a moderate pace, supported by accommodative monetary policy and financial
conditions. ... Measures of total consumer price inflation were expected to
decline from current levels reflecting the direct effect of the downturn in
energy prices. By contrast, core inflation was seen in the staff forecast
as remaining stable. The upward pressure on inflation from a slight step-down
in structural productivity growth and a narrowing margin of resource slack was
expected to be about counterbalanced by diminishing pressure from the pass-through
of the earlier rise in energy prices and decline in the dollar. ...
A number of
participants cited the recent depreciation of the dollar on foreign exchange
markets, elevated energy costs, and the possibility of a slowing in underlying
productivity growth as factors tending to boost the upside risks to their inflation
outlook, though, on net, they saw the risks to stable underlying inflation
as still balanced.
In their discussion
of important sectors of the economy, participants noted that increasing equity
and home prices had boosted household net worth, leaving consumers well positioned
to maintain a brisk pace of spending. ...
In their discussion
of the outlook for prices, a number of participants cited developments that
could pose upside inflation risks. ... Despite
these concerns, participants generally expected that inflation would remain
low in the foreseeable future. ..."
In short, nothing to be concerned about. Just because the economy is doing
OK doesn't mean the market will. In fact, things seem to have changed in the
market. Many stocks have turned sharply downwards in the past few days, suggesting
recent strong rises may be "all over" for now. This suggests two things:
1. Caution before putting more money into this market. Perhaps it will
tumble a little further, so we'll get in cheaper.
2. Some attention to shorting stocks. I shorted AT&T (T) last
year and did well. I've written that I've had my eye on it again. It rose in
the last quarter of 2004 on takeover rumors. But no one's crazy enough to take
that disaster over. And nothing has changed to make the AT&T disaster less
of a disaster. So, yesterday I shorted it again. I got in at $18.50. Hopefully,
it will hit $15 before I consider getting out.
Here are a few charts to show you what's happened to recent "hot"
I was in Barnes and Noble last night and ran across this book. I'm recommending
it, if only because of the logic in his Foreword. O'Neil was a stock broker,
whom you know formed Investors Business Daily.
In the book O'Neil writes, "After the 1973-74 bear market, we conducted
a study for one institutional investment client that showed institutional research
firms were heavily biased toward buy and hold advice. During that difficult
and drawn-out bear market, we found that buy and hold recommendations outnumbered
sell recommendations four to one. During the recent 2000-2002 bear market,
the worst since 1929, investors found that Wall Street analysts had fifty different
ways to say "buy" while they remained mute with respect to sell recommendations.
... The evidence strongly suggests that there are few investors, even professionals,
who know how to sell and will actually take decisive action to sell when they
should. This implies that, for most investors, selling short is even more difficult."
Chapters in the book in the book include: How and When to Sell Stocks Short,
The Anatomy of a Short Sale, and Models of the Greatest Short Sales. The book
is heavily graphical. There are dozens of pages of stock price and volume graphs
-- with squiggles and arrows all over the charts, purporting to show how to
figure out when and why. This is the only book on short selling. It's worth
reading. I like O'Neil.
Some stocks remain "hot." I'm
not contradicting everything I've just written. But a handful of stocks remain
"hot," including Northfield Laboratories (NFLD), Stem Cells (STEM),
Medicore (MDKI), Dialysis Corporation (DCAI), Worldgate Communications (WGAT),
FX Energy (FXEN) and Tramford International (TRDF). Play at your own risk. I'm
not recommending these, simply pointing them out.
Alerts, a neat idea: Want to know what's happening to your favorite
company, your favorite person, your favorite news item? Sign up to Google
Alerts. As Google finds news on your area, it will send you an email. And
it's all free. Click here.
column is NOT about politics. But two quotes from my weekend
reading helped explained a few things for me:
+ ''It is a certain fact that not all Muslims are terrorists, but it is equally
certain, and exceptionally painful, that almost all terrorists are Muslims.
'What a pathetic record. . . . We cannot tolerate in our midst those who abduct
journalists, murder civilians, explode buses; we cannot accept them as related
to us, whatever the sufferings they claim to justify their criminal deeds. These
are the people who have smeared Islam and stained its image.'' written by
Abdel Rahman al-Rashed who is general manager of the Al-Arabiya satellite news
+ BAGHDAD, Iraq, Dec. 30 (AP) - Three militant groups warned Iraqis on Thursday
against voting in the election scheduled for Jan. 30, saying that people taking
part in the "dirty farce" risked attack. The militant group Ansar
al-Sunna and two other insurgent groups issued a statement warning that democracy
was un-Islamic. "Democracy is a Greek word meaning the rule of the people,
which means that the people do what they see fit," the statement said.
"This concept is considered apostasy and defies the belief in one God
-- Muslims' doctrine." Ansar al-Sunna had earlier posted a manifesto
on its Web site saying democracy amounted to idolizing human beings. The joint
statement on Thursday reiterated the threat that "anyone who accepts
to take part in this dirty farce will not be safe."
Week of Portfolio Rebalancing.
First, thank everyone for sending me your favorite mutual funds and ETFs. Keep
them coming. I need to research them, including the ones mentioned yesterday.
New insurance policy:
Q: Did you hear about the new auto insurance policy for Jewish mothers?
A: It is known as the "My Fault" policy.
It's a New Year, so we're getting a little older:
Reporters interviewing a 104 year-old woman: "And what do you
think is the best thing about being 104?" the reporter asked.
She simply replied, "No peer pressure."
older, part 2:
Just before the funeral services, the undertaker came up to the very
elderly widow and asked, "How old was your husband?"
she replied. "Two years older than me."
96," the undertaker commented.
"Hardly worth going home is 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 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
here and here.