Harry Newton's In Search of The Perfect Investment
EST, Friday, November 14, 2008: The market went up and down
faster yesterday than, as they say in Australia, a whore's drawers.
I don't know why
it reversed its decline at 1 PM and roared upward. No one does. I don't believe
that everyone suddenly had a revelation, "Things are now cheap. We've reached
bottom. Get in bigtime." The only plausible explanation is that
a lot of hedge funds are using the same computer trading algorithms. The computers
kicked in and bought big-time. Nothing in the economy changed -- except that
the latest economic news remains awful.
The big lesson
remains -- if you're playing with shorts, get out when you're up a few shekels.
I'm pleased that I wrote in yesterday's column:
We have made
money on our Google shorts of the last few days. I'm tempted to say, "Take
your profits." No one went broke taking a profit. I am convinced Google
is on its way to $200. But the path will be volatile. Hence my advice. Take
some money home. Money is as good as cash. And you can spend it -- but not
at Best Buy.
I asked my most
thinking broker (yes, some do exist) what happened at 1 PM yesterday? He explained,
with simple eloquence:
Market hit technical
LOW---and the MORONS decided, OK lets take it UP---And then the other MORONS
said, I'm afraid to miss a rally, greed kicks in and we rally. It was MUCH
easier to explain why we were DOWN 300 than why we were UP 500. ANYONE that
believes that stocks are "cheap" I defy them to explain HOW? How
do you value negative growth, economic rigor mortis---is that priced in--NO
WAY in my opinion. Bottom line---no leverage available in economy--everyone
fears their job. Santa will be on a respirator and the numbers will be HORRENDOUS
over the next few months--People have stopped doing ANYTHING.
Then I consulted
the Wall Street Journal. Heck, they have more resources than I do. They must
know what really happened:
Off Drop, Roars Up 552.59
The stock market had one of its biggest turnarounds within a day, as an
early swoon turned into a rally -- giving investors hope that late-October
lows will stand as the trough of the bear market.
The Dow Jones
Industrial Average briefly dipped below 8000 at its intraday low, when it
was down more than 300 points, before storming ahead to finish with a 552.59-point
gain, up 6.7%, at 8835.25.
not out of the woods yet, but this is the most encouraging thing that I've
seen in a long time," said Michael Farr, president of Washington, D.C.,
money-management firm Farr, Miller & Washington. "I'm going to put
in some of these buy tickets that have been sitting in my pocket."
gains came despite continued signs of weakness in the consumer sector, an
increase in weekly unemployment claims and a round of hedge-fund selling to
raise cash around midday, traders said.
But after a
three-day drop in which the Dow tumbled more than 7%, there was a sense
that stocks had gotten cheap enough to warrant a round of bargain hunting.
500 index rose 6.9% to 911.29, even after falling to 818.69 during the day,
its lowest level since March 2003. Energy was the biggest winner, up 12% as
oil futures rose for the first time in three days. Utilities, basic materials,
and the consumer-discretionary sector were up nearly 8% each.
have to say this is a successful re-test of the lows," said Roger Volz,
a trader at Hampton Securities in New York. ...
in the U.S. was poor. Before the market opened, the Labor Department said
weekly jobless claims rose to their highest level in seven years, since the
weeks following the 2001 terrorist attacks. Wal-Mart Stores, the nation's
largest retailer, posted better-than-expected quarterly results but cut its
full-year profit forecast.
who face a mid-month deadline for investors to put in withdrawal requests
are selling stocks to guarantee they have enough cash on hand.
fell, sending yields higher. The yield on the two-year note rose to 1.217%
and the yield on the 30-year bond was 4.332%. The dollar fell 2.9% against
the euro, snapping three days of gains, but it rose 3% against the yen.
gives us a nice opportunity to go back in today and short some obvious candidates
like Google and Best Buy. But remember, Newton's inviolate rules are:
1. You must watch
your shorts hawklike.
2. If they turn against you -- let's say 5% -- cover instantly, if not sooner.
3. .If you're up a nice bit, get out, The market will turn against you.
More volatility is the only thing I can safely predict.
4. Try not to keep your shorts open overnight.
Frankly, I'm playing
this game hugely at present. I need to play tennis, do some estate planning
and move this web site to a reliable provider.
facts, but facts nevertheless::
+ GM spends $2
billion a year on advertising. Can you remember one single GM ad? I can't.
+ Someone paid
$3.5 billion for the Weather Channel.
+ The Blackstone
Group, the giant publicly traded buyout firm, reported a $502.5 million loss
for its third quarter as it was forced to mark down the value of its holdings
across nearly all its businesses. And Mr. Steve Schwarzman, Blackstone boss,
warned analysts and investors in a conference call that the fourth quarter would
probably get worse, as many of its portfolio companies (i.e. the ones it invested
in) get written down.
don't want to die soon. But I have a bunch
of illiquid assets -- private equity funds, leveraged buyout funds, real estate,
pieces of private companies, etc. When I die, the IRS will rape my children
with demands for instant cash. The only solution is to buy life insurance to
cover the IRS's greed. More on this later. If you're in the same boat, you need
to start the process today. Trusts. Insurance. Wills -- all the stuff which
gives boredom a whole new meaning.
neglected web site. It's your calling card.
It gets you business. It helps you sell things. Yet many of my friends screw
around for months, endlessly mulling the words and the layout. They spend decades
dealing with "designers," most of whom are useless.
Here's a dirty little secret: Anyone can start from scratch and get a simple,
clean, persuasive web site up within an hour. You don't need a "designer."
All the web site software -- my favorite is the old Dreamweaver 4 -- contains
templates that you can slot your material into. Trust me, it's easy.
of Lies is worth seeing. The technology is awesome (and accurate).
There's oodles of action. In the end, the good guys win. The movie raises serious
questions -- like what the heck are we doing in that part of the world, wasting
money, wasting lives and giving them even more reasons to dislike us even more?
The story: CIA agent, Roger Ferris (Leonard DiCaprio) uncovers a lead on a major
terrorist leader operating out of Jordan and he singlehanded saves the world.
Definitely worth seeing.
is a fake newspaper:
A bunch of volunteers
printed a newspaper and put up a web site -- www.web.nytimes-se.com/.
On their site, they write:
edition of The New York Times comes from a future in which we are accomplishing
what we know today to be possible.
The dozens of
volunteer citizens who produced this paper spent the last eight years dreaming
of a better world for themselves, their friends, and any descendants they
might end up having. Today, that better world, though still very far away,
is finally possible but only if millions of us demand it, and finally
force our government to do its job.
wont be easy. Even now, corporate representatives are swarming over
Washington to get their agendas passed. The energy giants are demanding clean
coal, nuclear power and offshore drilling. Military contractors are
pushing the wars in Iraq and Afghanistan. H.M.O.s and insurance companies
are promoting bogus reforms so they can forestall universal health
care. And theyre not about to take no for an answer.
But things are
different this time. This time, we can hold accountable the politicians we
put into office. And because everyone can now see that the free market
has nothing to do with freedom, there is a huge opening to pass policies that
can benefit all Americans, and that can make us truly free free to
pursue an education without debt, go on vacation every once in a while, keep
healthy, and live without the crushing guilt of knowing what our tax dollars
are doing abroad.
cold turkey on paper: Excellent news. I'm surviving without the paper
edition of the Wall Street Journal. With paper, I feel the guilt when UI read
it (so much of it is irrelevant) and the guilt if I don't. With paper, I fill
up garbage cans. The Journal publishes online a listing of all its stories --
Scan them, read which ones you want and bingo, you're done.
And what of great
significance did I learn from skimming today's Journal?
For the first
time in recent memory, luxury-goods makers are cutting prices on designer
apparel, shoes and handbags in the U.S. market.
With even the
biggest spenders starting to scrimp, luxury companies from Chanel S.A. to
Versace SpA, Christian Louboutin and Chloé are reversing the industry's
maxim that luxury prices only move up. The cuts range from 8% to 10% on most
products sold in the U.S.
But the move
isn't likely to dent the profit margins of most European fashion houses because
the value of the dollar has increased 28% against the euro since April. Luxury-goods
companies don't disclose margins for their individual brands, but Louis Vuitton,
one of the world's most profitable labels, is estimated to have a margin of
45 cents on every dollar.
+ NORDIC TRACK: $300 Hardly used, call Chubby.
+ GEORGIA PEACHES:
California grown - 89 cents/lb.
+ JOINING NUDIST
COLONY. Must sell washer and dryer. $300.
+ WEDDING DRESS
FOR SALE. Worn once by mistake. Call Stephanie.
+ FOR SALE BY
OWNER: Complete set of Encyclopedia Britannica, 45 volumes. Excellent condition.
$1,000 or best offer. No longer needed. Got married last month. New wife knows
end of Wall Street. In case you mised yesterday, the era that defined
Wall Street is finally, officially over. Michael Lewis, who chronicled its excess
in the book Liars Poker, returned to his old haunt to figure out
what went wrong. And boy, did he find some juicy stuff.
He has a written
a long brilliant piece in CondéNast's increasingly excellent Portfolio
magazine. Frankly, I recommend you drop everything and read this piece immediately.
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.