Previous Columns
8:30 AM EST Wednesday, November 1, 2006: Ownership remains the key. Without it you'll stay poor. Owning real estate is the easiest ownership. To hike its value, you must change its use, improve it, hike the rents, make it more valuable. That involves creativity. That's the bit you add. Bargains in real estate are already emerging. Don't be too eager. Buyers take time to drop their prices. A friend recently bargained 32 acres down from $350,000 to $225,000. He'll use the land to build something the world needs and endless riches will be ours. I'm angling to be in on this one.

The concept of sunk cost: I budgeted $8 million for Technology Investor Magazine. When we spent it, I closed it down. My competitors dilly-dallied around for another two years, always eyeing what they'd invested, not the abysmal future they faced. They lost $25 million+ before they finally got the message and closed down.

What you spent yesterday is gone. Today, we decide, Do we hold (which means buy) or do we sell (which may mean close it down)? Too many of us worry more about what we've already invested than our prospects going forward. Too many of us worry about what we have invested than checking out a better use for the money going forward. There are always plenty.

You should apply sunk cost reasoning to everything you do. You can (and should) apply it to war. This week, the Economist tried.

Its conclusion:

For Mr. Bush, the Iraq war has in one sense already been lost, whatever result the mid-terms bring. This president's legacy will forever be tainted by what he overpromised and how much he underperformed. The voters of America are entitled to judge and punish his party as they see fit. But Americans would be wrong to extend this punishment to the people of Iraq, who have suffered so much already. Even if it was a mistake to blunder into Iraq, it would be a bigger mistake, bordering on a crime, for a nation that aspires to greatness to blunder out now, without first having exhausted every possible effort to put Iraq back together and avert a wider war.

As a country, Iraq is an artificial creation of the British. Hence, it needs an ultra-strong hand to keep it together, Personally, I'd like to see Iraq broken into three pieces -- Kurd, Sunni and Shiite -- and work a deal on the oil. This way all the warring factions could get something of their own.

Why reporters (and people) say what they say. The New York Times yesterday ran a 16-page advertisement to tell us it has 1,250 reporters, editors, critics, news columnists, Op-ed columnists, photographers, designers, etc. The ad appeared coincidentally in the exact same issue it carried a news story:

The circulation of the nation’s daily newspapers plunged during the latest reporting period in one of the sharpest declines in recent history, according to data released yesterday. The slide continues a decades-long trend and adds to the woes of a mature industry already struggling with layoffs and facing the potential sale of some of its flagships.

The mining boom's over, says Costello.

PETER COSTELLO has declared the commodities boom that has powered government revenue for the past four years is over. The Treasurer warns there is a false impression that the minerals boom will run on indefinitely.

"I think we've reached a high point and I think prices are going to return to more normal levels," he told the Herald in an interview.

"The increase in commodity prices, the mining boom that was the story of the last couple of years, I don't think will be the story of the next couple of years."

The boom has added more than $100 billion to revenue over the past four budgets, a bonus of 12 per cent a year, according to the ANZ Bank chief economist, Saul Eslake. This has given the Government tremendous latitude to increase spending and hand out tax cuts every year. But with a slackening in commodity prices, "government revenues will moderate", Mr. Costello forecast.

This suggests the Government will be more constrained in next May's budget before an election due in the second half of the year.

The chief economist at HSBC, John Edwards, speculated that the (Australian) Treasurer might have political motives for his pronouncement. He suggested Mr. Costello might be lowering expectations to discourage "other ministers in the Government from hopping in and spending" in the next budget.

And Dr. Edwards asked, sarcastically: "He couldn't possibly be trying to send a message to the Reserve Bank, could he?"

By declaring the commodities boom over, Mr. Costello is implying that inflationary pressures will ease. If so, the Reserve would have less need to raise interest rates. There is a universal expectation that it will raise rates next week, on Melbourne Cup day, the fourth time since the 2004 election.

Mr. Costello said the end of the commodities boom would be one of three forces dragging down the rate of economic growth. "In my assessment, if you put three factors together, the globe is probably moderating, we've seen the peak of commodities, and the drought is knocking growth, so I'm just saying that I have no expectation at all of a boom in the years ahead - we will have moderate growth." ...

If you were Cramer, would you be bullish nor bearish? Which helps your ratings more? This is Jim Cramer's latest piece from New York Magazine:

This One Goes to Thirteen
Falling oil prices, a halt in interest-rate hikes, and a wave of hedge-fund buying sent the Dow above 12,000. Now they’ll take it higher.

Go ahead, dismiss Dow 12,000. Virtually everyone I know on Wall Street will tell you to do so: “Small-time index, relic of another era, not important to signal a change.” To which I say, “Nonsense.” The Dow is not only the most representative snapshot of the American economy, but the venerable, oft-quoted index is still the one that entices people into the market. The broader averages will now follow the Dow higher, perhaps much higher, because after six years in purgatory courtesy of everything from dot-com bombs to cooked books to crooked research to hidden option paydays, Wall Street’s back making people fortunes again. Except this time, it’s not just the bankers. It’s everyone who owns name-brand stocks. The additional cash flowing in, like the first trickles of water seeping through a fissure in a dike, could turn into a torrent now that we’ve taken out that benchmark.

How did we get here? More important, why am I so certain that there’s much more ahead? Because we’ve had an awesome number of things go right in the past year, and the trend—always your friend on Wall Street—points to more of the same in the coming months.

The concoction that lifted us to 12,000 is a mighty, strange brew—a bullish recipe that includes one part lower oil and housing prices and stabilized interest rates; one part higher corporate profits; and one part incredible negativity of big-time money, including many of the hedge funds out there (I’ll explain the role they play in a minute). While some of these factors may eventually reverse themselves, don’t count on any of them going away in the near future.

To understand why this rally has staying power, you need to get beyond the obvious negatives, at least to Wall Street, of a potential Democratic sweep in Congress, a constant worry of terrorism, and a president paralyzed by the morass in Iraq. First, just four months ago, traders were petrified that gasoline at $3.25 would go to $4.25 and that the economy could be crushed by it. Consumers had vanished from stores and restaurants; car sales plummeted. A recession seemed to be just months away. At the same time, the slowdown in housing became an outright stoppage, with home sales plummeting and inventories climbing to levels not seen in fifteen years. With that glut so visible, those still holding on to the belief that property could trump stocks finally gave up the real-estate dream, and the Federal Reserve, determined not to be the cause of a recession, put its relentless increase in interest rates on hold at last.

With the Fed on hold and housing losing all luster as an investment, the unthinkable occurred: Oil dropped almost $20, and gasoline fell by more than a quarter. Consumers flooded everything from Wendy’s and Red Lobster to JCPenney and Nordstrom, and on Wall Street that translated to “upside surprises” against lowered earnings estimates. No one cares about how earnings forecasts get beat—even if they’re reduced by fleeting factors like a cessation in rate hikes or gasoline declines. The better-than-expected earnings quickly fueled higher stock prices. When you consider that of the 30 industrials in the Dow Jones, only one, ExxonMobil, gains from higher oil prices and 29 gain from lower ones, you can see why the move had oomph. And when you consider that almost no Dow stocks get hurt by lower housing sales but all benefit from the declining interest rates that a slowdown in housing causes, you know the oomph’s going to be turbocharged.

All that good news wouldn’t have mattered if stocks were expensive. But we’ve seen years of pretty decent earnings for companies without much of an uptick in stocks. That’s because 29 of the 30 stocks in the Dow have had buybacks, some of them huge (and some ongoing). Only General Motors hasn’t had one (and that’s the only Dow stock that actually needs cash). The rest just throw off scads of the stuff. These buybacks are literally shrinking the supply of stock out there dramatically. When the buyers came in, courtesy of the declines in oil and housing and the flattening of interest rates, there wasn’t enough stock to go around, forcing buyers to move stocks up to get them. The companies that had bought back the most, Hewlett-Packard, Coca-Cola, AT&T, IBM, and Microsoft, have been responsible for much of the gain we’ve had.

It’s questionable, though, whether the upward move would have the velocity it has if it weren’t for another group of buyers: the hedge funds. The managers of these funds pride themselves on betting against, not with, stocks, and the declines since the May 10 peak in the averages were a license for these shorts to print money. But the swift decline in gasoline caught the hedgies with their shorts up and, they, too, had to scramble to buy, lest their negative bets wipe them out. Their purchases squirted acetylene on an ¬already roaring fire.

What makes me so sure that we aren’t done with this rally? First, oil’s still going lower, even as opec tries to stem the decline. Long term, we could head higher again, but right now the world’s awash with oil pumped to take advantage of high prices. But there’s no room to store it, so the price comes down to move it. Second, housing’s still trending down, chilling the Fed even as consumers are feeling flush because of the relative cheapness of gas. Companies are still buying back stock, even post-12,000, as there’s not much else they can do with the cash. We also have more mergers and acquisitions now than ever before, and private-equity firms buying companies at an unbelievable pace. That takes out even more stock. Finally, the hedge funds have just begun their capitulation. We just saw the published short-interest figure numbers (a count of all the shares being shorted), and they remain at all-time highs. There’s more to be bought, and it will be bought higher.

Several key stocks in the Dow now have open-field running, including Altria, which is splitting into three companies; Hewlett-Packard, which is killing Dell; Boeing, which is winning by default because Airbus can’t make the darned A380 superjumbo jet; and AIG, which is now finishing a thorough Spitzer-izing that cleaned out top-level management and is ready to roll. (Not all Dow stocks are poised to rise. I’d steer clear of Alcoa, for instance, because it’s so poorly run. Management has consistently missed its earnings targets, even though the business fundamentals have looked great.) As the market’s gale-force momentum continues to build, the public, which has just started embracing this rally, will be sure to take stock prices even higher. By my count, with just a small continuation of the current trends, I can see the headline this time next year: DOW BREAKS 13,000.

The endless charm of English. From today's New York Times:

A scene from a city sidewalk? Wrong. It’s a Ruehl No. 925 clothing store inside the Tysons Corner Center mall in McLean, Va. Says the Times, It’s hard to window shop without the windows. But in malls across the country, chains forgo window displays for town house look and shack chic. (My emphasis).

Marvin and the Guru
Marvin was a deeply spiritual man, a seeker of truth. He went to synagogue every week for years, but eventually realized his soul needed more than Judaism could give him. He tried Buddhism, Christianity, Islam, a wide assortment of New Age religions, but he still felt spiritually empty.

One day, he heard about a great guru living atop the highest mountain in India who had all the answers. He sold all his worldly possessions, bid goodbye to his friends and family, and headed east. Once on the subcontinent, he learned that the guru would agree to see only one person a year and that person would be allowed to ask only one question. There were many other truth-seekers ahead of Marvin, so he had to wait nearly twenty years to see the great man. During that time, he lived in poverty, at the base of the mountain begging and doing menial tasks. When his turn finally came, he made the perilous journey up the snow-covered mountain, and waited for a week in the freezing cold in front of a cave, until the guru emerged.

"What is your question, my son?" the guru asked.

Marvin had been rehearsing this for years, and said, "Oh, wise one. What is the meaning of life?"

"Life, my son," said the guru ponderously, "is a deep well."

Marvin's jaw dropped open. He could not control his shock and anger. He screamed at the guru, "'Life is a deep well?' That's it? I've given up everything I owned, abandoned my friends and family, spent years living in abject poverty, even lost my toes to frostbite getting up here, and that's the best you can do? 'Life is a deep well?!'"

The guru looks at him quizzically. "What? You mean it isn't?"

Richer than the Rothschilds
"You know, Moishe, if I were as rich as the Rothschilds, I'd be richer than the Rothschilds."

"Really? How do you figure that, Heshie?"

"I'd do a little teaching on the side."

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. Thus I cannot endorse any, though some look mighty 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 Claire's law school tuition. Read more about Google AdSense, click here and here.
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