Technology Investor 

Harry Newton's In Search of The Perfect Investment Technology Investor. Harry Newton

Previous Columns
9:00 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 think.

+ Institutions are gobbling up the offerings because they're "cheap" and highly profitable.

What's happening 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:

This syndicate 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?

What's nice 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.

Everybody is winning in this game (except you and I -- more about that in a moment).

The companies are winning because they need the cash. The brokers are winning because the commissions are huge. The institutions are winning because of their instant profits.

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 then:

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.

Here's another 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.

Sentiment has 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 spending.

Writes Richard Russell today:

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.

Writes the Daily Recokoning:

“U.S. deficit four times last year’s record,” comes the press report. “Federal government will borrow almost 50 cents of every dollar it spends this year.”

This news 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 can’t even give an audible sigh. Hold a mirror up to our nose and you would think we were dead.

Read the whole report. It's called Is America Overstretched? It'll scare the hell out of you.

No 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 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.