Harry Newton's In Search of The Perfect Investment
Technology Investor. Harry Newton
AM EST, Tuesday, May 19, 2009. My friend
Pete Howley emails me. He's ecstatic. He's 100% invested in the market. He's
a big fan of a group of brokers called The Vick/Cho Group of Santa
Rosa, CA. As evidence of his brilliance, he emails me their latest (last night's)
well, the "pain trade" continues for those out of the market.
Those out of the market include some really big institutional investors
and hedge funds. Fuming as they watch their screens turn green and stocks
run higher. These investors who are underperforming by not "being in"
are in agony. The momentum and the path of least resistance for the time
being is up. Any meaningful pullback will undoubtedly bring these investors
in to the market and halt the slide. That being said, our Chief Market Technician,
Bruce Kamich, feels that the market will continue higher through the end
of this month or early June before a meaningful decline begins. The key
is to be disciplined, nimble, and to take profits in those stocks or funds
that have been the weakest performers to date, keep the proceeds in cash,
and wait for the next rebound to come after the pullback. Tactical investing
is the key to performance currently versus classic buy and hold. We
are also seeing a rotation out of the traditional growth stocks and discretionary
sectors into more defensive healthcare and staple stocks.
the week on a positive note on Monday, May 18, as investors ventured back
into the market after last weeks sell-off. In our view, improved housing
data and a better-than-expected earnings report from a major home improvement
retailer were the main catalysts for todays strength. Additionally,
we believe that investors engaged in some bargain-hunting after the 5% correction
in the broad-based S&P 500 last week. For the day, the blue-chip Dow
Jones Industrial Average jumped 235.44 points, or 2.85%, to 8,504.08. The
S&P 500 Index gained 26.83 points, or 3.04%, to close at 909.71 and
the Nasdaq Composite rose 52.22 points, or 3.11% to 1,732.36. Of the 10
S&P 500 sectors, nine closed in positive territory. Financials led with
gains of 7.2%, while Utilities stocks finished the day unchanged. Breadth
was decidedly positive, with over 91% of New York Stock Exchange Composite
stocks finishing the session higher. ...
Of course, I'm
one of those "pain trade" investors. I'm largely out of the market.
1. We remain
in a long-term bear market.
2. I'm not
talented enough to play the "tactical investing" game. Sometimes
I win. Sometimes I lose. The pain is not worth the pleasure.
3. I don't
believe anybody is winning, excepting maybe Pete Howley.
I don't need
to re-publish yesterday's earnings chart from ChartOfTheDay
showing the huge earnings fall.
It's really hard to have a bull market when corporate earnings are the lowest
they've ever been.
Nor do I need
to publish this chart which I received last night, along with a note that
said, "Things are much worse today." (Which they aren't.)
Nor do I need
to publish Richard Russell's email from last night:
May 18, 2009
-- "Less bad" is the new "good." And "Green shoots"
are the new potential economic miracles.
The most difficult
and puzzling study of the stock market is that which deals with secondary
reactions against the primary trend.. Because we're in a bear market, I'm
going to limit the following discussion to (upward) reactions in bear markets.
Over the weekend
I pulled out my volume of Robert Rhea's "The Dow Theory." I went
over some of Rhea's comments on secondary reaction in bear market.
the purpose of this discussion, a secondary reaction is considered to be
an important advance in a bear market, usually lasting three weeks to as
many months, during which interval the price movement generally retraces
from 33% to 66% of the primary price change since the last preceding secondary
who try to place exact limits on secondary reactions are doomed to failure,
just as surely as would be the weather man who forecasted a snowfall of
exactly three and one half inches within a specified time.
a bear market steady liquidation of securities by those who prefer or
need cash reduces quotations day after day, with professionals, realizing
there is more room on the bottom than on the top, hastening the decline
with short sales. Eventually, the market is forced to a lower level than
is warranted by conditions. The short interest is perhaps too extended,
with wise traders sensing the fact the liquidation has, for the time,
at least, run its course.
weak spots in bear markets are generally good ones to short, as they generally
develop into serious declines.
a primary bear market the rallies are apt to be violent and erratic, and
always occupy less time than the decline, which they partially recovery.
Often the primary movement of several weeks is retracted in a few days.
in a bar market are sharp, but experienced traders wisely put out their
shorts again when the market becomes dull after a recovery.
bear markets, primary movement has an average duration of 95.6 days, whereas
the secondary movement averages 66.5 days or 69.6% of the time consumed
in the preceding primary movements."
All the above
pertains to the price action during rallies in bear markets. But what about
business conditions during bear market rallies? My studies show that bear
market rallies are technical phenomenons which do not necessarily reflect
on business. I'm looking at a chart of the great 1929 to 1930 rally which
occurred after the 1929 crash. The Federal Reserve Index turned down in
late-1929, and despite the great bear market rally, the Fed Index continued
lower into early 1932.
But what of
all the "green shoots" talk that is no so prevalent today? I believe
these are mostly hopes and wishes. The government and some economists are
so anxious to be bullish, that they attach the green shoots level to any
area where matters are becoming "less bad." Green shoots and "less
bad" are part of the current desperate government propaganda program.
It's the same in the stock market. Any rally in the Dow is a sign that the
market is in a marvelous recovery of its disastrous losses on 2008-09.
remains strong: I love this story from Forbes:
Will Have To Change
It's easy to criticize Amazon's Kindle. Some say the gadget is bound
too tightly to Amazon's bookstore. Others don't like the price: $359 for
the starter model and $489 for the big-screen Kindle DX due later this year.
Also, the thing looks like a really big bar of soap.
That won't last, and entrepreneurs such as Neil Jones are the reason why.
is simple. After leaving the start-up he sold to Dun & Bradstreet last
year, Jones decided to write a book. When he couldn't find a publisher,
Jones, 42, decided to start his own publishing company, which morphed into
an online bookstore. And when he couldn't get Sony to agree to supply him
with readers for his online bookstore, he decided to build his own.
That was Wednesday,
Jan. 14. The following Saturday, Jones was on a plane to Taiwan to meet
a contract manufacturer. On Tuesday, Jones and the contract manufacturer
had hashed out a design. Three weeks later, he had a prototype. On May 14
Jones' tiny start-up, Interead, began taking orders online. By that morning,
he had sold 33 of the devices.
And why not?
After all, Jones explains, all these readers are put together out of the
same big bag of parts. The processors are interchangeable. The screen technology,
developed by E-Ink, is all the same. The field is open for entrepreneurs
to try to find the right combination of features, price and design.
is simple. His e-reader, Cool-er, doesn't have wireless access or the Kindle's
fancy text-to-speech capability. Then again, it sells for $249, weighs just
6.3 ounces and is designed to be slipped into a jacket pocket.
comes in only one color, white, and has rounded edges, like a really big
aspirin tablet. Cool-er comes in eight colors and resembles an iPod Nano.
If you want to put content on your Kindle, you've got to e-mail it to Amazon's
servers first. In contrast, Cool-er sucks up just about anything you can
get onto your PC via a USB port. It's not bound to Jones' bookstore. "If
you can buy a book cheaper from somewhere else, buy it from somewhere else,"
To be sure,
gadget aficionados will find nits to pick; they always do. However, Jones'
story isn't about features or price points. Let the geeks worry themselves
over that. The real story is that entrepreneurs are going to force today's
electronic book readers to evolve. And if they don't get it right? A ticket
to Taiwan and back will only cost you $1,000.
The tech press
has written about it, including Wired,
The company is called Interead.
They also have a book store selling ebooks. But it's a disaster. I tried to
buy a book this morning. But I haven't been able to. I haven't tried the Cool-er.
need something called Adobe Digital Editiions which lets you manage your ebooks'
collection and lets you read ebooks on your laptop. If you have a light laptop
(like the ThinkPad X61), you really don't need the Kndle or the Cool-er. Pick
up a free copy of Adobe Digital Editions. It
works in color, which neither Kindle nor Cool-er nor Sony do.
friend Dan is a cheap mother.
He won't pay retail, though he is Christian and should. His technique
is simple: Try Shopping.com.
You put what you want in the little box.
And it gives
you a bunch of places you can buy your chosen madness from. As an experiment
I typed n Canon G10, my present favorite high-end, point-and-shoot camera
and got prices ranging between $449.95 and $579 in 17 stores. And.. drum roll
-- tied for the cheapest were Amazon and Buy.com. But Buy.com wins out because
it doesn't charge tax. Amazon does these days to fools (like me) who
live in New York City.
your kids should learn Mandarin. This is also from Richard Russell.
The US national
debt was $9.364 trillion a year ago. Today it is $11.256 trillion. That
means that over the last 12 months we've added $1.89 trillion to the national
debt. I figure that over the next two fiscal years the US national debt
should rise by $3 trillion from the current $11.256 trillion to around $14
to 15 trillion. I figure the average interest on the national debt is around
4%. Well, 4% of $14 trillion is over half a trillion dollars a year. How
in God's name is the US going to attract over half a trillion dollars every
year to carry our national debt? My answer -- higher taxes and inflation.
When you think about it, this is one major reason why the government doesn't
want gold to sky-rocket. An exploding price for gold tells the world that
the US and its financing is backed against the wall, and that inflation
plus higher taxes are the only ways out.
there is one other area that can help.-- cutting government expenses to
the bone. The US has over one hundred military and air force bases around
the planet. My guess -- within a decade they'll be gone -- we can't afford
them. The world's greatest creditor can not be the world's dominant military
power. Rome tried it; they failed. "Britannia rules the waves,"
while the sun never set on the British Empire. What part of the earth does
England rule today?
I just finished
a long article in the New York Times Magazine section on the symbiotic relationship
between the US and China. We buy their goods, and they buy our bonds. The
problem is that China owns over a trillion dollars worth of US Treasuries,
and as the bonds sink here, China grows more worried. In fact, China is
cutting back on its purchases of US Treasuries. China is spending its money
on assets such as land in Africa and South American, rare earth metals,
other nation's bonds and gold. China is thinking in terms of future decades
while the US continues to over-consume. Not only is the US still over-consuming,
the US government is trying to figure out how its people can borrow more
and consume more.
In time, the
US standard of living will decline while the Chinese standard of living
will improve. The US/China relationship will be on of the most important
events of the next few years. Note how the US has halted its criticism of
China's money policy and even its human rights policy. China with its huge
monetary resources now holds the winning hand, and the US is acting accordingly.
in terms of decades. China knows that within decades it will have the greatest
monetary reserves, the greatest collection of natural resources, perhaps
the greatest military and perhaps the largest hoard of gold and maybe the
strongest currency. The US will continue to be the world's greatest debtor,
struggling mightily to pay the interest on its mind-boggling mountain of
for today's world. If you're not in today's
booming stockmarket, perhaps you feel like this:
New Yorker cartoons: This first one is for Dan Good:
This one is
for Pete Howley:
skies are out in New York. Life in business is really not that
difficult. It's all about pleasing customers. Put your phone number on your
web site, so your customers can call you. The only phone numbers on the Interead
web site (the one peddling the Cool-er) are of PR people and they're always
on voice mail. How stupid!
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,
here and here.