Technology Investor 

Harry Newton's In Search of The Perfect Investment Technology Investor. Auction Rate Securities. Auction Rate Preferreds.

Previous Columns
8:30 AM EST Monday, May 12, 2008: Bubble, bubble, toil and trouble. Will oil prices drop? Long-term no. Short-term, who knows.
Bespoke Research has a chart comparing the oil, housing, and tech bubble. Bubbles do tend to burst, especially those that rise ultra-fast. You can see duration as well as percentage gain -- and the oil price bubble/run just outdid the tech bubble. It has been running longer, and it has recently climbed higher.

High gas prices are taking a bite. Driving is down. Mass transit ridership is way up. New York's subways are packed. Gas in England is nearly $9 a US gallon. Here it's $4 in many places, like California. My preferred method of transportation:

The new Dahon folding Mu SL weighs under 20 lbs. I have the older one and use it every day. The price has gone up. It's now $1,200. That doesn't include lights and a bell, which you absolutely need.

How to get a job: On Friday, I sat in on big job hire interview. Three candidates. Each one an hour. Each screened down from 90 applicants who made the first cut. If I had wanted the job, this is what I would have done:

1. I would have learned a lot more about the organization that was going to hire me. Since it was a nonprofit, I would have visited the organization's offices, met with some of their people, sat in on some of the sessions and talked to some of the clients. That's called homework. Only one candidate did it.

2. I would have asked more questions of the interviewers. I would have focused my questions on the one person who was ultimately going to make the hiring decision. All the others were probably window dressing. (I was windows dressing.)

3. I wouldn't talk about myself, or, worse, my wife (as one candidate did). When I worked with salespeople I found their biggest problem was "too much talking." Don't talk. Ask questions. Listen. They'll think you're much brighter. They'll sell themselves on you.

Why do drugs cost so much? They cost little to produce. So blame Big Pharma for their high costs. So goes the argument. Not fully true. You can also blame the retailers. I have to take one 20 mg Prilosec twice a day. I ran out recently. I checked some local stores. The prices were outrageous. Then I checked on line. I figured Canada would be cheap. Wrong! I figured the unknown companies would be cheapest. Wrong! I figured Costco would be cheapest. Wrong! Check out the numbers. It's mind-blowing. Remember this is the price per pill. Not a box of them. The price ranges between 60 cents and $5.88 a pill. That's nearly 10 to 1.

Prilosec 20mg -- Price in U.S. dollars per pill in largest package available (usually 42)
United States
Jaros (Small corner drugstore)
Prices good as of Saturday, May 10, 2008.

I can buy Prilosec cheaper in its generic form, Omeprazole. Some pharmacies carry it. I bought some on Saturday at the local Rite Aid for 55 cents a pill, a little cheaper than the cheapest Prilosec. Some online pharmacies deliberately mark Prilosec, so they can pitch a "cheaper" Omeprazole, which then sells for more than Prilosec itself does elsewhere. This is a racket. Check, check, check.

What makes up inflation? The strongest gainers have been in gas and foodstuffs. But they won't be reflected in a strong CPI rise because they're not a big part of the CPI. Gas is 5.2% of spending nationwide, but only 3.8% in the New York area. So it all depends on how you run your numbers. And whose interest it is in to show higher or lower numbers. Washington's statistics are politically motivated.

Elements of the Consumer Price Index
Health care


Education / communication
Food and Beverages
Source: New York Times.

Two easy lessons from a failed hedge fund. Don't gamble. And don't gamble with huge gobs of other people's money. This story from today's Wall Street Journal makes you wonder. All these erstwhile intelligent people gambling huge monies on crazy bets:

Peloton Flew High, Fell Fast; Winning Hedge Fund Lost On Bets as Credit Crunch Moved at Breakneck Speed

When hedge-fund chief Ron Beller's investments in U.S. mortgages turned against him, he got a rude awakening to Wall Street's unsentimental ways. Bankers who had vied for his business reeled in credit lines and seized the fund's assets. In a matter of days, Peloton Partners LLP, once one of the world's best-performing hedge-fund operators, lost some $17 billion.

At one point during the ordeal, Mr. Beller, a 46-year-old with two decades of high-finance experience, collapsed from exhaustion, according to people familiar with the matter.

Ron Beller

From the U.S. to Europe, the turmoil in financial markets is leaving behind stories like Mr. Beller's. The crisis has claimed investment bank Bear Stearns Cos. (being acquired by J.P. Morgan Chase & Co.) and resulted in hundreds of billions of dollars in losses for banks, hedge funds and their investors.

In its sheer speed, Peloton's demise offers an illustration of the delicate relationships upon which the financial industry is built, and the breakneck pace at which they have been unraveling.

There is a widespread weakness in the hedge-fund business: Highflying managers sometimes fail to fully factor in broader risks, such as what happens when troubled banks pull back the borrowed money many funds need to make their investments. Peloton was particularly susceptible because it borrowed heavily to boost returns. For every dollar of client money, Peloton had borrowed at least another nine dollars to buy some bonds.

"If you run out of money, you can't stay in the game," notes Chris Jones of Key Asset Management Ltd., a hedge-fund management firm and early Peloton investor.

Mr. Beller, who personally lost about $60 million in investments, believes Peloton failed not because it made the wrong investments but because his bankers didn't stick with him when the prices of those investments were temporarily out of whack, according to people familiar with the fund. Among investors that lost money are New York investment firm BlackRock Inc., Swiss private bank Lombard Odier Darier Hentsch & Cie. and United Kingdom asset-management firm Man Group PLC.

"We are deeply sorry about this outcome," Mr. Beller said on a final investor conference call in early March.

A Long Island, N.Y., native, Mr. Beller made his career at Goldman Sachs Group Inc., netting a post as a top executive in London. His wife, fellow Goldman alumnus Jennifer Moses, is a policy adviser to U.K. Prime Minister Gordon Brown. In London, the Bellers were better known for the time a Goldman assistant stole more than £4 million, or $7.8 million at today's rates, from their account and that of another Goldman banker.

The episode became fodder for British media, which focused on the opulent lifestyle of expatriate U.S. bankers.

Mr. Beller and senior partner Geoffrey Grant, an occasional squash opponent who made about $150 million for Goldman in 2001, launched Peloton in 2005. One junior partner, William Gilbert, a former managing director of currency options at J.P. Morgan Chase, shared a passion with Mr. Beller for cycling that engendered the name of the fund, which is the French term for the main pack in a cycling race.

Luring Investors

At a Goldman-hosted hedge-fund conference in a Spanish coastal resort, Peloton's team held court with potential investors, laying out the fund's strategy: Make money on global economic trends through bets on a variety of assets, including bonds and currencies.

The partners kicked in $30 million to help start the fund. Goldman's asset-management arm invested $50 million, said people familiar with the situation. The investment bank's prime-brokerage unit signed up to provide trading and lending services. Top executives at two other Peloton investors, asset manager Man Group and Swiss firm EIM SA, sat on the board of a children's charity together with Mr. Beller's wife.

By that fall, Peloton's assets totaled $1 billion. Traders met weekly in what they called the "chill out" room, decorated in Moroccan-inspired red and orange colors and low-slung couches, at Peloton's London office. Mr. Grant joined by video link from Santa Barbara, Calif., where he had moved around the time of the fund's launch.

Mr. Beller's intense demeanor sometimes caused friction. He berated secretaries, and poor-performing traders kept quiet in meetings to avoid being humiliated by him, according to people familiar with the situation. Maxwell Trautman, a founding partner, quit in January 2006 after personality conflicts and differing views about strategy with Mr. Beller.

Some say Mr. Beller put his intensity to good use. Paul Marshall, the founder of a large London hedge fund, commended him for his vision for education, which included charity work to improve New York and London schools.

Throughout its first full year, Peloton's flagship Multistrategy Fund struggled with meager returns. Some investors, such as EIM, left. But in late 2006, Mr. Beller expanded on a promising strategy: Bet heavily against the U.S. housing market. That became the focus of the Peloton ABS Fund, which he launched with about $500 million of investor money from the Multistrategy Fund.

The timing was good. By July, the ABS fund was up 34.45% as subprime borrowers began defaulting. At the same time, Mr. Beller was making a counter bet: That highly rated mortgage securities, which were trading at only 90 to 95 cents on the dollar amid the market turmoil, would ultimately pay off in full even amid heavy borrower defaults.

Some investors weren't happy with the shift into mortgage securities. Several withdrew money, including Key Asset Management and Goldman's asset-management arm. In August, Goldman's prime-brokerage unit sharply increased the amount of collateral Peloton had to put up for short-term loans.

The move infuriated Mr. Beller, according to people familiar with the situation.

Jaw-Dropping Gains

He berated some investors who decamped, questioning why they would forgo Peloton's gains, which by November 2007 had reached a stunning 87.6%, largely on the bearish housing bet. In late January, Peloton won two awards at a black-tie ceremony hosted by trade publication EuroHedge. Some attendees gasped when Peloton's returns were announced.

At the same time, the relationship between Messrs. Beller and Grant soured, according to people familiar with the situation. Mr. Beller increasingly took credit for the ABS Fund's success -- he accepted the January awards alone -- while the Multistrategy Fund was still struggling. The two discussed a potential split.

In mid-February, Messrs. Beller's and Grant's investments took a hit when Swiss bank UBS AG said it had marked down the value of highly rated mortgage securities similar to those that Peloton held.

Peloton had $750 million in cash and believed its funding from banks was secure. That provided a level of comfort to Messrs. Beller and Grant that Peloton could cover banker demands, known as margin calls, to put up more collateral as the value of its investments fell.

But by Monday, Feb. 25, further sharp drops had left Peloton scraping for cash to meet margin calls from lenders, including UBS and Lehman Brothers Holdings Inc. When Peloton traders tried to sell securities to raise money, brokers were unwilling to bid, according to people familiar with the situation.

Furious Scramble

Mr. Beller and his team worked around the clock to assemble a rescue plan, persuading investors to provide a $600 million loan. But the financial lifeline, which included some 25 parties, depended on Peloton's banks agreeing to postpone certain margin calls.

Some banks were reluctant to sign off on such an unusual deal at a time when they were dialing back risk amid the financial crisis.

On Wednesday morning, Feb. 27, yet another sharp drop in Peloton's mortgage investments killed a rescue. Mr. Beller at one point collapsed on a couch in distress.

Mr. Beller and his team made one final effort to sell Peloton's portfolio, including to other hedge funds, working late into Wednesday night. By 4 a.m. Thursday morning, Mr. Beller threw in the towel and went home, exhausted.

The next day, lenders seized Peloton's assets, bringing a chaotic end to the fund. Mr. Beller later likened the situation to the final scene in Quentin Tarantino's movie "Reservoir Dogs," when several actors, guns trained on each other, simultaneously blow each other away.

Only in Australia. The savings in plastic and paper shopping bags are immense.

David goes home. After a short stay in America, Michelangelo's David returned to Italy.

Why did the chicken cross the road?

We have reason to believe there is a chicken, but we have not yet been allowed to have access to the other side of the road.

To steal the job of a decent, hardworking American.

Because the chicken was gay! Can't you people see the plain truth?' That's why they call it the 'other side.' Yes, my friends, that chicken is gay. And if you eat that chicken, you will become gay too.

Why are all the chickens white? We need some black chickens.

Did I miss one?

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.

Go back.