Harry Newton's In Search of The Perfect Investment
Technology Investor. Auction Rate Securities. Auction Rate Preferreds.
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8:30 AM EST Friday, June 27, 2008: What
can I say? I've been nagging everyone for months that Cash is King.
It hasn't been
the worst June ever. But it's been close.
The red arrow
shows June, 2008.
For
me, there were bright spots in yesterday's totally miserable market: commodities,
SLV (up 2.4%), GLD (up 3.6%), OIL (up 3.9%) and my trustworthy short, Lehman
Brothers (down 8.4%).
By
now, everyone knows my fears. Three now stand out:
1.
The destruction of wealth on Wall Street. That destruction will affect spending.
GM is at a 53-year low. Widows and orphans stocks are down 50%.
2.
The collapse of the banking system. Toxic assets still populate and pollute
bank balance sheets. Many banks need to raise money to fulfill Federal regulatory
requirements. But who'd give them money today? All the recent capital infusers
are staring at huge losses.
3.
Inflation. The official government statistics way understate the extent
of inflation. I look at my own spending. Two weeks ago, the salt crystals I
need for my country house cost $5.49 a bag. Yesterday they cost $7.57. That's
a 38% increase. My son Michael's condo apartment building reports that
their cost of fuel is up 45% this year. They're raising their maintenance.
My tennis court maintenance guy just raised his prices by 25%. My local
pizza store raised its prices by 17%. Both the pizza shop owner and the
tennis guy tell me their raises are not enough to cover their higher
expenses. They're "eating some" of their cost increase for fear of
losing customers.
Remember this
accident eight years ago this March. This Southwest Airlines flight from Vegas
overshot the runway at Burbank, California. The plane smashed past the airport
fence, careened across the street and ended up with a collapsed landing gear,
right next to a gas station. That's not the amazing part! Look at the price
of gas. In California, premium is now over $5.00 a gallon.
Oil is now $140
a barrel, up more than double in the past year. It is the key factor behind
our rampant inflation. What's horrible about inflation is that it slices our
personal income and destroys our corporate profits . Many observers think this
augurs badly. For example, Stephen Leeb, an investment advisor and bearish author,
writes:
"Nothing
has been a more reliable indicator for an upcoming recession as the price
of Oil. Every major bear market, every major economic decline has been preceded
by a large spike in oil prices. The 73-74 recession, recession of beginning
80's and the recession of 2000. Oil prices jumped 80% between 1999 and 2000.
Oil prices have been the most important indicator of major economic disasters.
Whenever Oil prices rise about 80% from year ago levels, a fair chance does
exist that a recession/bear market will follow."
As I wrote yesterday,
Warren Buffett says
he is concerned about stagflation, or slowing in the US economy
while inflation accelerates. Were right in the middle of it right
now, said Buffett, chairman of Omaha, Nebraska-based Berkshire Hathaway.
I think the flation part will heat up and I think the stag
part will get worse. You can see his entire interview with Bloomberg.
As to the immediate
stockmarket? We are in the last few days of the quarter, traditionally a time
Wall Street does "window dressing." There are people who believe Wall
Street funds are selling because they want to show how smart they are -- by
being heavily in cash. Hence, rampant selling.
Will
UBS survive? Who knows? Who cares? This is
one hugely irresponsible, disgusting investment bank. Yesterday Massachusetts
Secretary of State William F. Galvin said he has charged UBS Securities LLC
and UBS Financial Services Inc. "with fraud and dishonest conduct in retail
sales of auction rate securities to investors who were told by their UBS representative
that the investments were safe, liquid 'cash alternatives' when UBS knew they
were not."
This
gets better. Apparently, the UBS boss in charge of ARPS sells his own ARPS while
recommending them strongly to UBS customers! Here's the chronology according
to Galvin:
AUG. 22, 2007
David Shulman, UBS's municipal bond chief and head of fixed income, launches
sales effort, urging brokers to get individual clients to buy auction-rate
securities.
Shulman sells
large portion of his personal holdings in auction-rate securities.
SEPT. 6 An internal
e-mail from Shulman suggests the firm exit the auction-rate business. Notes
"legal and reputational issues on this decision."
OCT. 31 Shulman,
in e-mail to colleague, calls the investments "a huge albatross."
DEC. 11 Ross
Jackman, a Shulman deputy, says in internal e-mail, "The auctions aren't
going to come back."
DEC. 12 Shulman
sells the rest of his personal auction-rate holdings.
DEC. 15 Shulman,
in an e-mail to UBS chief risk officer Joseph Scoby, discusses whether to
stop supporting auctions: "the moral obligation runs very deep."
FEB. 8, 2008
In "upbeat" UBS conference call, brokers are told, "the public
auction continues to be very effective."
FEB. 12 Internal
e-mail to Shulman urges, "we need to beat the bushes harder than ever
to unload this paper."
FEB. 13 Auctions
fail. Massachusetts investors are sold $50 million of the securities in prior
five days.
YESTERDAY UBS
is sued by Massachusetts Securities Division.
You can read all
the gruesome details at my other site, www.AuctionRatePreferreds.org.
Remember Henry
Blodget? He was the Merrill analyst who publicly recommended shares while privately
telling his people internally they were "junk." He got disbarred from
the securities industry. Will UBS be disbarred? God, I hope so. I have personally
received dozens of emails telling me of the absolutely disgusting treatment
UBS clients have received at UBS's hands -- regarding their auction rate adventures.
Intel
opts for Windows XP.
Which company is closer than Intel to Microsoft? Now comes word that Intel won't
embrace Vista. From Steve Lohr of the New York Times.
Intel, the giant
chip maker and longtime partner of Microsoft, has decided against upgrading
the computers of its own 80,000 employees to Microsofts Vista operating
system, a person with direct knowledge of the companys plans said.
The person,
who has been briefed on the situation but requested anonymity because of the
sensitivity of Intels relationship with Microsoft, said the company
made its decision after a lengthy analysis by its internal technology staff
of the costs and potential benefits of moving to Windows Vista, which has
drawn fire from many customers as a buggy, bloated program that requires costly
hardware upgrades to run smoothly.
This isnt
a matter of dissing Microsoft, but Intel information technology staff just
found no compelling case for adopting Vista, the person said. ...
Meanwhile, the
Microsoft operating system engine chugs on, phasing out the old and proclaiming
the new. The company reiterated this week that, despite some customer protests,
it would halt shipments of the previous version of Windows, XP, to retail
stores and stop most licensing of XP to PC makers next week. Microsoft also
announced that the next version of its operating system, Windows 7, is scheduled
to go on sale in January 2010.
Supreme
Court strikes down handgun ban in historic ruling.
SAN FRANCISCO
(MarketWatch) -- In a major backing of gun-ownership rights, the U.S. Supreme
Court on Thursday struck down a 32-year-old municipal ban on handguns in Washington
D.C., according to media reports. The justices, in a 5-4 ruling, cited the
Second Amendment in supporting the right to own guns for self-defense and
hunting. The court had not conclusively ruled on the Second Amendment since
1791, according to the Associated Press.
Wimbledon
continues today. Roddick and Sharapova are out. You
can watch 14.5 hours of tennis today. That will be much more enjoyable than
watching the ticker today. Here is the TV schedule.
All times listed are Eastern Standard Time (L) = Live (T) = Taped
Friday, June 27 |
7:00 am - 5:30 pm |
Early
rounds |
ESPN2
(L) |
Friday, June 27 |
7:00 pm - 11:00 pm |
Early
rounds |
Tennis
Channel (T) |
Saturday, June 28 |
7:00 am - 12:00 pm |
Early
rounds |
ESPN2
(L) |
Saturday, June 28 |
12:00 pm - 3:00 pm |
Early
rounds |
NBC
(L) |
Saturday, June 28 |
7:00 pm - 11:00 pm |
Early
rounds |
Tennis
Channel (T) |
Sunday, June 29 |
7:00 am - 12:00 pm |
Early
rounds |
ESPN2
(T) |
Sunday, June 29 |
12:00 pm - 3:00 pm |
Early
rounds |
NBC
(T) |
Sunday, June 29 |
7:00 pm - 11:00 pm |
Early
rounds |
Tennis
Channel (T) |
Monday, June 30 |
7:00 am - 10:00 am |
Early
rounds |
ESPN2
(L) |
Monday, June 30 |
10:00 am - 1:00 pm |
Early
rounds |
NBC
(L) |
Monday, June 30 |
1:00 pm - 6:00 pm |
Early
rounds |
ESPN2
(L) |
Monday, June 30 |
7:00 pm - 11:00 pm |
Early
rounds |
Tennis
Channel (T) |
Tuesday, July 1 |
7:00 am - 10:00 am |
Quarterfinals
(Ladies') |
ESPN2
(L) |
Tuesday, July 1 |
10:00 am - 1:00 pm |
Quarterfinals
(Ladies') |
NBC
(L) |
Tuesday, July 1 |
1:00 pm - 5:00 pm |
Quarterfinals
(Ladies') |
ESPN2
(L) |
Tuesday, July 1 |
7:00 pm - 11:00 pm |
Quarterfinals
(Ladies') |
Tennis
Channel (T) |
Wednesday, July 2 |
7:00 am - 10:00 am |
Quarterfinals
(Gentlemen's) |
ESPN2
(L) |
Wednesday, July 2 |
10:00 am - 1:00 pm |
Quarterfinals
(Gentlemen's) |
NBC
(L) |
Wednesday, July 2 |
1:00 pm - 5:00 pm |
Quarterfinals
(Gentlemen's) |
ESPN2
(L) |
Wednesday, July 2 |
7:00 pm - 11:00 pm |
Quarterfinals
(Gentlemen's) |
Tennis
Channel (T) |
Thursday, July 3 |
7:00 am - 12:00 pm |
Semifinals
(Ladies') |
ESPN2
(L) |
Thursday, July 3 |
12:00 pm - 5:00 pm |
Semifinals
(Ladies') |
NBC
(L) |
Thursday, July 3 |
8:00 pm - 10:00 pm |
Semifinals
(Ladies') |
Tennis
Channel (T) |
Friday, July 4 |
7:00 am - 12:00 pm |
Semifinals
(Gentlemen's) |
ESPN2
(L) |
Friday, July 4 |
12:00 pm - 5:00 pm |
Semifinals
(Gentlemen's) |
NBC
(L) |
Saturday, July 5 |
9:00 am - 2:00 pm |
Semifinals
(Gentlemen's) |
ESPN2
(L) |
Saturday, July 5 |
12:00 pm - 5:00 pm |
Semifinals
(Gentlemen's) |
NBC
(L) |
Sunday, July 6 |
9:00 am - 3:00 pm |
Semifinals
(Gentlemen's) |
NBC
(L) |
Sunday, July 6 |
3:00 pm - 4:00 pm |
Semifinals
(Gentlemen's) |
ESPN2
(L) |
Marriage
Counseling. This is truly sick.
After 15 years of marriage a husband and wife came for counseling. When
asked what the problem was the wife went into a passionate, painful tirade listing
every problem they had ever had in the years they'd been married. She went on
and on and on - neglect, lack of intimacy, emptiness, loneliness, feeling unloved,
an entire laundry list of unmet needs she had endured.
Finally, after
allowing this to go on for a sufficient amount of time, the therapist got up,
walked around the desk and after asking the wife to stand, he embraced and kissed
her passionately.
The woman shut
up and quietly sat down as though in a daze.
The therapist
turned to the husband and said, "This is what your wife needs at least
three times a week. Can you make this happen?"
The husband thought
for a moment and replied, "Well, I can drop her off here on Mondays and
Wednesdays, but on Fridays, I play golf."
Keeping
the family together. This is truly warm and charming.
Ethel goes to see Doctor Myers and tells him that she is feeling constantly
tired and exhausted, especially after making love.
"So how often do you make love, Ethel?" asks Doctor Myers.
"I make love every Monday, Wednesday and Friday, doctor," she answers.
"Well," says Doctor Myers, "maybe you should cut out Wednesdays?"
"No, thats not really a good idea," says Ethel, "thats
the only night Im home with mine Arnold."
True
feelings. This is truly charming.
Sharon tells her best friend Ruth, "Ive broken off my engagement
to Moshe."
"Oh Sharon," says Ruth, "Im so sorry. Why?"
"Because my feelings towards Moshe have changed they just arent
the same anymore," replies Sharon.
"So tell me," whispers Ruth, "are you giving him back the engagement
ring?"
"No Im not," replies Sharon, "my feelings towards the ring
havent changed."
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 on this site. Thus I cannot endorse, though some look interesting.
If you click on a link, Google may send me money. Please note I'm not suggesting
you do. That money, if there is any, may help pay Michael's business school
tuition. Read more about Google AdSense, click
here and here.
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