Harry Newton's In Search of The Perfect Investment
Newton's In Search Of The Perfect Investment. Technology Investor.
AM EST Monday, October 2, 2006: Today
is Yom Kippur, the day of atonement and the holiest day of the Jewish calendar.
I apologize for
some bad calls -- GM comes to mind. I apologize for some good calls -- InSite
Vision comes to mind. By now everyone has figured you read me and everyone else
in the investment biz with a super critical eye. Does his logic make sense?
Does he have an agenda?
The biggest agenda is deadlines and speed. Think poor Cramer with an hour to
fill each day. When I was a magazine publisher, people would ask if they could
write a monthly column. I'd say Yes. Start writing. They'd peter out quickly.
Most people have three columns in them.
Nando Parrado, 56, is perhaps the best known of the 16 survivors of the crash
of an Uruguayan Air Force plane in the Andes Mountains in October 1972. It was
carrying his rugby team to a match in Chile. It was he who, with a single companion,
trekked through the harsh cordillera with virtually no supplies or protection
and eventually guided rescuers back to the crash site to save his friends and
teammates. Saturday's New York Times talks about how Parrado, after losing
everything, his family, his friends and his future ... came back to life "from
the grave" and embraced life with a huge gusto.
34-years later, Parrado explains
think life is simpler than we tend to think. We look for answers and more answers.
But there are no answers. Things happen in life, good things and bad. People
say why did it happen to me? Well, why not? Some people win the lottery, and
others die in a car crash. It happens, and there is nothing we can do about
it. The universe doesnt care what happens to you.
The Parrado Philosophy
is a sound argument for diversification in one's investments and less heart-beating
about those that go wrong -- like some of my commodities bets this year (although
the Australia mining stocks, like Kagara Zinc, are suddenly doing handsomely).
investors are probably right to fear an American slowdown.
This is from this weekend's Economist:
WHEN asset classes
diverge, investors should take note. Bond yields have fallen sharply in recent
weeks, with the ten-year treasury bond yielding 4.53% on September
25th, compared with 5.24% in June. That, and the recent weakness in
commodity prices, might seem to indicate an imminent economic downturn.
in shares do not seem overly concerned. The Dow Jones Industrial Average has
been flirting with its record high of 11,722, set back in January 2000. The
Belgian and Spanish stockmarkets have recently scaled new peaks. And emerging-market
bond spreads, a good indicator of investors' attitude to risk, are around
their lowest levels of the past 14 years.
bulls feel there is little to worry about. Profits growth has far outstripped
share prices in recent years, bringing price/earnings ratios down significantly.
And company cashflows are so strong that, according to James Montier of Dresdner
Kleinwort, American share buy-backs are adding three percentage points to
the dividend yield.
high as a proportion of GDP, in historical terms, but the bulls feel there
is little sign of an imminent reversion to the mean. The global economic outlook
may have moved in favour of companies because globalisation has reduced wage
bulls feel stockmarkets would have been even higher but for investor concern
about geopolitical risk, high oil prices and rising interest rates. Now that
oil prices have recently dipped below $60 a barrel and American interest rates
may have peaked, the markets can put those worries behind them.
Indeed the drop
in the oil price may have played the role of the Seventh Cavalry, riding to
the rescue. Lower petrol prices may relieve the pressure on American shoppers
(as shown by this week's rebound in consumer confidence). In addition, by
bringing down headline inflation, central banks will have fewer reasons to
tighten monetary policy.
So what are
bond investors worrying about? If the recent fall in oil is actually a sign
of a slowing global economy, a more apt equine analogy might be a horseman
of the Apocalypse. Recent American data, such as last week's survey from the
Federal Reserve Bank of Philadelphia, have generally been weaker than expected.
Goldman Sachs is expecting third-quarter American output growth to be just
2% (annualised), well below trend.
The big concern
is the American housing market. August existing home sales data were a little
stronger than expected, but median sales prices are lower than they were a
year ago, the first annual decline since April 1995.
dismiss housing worries, pointing to Britain and Australia, where a sudden
slowdown in house prices prompted a softening, but not a collapse, in household
consumption. But David Bowers of Absolute Strategy Research argues that the
British and Australian economies benefited from America's strength when they
were under pressure. No other economy can give America the same support. In
addition, the construction sector is a more important provider of American
jobs than its British or Australian equivalents.
decline will be a balance-sheet shock for American consumers that might prove
the final spur for them to do what some have predicted for years; rebuild
their savings. Unfortunately, this hit to demand could coincide with problems
elsewhere, with Germany facing a value-added-tax increase in 2007, Japan's
recovery faltering a little and the Chinese attempting to slow their investment
change in the bond market's focus might seem rather strange; after all, only
a month or two ago investors were worrying about inflation. And some analysts
cling to the view that bond investors are underestimating the inflationary
potential and that, after a brief pause, the Fed will be forced to resume
raising American interest rates. A slight variation of this argument is that
the inflationary pressures will prevent the Fed from being quite as accommodating
if the economy turns down.
It is hard to
see how both the bond and equity markets can be right. Equity investors seem
to assume that the global economy will display the same resilience as it has
in recent years; taking that view has been a bet that has paid off since 2003.
But the bond markets almost have an each-way bet on a slowdown: Ashes
to ashes, dust to dust, if the Fed doesn't get you, then housing must.
record of bond markets is not perfect: remember the deflation scare of 2003?
But given the scale of the decline in yields, and the fickleness of stockmarkets,
it would be foolish to bet against the bond market's judgment.
order words, be wary, be very selective. Hold cash for that rainy day, which
may or may not come. But it's hard to tell. I remain cautiously optimistic.
Getting re-elected in November: The
BIG Conspiracy theory is that the White House is engineering lower oil prices
to get Republicans elected to Congress in next month's elections. Latest theories:
Bob Woodwards new book says that Prince Bandar bin Sultan of Saudi Arabia
told President Bush that, He could ease oil prices ahead of the
2. Goldman Sachs former CEO is now Treasury Secretary. Goldman Sachs changed
the weighting on its commodity
index, one of the most popular vehicles for betting on raw materials. In July,
Goldman Sachs tweaked the index's content by cutting its exposure to gasoline.
Investors tracking the index had to adjust their portfolios accordingly -- which
sent gasoline futures prices tumbling." Prior to Goldman's revision of
the Goldman Sachs Commodity Index in July, unleaded gas accounted for 8.45%
(dollar weighting) of the GSCI.
Now unleaded gas
is only 2.30%.
This means that
commodity funds had to sell 73% of their gasoline futures to conform to the
It wasn't only
commodity funds that were forced to sell. Goldman's decision to lower the weighting
of unleaded gasoline in its commodity index and NOT to roll any portion of the
GSCI attributable to New York Harbor unleaded gasoline created problems for
arbitrageurs and commercial traders as well. Here is the Goldman press release:
12, 2006 Goldman, Sachs & Co. announced that, for the roll occurring in
September 2006 (the September Roll) in relation to the Goldman Sachs Commodity
Index (GSCI) futures contract expiring in October 2006, it would roll the existing
portion of the GSCI that is attributable to the Reformulated Gasoline Blendstock
for Oxygen Blending (RB) futures contract on the New York Mercantile Exchange
but would not roll any portion of the GSCI that is attributable to the New York
Harbor Unleaded Gasoline contract (HU) contract into the RB contract."
probably induced arbs, commercial hedgers, and other traders to sell September
and October unleaded gasoline future contracts to avoid possible (settlement,
delivery, etc.) problems. September futures expired in August; October contracts
expired September 29. Hence, unleaded gasoline prices collapsed in August and
Is all this true?
I'm doing more checking today.
will happen today in shul
Moskowitz had bought a parrot and one morning found the bird at the
eastern side of the cage, with a small prayer shawl over its head, rocking to
and fro, and mumbling. Bending low to listen, Moskowitz was thunderstruck to
discover the parrot was intoning prayers in the finest Hebrew.
Jewish," said the parrot, "but Orthodox. So will you take me to the
synagogue on Rosh Hashanah?"
So he takes the
"Can I tell my friends about you? This isn't a secret is it?"
at all. Tell anyone you want to." And the parrot returned to his praying.
to all his friends to tell them about his Jewish parrot. Of course no one believed
him, and in no time at all Moskowitz was taking bets. By Rosh Hashanah he had
$1,000 in bets riding on the parrot.
brought the parrot to the synagogue in its cage. He put him in a prominent place
and everyone turned to watch the parrot do his prayers. Even the rabbi watched,
as he had $7 that said the parrot would not pray.
Everyone waited. The parrot did not pray.
the prayer shawl over the parrot's head, but the bird ducked and shawl fell
off. After the services all of Moskowitz's friends laughed, and collected their
Moskowitz returned home, turned viciously on the bird, screaming, "Prepare
to die you little monster, for I'm going to wring your neck! If you can pray,
now's the time!"
The parrot's voice
rang out clear, "Hold it, you idiot. Today is Yom Kippur, when all the
Jews will sing the tragic, haunting Kol Nidre. Why don't you bet everyone that
I can sing Kol Nidre."
didn't do anything on Rosh Hashanah!"
replied the bird. "Think of the odds you'll get today!"
goes on around the High Holidays
A nice Jewish girl brings home her fiancé to meet her parents.
After dinner, her mother tells her father to find out about the young man. He
invites the fiancé to his study for schnapps.
are your plans?" the father asks the fiancé.
"I am a Torah
scholar," he replies.
scholar." The father says. "Admirable, but what will you do to provide
a nice house for my daughter to live in, as she's accustomed to?"
"I will study,"
the young man replies, "and God will provide for us."
will you buy her a beautiful engagement ring, such as she deserves?" asks
"I will concentrate
on my studies," the young man replies, "God will provide for us."
asks the father. "How will you support children?"
sir, God will provide," replies the fiancé.
proceeds like this, and each time the father questions, the fiancé insists
that God will provide.
Later, the mother
asks, "So, how did it go?"
The father answers,
"He has no job and no plans, but the good news is he thinks I'm God."
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 .
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