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

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8:30 AM EST Thursday, November 9, 2006: BusinessWeek fingered it:

Economic forecasters all face the same problem: They try to tell us where we're going based on data that tell us where we've been. Such is the case with the report showing third-quarter economic growth at a puny 1.6% annual rate. So is the economy's poorest quarterly performance in three and a half years a harbinger of weakness to come or a relic of the past few months?

And the key question: Will the housing tailspin throw us into a recession?

BusinessWeek says No, but admits economists are "deeply divided." Says BW, the economists look at other sectors, especially consumer spending, business outlays for new equipment and buildings, and exports. They note that all three grew faster in the third quarter than in the second. In particular, they point to household spending, which finished the quarter on a strong note. All this suggests increased momentum heading into the final quarter, despite the likelihood of another sizable hit from housing.

Who's right? So far, after nearly a year of nothing but bad news from housing, the optimists still make the stronger case, says BusinessWeek. The pessimists have yet to show evidence that the weakness in housing is spreading to other sectors of the economy, particularly consumer spending. Judging by the latest data, consumers seem oblivious to plunging housing starts, the drop in home demand, and softer home prices. In fact, consumer spending appears to be accelerating this quarter, not slowing down. That's BusinessWeek.

Fred Hickey writes a respected newsletter called The High-Tech Strategist. He writes "I am convinced (as a result of the housing downturn) we are heading towards a major consumer recession. It may have already begun. As the stockmarket in October went nearly parabolic, I was slogging through some ungodly number of Q3 earnings reports and conference calls (from tech companies), the summation of which proved to me the euphoria was far from justified."

Hickey is a bear. He's always been one. His bearishness caused him to miss the later part of the Tech Boom, but also miss the Tech-Wreck No observer I know does a better job taking the pulse of technology companies. He's not impressed what he finds:

+ Slowdown in autos is rippling through the tech industry, hurting companies such as Cognex.
+ The three largest retailers (Wal-Mart, Target and Costco) all reported lower-than-expected October results.
+ Big ticket sales have been slipping throughout the year. "The story is the same, whether it's homes, autos, flatpanel TV, furniture, PCs -- you name -- they're slowing."
+ Slowdowns are happening at Best Buy, the country's largest electronics retailer and Circuit City.
+ The slowdown in flatpanel TV set sales is hurting suppliers around the world,. Sony reported its flat panel sales were weaker than expected due to "severe" price cuts. Samsung forecast softening demand. LG Philips announced a massive 70% slash in capital spending.
+ The worldwide PC market is currently shrinking, hurt by a slowing growth rate and dropping average selling price.
+ Tech Inventories are pilling up.
+ "The semiconductor producers are just beginning to feel the brunt of the first US recession in 15 years. ... All of them warned of lower than expected revenues in Q4.

Hickey says he's "in as defensive position as one could be." He writes, "I have ratcheted up my put option position now to 4% of my portfolio. This is a very high level for me." (Hickey warns against selling short).

His current tech-related put options are: Best Buy (BBY), CDW Corp. (CDWC), AVX Corp. (AVX), SanDisk (SNDK), Texas Instruments (TXN), Lam Research (LRCX), KLA Tencor (KLAC), Nvidia (NVDA), Research in Motion (RIMM), NetLogic (NETL), IBM, Apple Computer (AAPL), Intel (INTC), Microchip Technology (MCHP), STM Microelectronics (STM), Amazon (AMZN), Google (GOOG), International Rectifier (IRF), Blue Coat Systems (BCST), Motorola (MOT), SAP, Dell, Xilinx (XLNX), Applied Materials (AMAT) and Novellus (NVLS).

Writes Hickey, "more recently I have been buying quite a few puts with expirations in March and April, figuring the first half of 2007 could be a very bad time for semiconductors, with the seasonable slowdown combining with the recession and an inventory dump. It's the recipe for a 'perfect storm.' ... I have tried to emphasize in my put option positions a heavier exposure to the consumer. That includes GOOG, Best Buy, Apple, SanDisk,, Texas Instruments, Motorola and several others. That's where there's more downside opportunity."

Hickey's economic scenario "is not different from all the consumer recessions of the past 40 years. The plunge in housing activity (sales, prices, permits and starts) indicates that we're heading for a consumer recession, where the consumer backs off, increases savings and pays off debts .... and the cash-out game is quickly coming to an end." as home values fall and mortgage rate resets are coming, with hefty increases in monthly mortgage payments.

I like reading Hickey, because virtually everything else out there -- newspapers, magazines and brokerage reports -- have a vested interest in painting a positive picture. Gloom and doom doesn't sell.

Hickey's message to me is simple: I need to hedge my holdings. Buy some put options on some egregiously overpriced tech stocks. I won't touch Google or Research in Motion, , since the market seems to be infatuated with them, for now. But others on Hickey's list look interesting.

Stock of the day: CBRE Realty Finance (CBF). It's a new commercial real estate finance company. The company focuses on originating, acquiring, investing in, financing and managing a diversified portfolio of commercial real estate-related loans, securities and other interests. Commercial real estate is hot.

Yesterdays' quote was fake (but still funny). She never said it. But she could. She's pretty dumb, allegedly.

"Whenever I watch TV and see those poor starving kids all over the world, I can't help but cry. I mean I'd love to be skinny like that, but not with all those flies and death and stuff." --Mariah Carey.

Qwetch, Qwetch, Qwetch
Sister Mary Katherine entered the Monastery of Silence.

The priest said, "Sister, this is a silent monastery, You are welcome here as long as you like, but you may not speak until I direct you to do so".

Sister Mary Katherine lived in the monastery for 5 years before the priest said to her, "Sister Mary Katherine, you have been here for five years. You may speak two words."

Sister Mary Katherine said, "Hard bed".

"I'm sorry to hear that", the priest said, "we will get you a better bed".

After another 5 years, the priest called Sister Mary Katherine. "You may say another two words, Sister Katherine."

"Cold Food," said Sister Mary Katherine, and the priest assured her that the food would be better in the future.

On her fifteen anniversary at the monastery, the priest again called Sister Mary Katherine to his office. "You may say two words today".

"I quit", said Sister Mary Katherine.

"It's probably best", said the priest. "You have done nothing but bitch since you got here".

The new breed of seeing Eye Dogs
Two women were out for a Saturday stroll. One had a Doberman and the other, a Chihuahua. As they walked down the street, the one with the Doberman said to her friend, "Let's go over to that bar for a drink."

The lady with the Chihuahua said, "We can't go in there. We've got dogs with us."

The one with the Doberman said, "Just watch, and do as I do."

They walked over to the bar and the one with the Doberman put on a pair of dark glasses and started to walk in. The bouncer at the door said, "Sorry, lady, no pets allowed."

The woman with the Doberman said, "You don't understand. This is my seeing-eye dog."

The bouncer said, "a Doberman?"

The woman said, "Yes, they're using them now. They're very good."

The bouncer said, "OK, come on in."

The lady with the Chihuahua thought that convincing him that a Chihuahua was a seeing-eye dog may be a bit more difficult, but what the heck. She put on her dark glasses and started to walk in.

Once again the bouncer said, "Sorry, lady, no pets allowed."

The woman said, "You don't understand. This is my seeing-eye dog."

The bouncer said, "A Chihuahua? You've got to be kidding?"

The woman with the Chihuahua said, "A Chihuahua? They gave me a Chihuahua?!"

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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