Harry Newton's In Search of The Perfect Investment
Technology Investor. Harry Newton
AM EST, Thursday, May 14, 2009. As the stockmarket
rolls over, Wall Street is suddenly coining money. The game is called syndications.
What's happening is that the word is out in corporate America: "Now is
the time to raise money, to do a secondary." And every company and their
uncle is scrambling to raise money. The deals are coming like there was no
tomorrow. I suspect it started because CFOs believe several things:
Interest rates in a year or two will be much much higher because of our government's
out of control spending. So there's urgency to raise money now. (See below.)
Most companies are short of money.
+ Many company's
shares have risen strongly since March and are due for a decline, so the CFOs
are gobbling up the offerings because they're "cheap" and highly
with syndications explains a lot of the recent volatility. And why the stockmarket
is stacked so heavily against you and I.
Here's how it
works. On Monday MGM was trading as high as $13.50. Then the company announced
a secondary. MGM shares cratered. Last night the company priced the secondary
at $7. This morning (pre-market) MGM 's selling at $7.70. (It closed last
night at $8.60.) Some institutions have already sold their MGM allotment (because
these days you don't get all the shares you want) and have pocketed a handsome
70 cents a share. Money for jam. Other MGM buyers who are holding, are happy
with their MGM $7 "bargain" -- a 48% discount to what it was selling
on Monday. Some ultra-smart institutions even shorted MGM the moment they
smelled the secondary coming. Imagine you short MGM at $13, or $11 or $10...
You could have bought them back last night $7 in the secondary or $7.70 on
the market this morning. Look at MGM's chart of the past few days:
business is an ultra-hot business at present, with everyone making millions.
Remember Wall Street was dead only a few months ago. Now, many of these secondary
deals are coming every day. Most are fully suscribed even before they're
announced. The demand is unreal. You might put in for 1,00,000 shares of MGM.
You'll be lucky to get 30,000. But it's free money. So who cares?
is that the brokers are finally cleaning up. Normally institutions will pay
3 cents a share for brokerage. But in syndicates, the shares are priced to
pay the brokers 20 cents (or so). That's huge. If you see your broker driving
an E55 AMG Mercedes, now you know how.
I can't give
you a list of all the companies with recent secondaries. They include LINE,
Ford, Wells Fargo, REG, SPG, WRE, KIM, MGM and HST.
winning in this game (except you and I -- more about that in a moment).
are winning because they need the cash. The brokers are winning because the
commissions are huge. The institutions are winning because of their instant
The only people
losing are you and I -- who get stuck owning stocks that suddenly crater for
reasons we don't understand at the time. Until we find out about the secondary.
By then it's too late.
I suspect that
the underling motivation for all this is that the stockmarket is
rolling over. And everyone knows it. Share prices are cratering. Good call,
Harry. On Tuesday, I said, "Sentiment has turned lousy again." Since
This is the
classic lousy sentiment stock. It (and others) that went up too far and too
fast from the March 9 low, will now come back.
one, ripe for the descending.
How hard is
the market? Imagine buying or selling this thing at the wrong time in the
last few weeks. This is a BIG company. It's going up and down faster than
a whore's drawers. (Bad Australian expression.)
How hard is
this market really? Remember, last week I liked three energy stocks -- ERF,
LINE and PWE. Within a couple of days, my stocks were up $3,000. It was 1999
all over again. But then they turned and I dumped them for $1,000 profit.
But last night, if I had held them, I'd be down $7,200. That's how hard these
markets are. Did I know about the LINE's secondary in advance?
As I've intoned too much and too often -- When in doubt, stay out.
turned because of two basic reasons -- latest government stats stink and suddenly
everyone and their uncle who writes a financial blog or sends out a regular
investment newsletter is scared to death. The BIG fear is out-of-control government
Off we go,
into the wild red yonder -- President Obama, how could they have done this
to you? You listened to the Wall Street crowd, and it's going to destroy
your presidency. Why? The latest White House estimate for this year's deficit
has been raised 5% from its earlier February estimate to the new estimate
of (deep breath) $1.84 trillion. And the deficit for next year will be $1.25
trillion. That's over three trillion dollars in two years! Who in hell is
going to buy all the securities that will have to be offered? "Who
the gods would destroy, they first make mad." Welcome to mad America.
the Daily Recokoning:
deficit four times last years record, comes the press report.
Federal government will borrow almost 50 cents of every dollar it
spends this year.
would have taken our breath away. If we had any breath left. But after so
many wonders, each one more breathtaking than the last, our lungs are all
squeezed out. We cant even give an audible sigh. Hold a mirror up
to our nose and you would think we were dead.
the whole report. It's called Is
America Overstretched? It'll scare the hell out of you.
jokes today. I had to rush to get that syndicate news in.
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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