Harry Newton's In Search of The Perfect Investment
Technology Investor. Auction Rate Securities. Auction Rate Preferreds.
8:30 AM EST Monday, March 17, 2008: Wall
Street is in meltdown. The economy is in recession. People are losing their
jobs. That's the bad news. We've known it for months.
advice remains the same:
No borrowing, if possible. If you have borrowings, pay them off. You'll
earn more paying them off than any safe place you can invest today.
2. Utmost cash. Cash is King.
Gold (GLD and IAU), silver (SLV), base metals and commodities make sense.
Be wary about catching falling knives. Which means there are plenty of "terrific
Most are getting more "terrific" every day. "Smart"
investors bought into Bear Stearns, Citigroup and others in recent months. The
"smart" investors have lost their shirt and much of their underwear.
Check out today's Wall
Street Journal. You can buy "cheap" -- but only
in areas and industries you are expert on. Don't think new due diligence will
work. There are too many "gotchas." Ask Bruce Sherman of Private Capital
Management. That man followed up his dumb moves buying into newspapers with
buying into Bear Stearns. Dumb. Dumb. Dumb.
currencies continue to make sense -- the Euro, the loonie (the Canadian
dollar) and the Aussie dollar are best. Money flows to where it earns the most.
As the Fed reduces interest rates in the U.S., money will flow to where
it can earn more, like Australia. You can earn nearly twice as much on Aussie
treasurys as you can on American treasurys.
6. Stocks and
trusts paying high dividends are the safest. High dividends is the best
underpining for stock price -- assuming the dividend can hold. Sadly, lots aren't.
7. Stay away
from financials, clearly. Want a flyer? Short XLF, the financial spider.
Short Lehman Brothers (LEH). It will be the next to go. And after that, UBS.
Both Lehman and UBS are fixed income shops. That's where all today's most aggressive
8. Watch your
job and your business. Now is the time to be especially attentive to your
boss and your customers. Beef up your web presence.
9. When in
doubt, stay out. Go on vacation. Today is my first day back in the office
from two weeks of playing tennis in the California sun. Vacation is better than
this. Vacation has two benefits. It makes you feel good. And second, it keeps
your mind off doing something dumb like pursuing "bargains."
Feds save Bear Stearns. J.P. Morgan gets a bargain. Here's the way
I read this. J.P. Morgan buys Bear for $236 million. For that they get a Manhattan
building worth $1.2 billion and practically no liabilities -- since J.P. Morgan
is allowed to pawn off ball Bear Stearns' garbage loans to the Feds.
For more, here's
the Economist from last Friday:
a Wall Street bank
A CENTURY after
John Pierpont Morgan bailed out Wall Street, his bank is at it again. In a
dramatic move on Friday March 14th, the Federal Reserve Bank of New York and
JPMorgan Chase made emergency funding available to Bear Stearns after other
market players lost confidence in the beleaguered investment bank as a trading
partner. As the credit crunch has deepened and broadened, the worst fear of
many on Wall Street has been the collapse or forced rescue of a big bank or
broker. That moment is now upon them.
is Bears clearing bank and will act as a conduit for Fed funding. In
a special vote, the central banks governors chose to allow JP Morgan
Chase to bring collateral from Bear, including mortgage assets, to the Fed
discount window in return for 28-day loans. Bear does not have direct access
to the window because it is not a depository institution. The Fed has agreed
not to hold JPMorgan Chase liable for any losses on the collateral posted.
The central bank has resorted to such an arrangement only twice before,
in the depression of the 1930s and in the 1960s.
at Bear, which began last summer when two of its hedge funds blew up, is a
classic example of how liquidity problems and ebbing confidence can quickly
turn into a solvency crisis, especially for investment banks, which are more
reliant on short-term funding than commercial banks. Bear has spent much of
the last year strengthening its funding structure. But in the past week doubts
grew over its ability to meet its obligations. Other banks refused to step
in as counterparties to Bear in credit-derivatives contracts. Bears
boss, Alan Schwartz, admitted that his bank had struggled to dispel rumours
and parse fact from fiction, and that its liquidity position
was thus deteriorating at an alarming pace.
shares initially jumped on news of the bail-out but crashed after the market
opened on Friday. At one point, half of its market value had been wiped outan
unprecedented one-day fall for a big Wall Street firm in modern times. According
to reports, clients were desperately trying to pull assets out of Bear on
Friday. But the bank insisted that its capital ratios remained strong. It
also said it would bring its first-quarter earnings announcement forward to
concern is understandable. If it had failed to intervene on Friday, few doubt
that Bear would have gone down the tubes. The timing of the move shows just
how desperate the situation had become at Bear. If the bank could have held
on until March 27th it would have been able to borrow directly from the central
bank under a new facility announced earlier this week.
is the smallest of the big five Wall Street investment banks,
it is the most exposed to credit markets, particularly mortgages, relative
to its size. Its larger peers can take comfort in being more diversified,
but they too are largely at the mercy of short-term funding markets and the
confidence of counterparties. Others will be losing sleep, too. Bears
woes will only exacerbate worries about highly-leveraged hedge funds, an increasing
number of which are finding it hard to stay afloat as their prime brokers
jack up margin calls. A fund affiliated with Carlyle Group, a big private-equity
firm, crashed this week. ...
buyers have reason to be wary. Bears books are stuffed with complex
structured mortgage-related assets, the value of which
is hard to calculate. As a result, so is the value of Bears equity.
A full-blown collapse cannot be ruled out if the value of its collateralto
whose credit risk the Fed is now exposedcontinues to fall.
the intervention came a day after Standard & Poors, a rating agency,
said that the worst of banks write-downs related to subprime mortgagesBears
biggest weaknessmay soon be over. But if the extraordinary events of
the past day demonstrate anything, it is that investment banks are black boxes,
and what really matters is not what sits in them but what their counterparties
fear may be lurking inside. If others find themselves in Bears awful
predicament, there will be little the Fed can do to forestall a rout.
TV Schedule - 2008 Pacific Life Open at Indian Wells: Federer,
Nadal, Djokovic, Roddick and Blake are playing. Also Sharapova, Hantuchova,
Kuznetsova and Safina. The problem is finding Fox Sports Network on your cable
or satellite TV. Clue: Sometimes they hang out with MSG (Madison Square Garden).
This schedule is not accurate, but it's the best I can do.
Seven Country Western Songs
7. If The Phone Don't Ring, You'll Know It's Me.
6 I've Missed You, But My Aim's Improvin'.
5. Wouldn't Take Her To A Dogfight 'Cause I'm Scared She'd Win.
4. I'm So Miserable Without You It's Like You're Still Here.
3. My Wife Ran Off With My Best Friend And I Miss Him.
2. She Took My Ring and Gave Me the Finger.
And the Number One Country and Western song is...
1. It's Hard To Kiss The Lips At Night That Chewed My Ass Out All Day Long.
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.