Harry Newton's In Search of The Perfect Investment
8:00 AM EST, Friday, October 3, 2008: The
blood is running in the streets. Those of us who make the right investment decisions
in coming weeks will come out of this wealthy beyond our wildest dreams. What
will make you rich will be 100% different to what will make me or your neighbor
rich. Let me start with the basic rules:
one rule. The price you pay now will determine the profit you make on the
other side. You're not looking for bargains now. You're looking for steals.
Today's Wall Street Journal talks of home builder D.R. Horton unloading land
across California "at big discounts." Sample: They recently sold land
at $7.8 million that cost them about $110+ million. That's a 93% discount. The
last time I looked, they weren't making any new land in California and people
are still moving there, despite the awful traffic.
two rule: You only search in areas you know something about and are close
to. I don't live in California. Cheap land there has little appeal to me.
Also I know there are zillions of people out there with cash who are pouncing
on steals. I don't have a prayer.
three rule: Be wary of "stories" -- especially those from your
"friends' who are trying to sell you something. In today's world, "stories"
are wrong. There's usually a "gotcha." And everything today is backwards.
A friend runs a catering business in New York's tony Hamptons. I figured she
did lousy this past summer. Hell no. She did spectacularly. No one traveled.
They couldn't afford to. Everyone stayed home and gave parties. Catering was
cheaper than $1,000 a night hotels in Europe.
four rule: Don't ignore your day job. You still have customers. Love
them more than usual. Send them a Reward Discount Certificate. Hold a Recession
Sale. Call them on the phone. Find out how they're doing. Talking to your customers
might actually give you some ideas on what they want and hence what you can
Number five rule:
Stay well away from the stockmarket. It's going down the toilet for obvious
economic, earnings and financial stock reasons. And there are new factors coming
in. There will be huge hedge fund redemptions at the end of December. Most funds
are selling to get the cash to pay their investors back. Call it a run on the
hedge funds. It will break many hedge funds, just as it broke many banks in
recent weeks, e.g. WaMu. Check out lousy hedge performance on today's
Number six rule:
Maximize your cash. That means cutting expenses and putting it somewhere
Number seven rule:
Spend time on your health. Get yourself a flu shot. Do more exercise.
Eat less. The usual stuff.
Number eight rule:
Spend more time with your family. You're doing all this for them. Give
them soft love. It's all you can probably afford now.
Number nine rule:
Get moving on your estate planning.
Number ten rule:
Don't go overseas in search of "safe havens." Apparently the
U.S., despite our ills, is now the world's "safe haven." The Australian
dollar is now 79 U.S. cents. When I sent money there a couple of months ago,
attracted by Australia's high bank yields, the Aussie dollar was 96 U.S. cents.
What with WaMu and the Aussie dollar I've really demonstrated how stupid I am
and (I guess) how difficult it is to make a miserable shekel chasing yield.
(DON'T.) Good news: I bought one share of Berkshire Hathaway when Buffett announced
his first bailout. And -- miracle of miracles -- it's up. Pray he lives until
economy sucks big time: Pray Congress passes
the bailout bill. The bill is badly written, hastily conceived, poorly sold,
loaded with pork and more horrible stuff. But it's what we got. We need the
boost. We need the bill today. And that's a change in my opinion from only a
problem started with housing. Then the financials. Then no one was lending.
So no one could buy cars (see yesterday's column). Now no one is buying capital
goods or commercial real estate because they can't finance their buys. And now
apparently exports are dying -- Cramer was jabbering on last night about how
BRIC has fallen off the map. I see plummeting commodity prices -- iron ore,
nickel, zinc, etc. Bad news for miners.
bad are things? Paul Krugman wrote this piece in today's New York Times. He's
harsh on the present administration, which, justifiably, is floundering. Except
during the Great Depression, no other administration has had to deal with the
magnitude of today's economic ills.
Edge of the
As recently as three weeks ago it was still possible to argue that the state
of the U.S. economy, while clearly not good, wasn't disastrous - that the
financial system, while under stress, wasn't in full meltdown and that Wall
Street's troubles weren't having that much impact on Main Street.
But that was then. The financial and economic news since the middle of last
month has been really, really bad. And what's truly scary is that we're entering
a period of severe crisis with weak, confused leadership.
The wave of bad news began on Sept. 14. Henry Paulson, the Treasury secretary,
thought he could get away with letting Lehman Brothers, the investment bank,
fail; he was wrong. The plight of investors trapped by Lehman's collapse -
as an article in The Times put it, Lehman became "the Roach Motel of
Wall Street: They checked in, but they can't check out" - created panic
in the financial markets, which has only grown worse as the days go by. Indicators
of financial stress have soared to the equivalent of a 107-degree fever, and
large parts of the financial system have simply shut down.
There's growing evidence that the financial crunch is spreading to Main Street,
with small businesses having trouble raising money and seeing their credit
lines cut. And leading indicators for both employment and industrial production
have turned sharply worse, suggesting that even before Lehman's fall, the
economy, which has been sagging since last year, was falling off a cliff.
How bad is it? Normally sober people are sounding apocalyptic. On Thursday,
the bond trader and blogger John Jansen declared that current conditions are
"the financial equivalent of the Reign of Terror during the French Revolution,"
while Joel Prakken of Macroeconomic Advisers says that the economy seems to
be on "the edge of the abyss."
And the people who should be steering us away from that abyss are out to lunch.
The House will probably vote on Friday (that's today) on the latest version
of the $700 billion bailout plan - originally the Paulson plan, then the Paulson-Dodd-Frank
plan, and now, I guess, the Paulson-Dodd-Frank-Pork plan (it's been larded
up since the House rejected it on Monday). I hope that it passes, simply because
we're in the middle of a financial panic, and another no vote would make the
panic even worse. But that's just another way of saying that the economy is
now hostage to the Treasury Department's blunders.
For the fact is that the plan on offer is a stinker - and inexcusably so.
The financial system has been under severe stress for more than a year, and
there should have been carefully thought-out contingency plans ready to roll
out in case the markets melted down. Obviously, there weren't: the Paulson
plan was clearly drawn up in haste and confusion. And Treasury officials have
yet to offer any clear explanation of how the plan is supposed to work, probably
because they themselves have no idea what they're doing.
Despite this, as I said, I hope the plan passes, because otherwise we'll probably
see even worse panic in the markets. But at best, the plan will buy some time
to seek a real solution to the crisis.
And that raises the question: Do we have that time?
A solution to our economic woes will have to start with a much better-conceived
rescue of the financial system - one that will almost surely involve the U.S.
government taking partial, temporary ownership of that system, the way Sweden's
government did in the early 1990s. Yet it's hard to imagine the Bush administration
taking that step.
We also desperately need an economic stimulus plan to push back against the
slump in spending and employment. And this time it had better be a serious
plan that doesn't rely on the magic of tax cuts, but instead spends money
where it's needed. (Aid to cash-strapped state and local governments, which
are slashing spending at precisely the worst moment, is also a priority.)
Yet it's hard to imagine the Bush administration, in its final months, overseeing
the creation of a new Works Progress Administration.
So we probably have to wait for the next administration, which should be much
more inclined to do the right thing - although even that's by no means a sure
thing, given the uncertainty of the election outcome. (I'm not a fan of Mr.
Paulson's, but I'd rather have him at the Treasury than, say, Phil "nation
of whiners" Gramm.)
And while the election is only 32 days away, it will be almost four months
until the next administration takes office. A lot can - and probably will
- go wrong in those four months.
One thing's for sure: The next administration's economic team had better be
ready to hit the ground running, because from day one it will find itself
dealing with the worst financial and economic crisis since the Great Depression.
What is the difference between a pigeon and an investment banker?
A pigeon can still
put a deposit on a Ferrari....
Just heard that
there are two positions to be in today's market...
1. cash, or
take care of your customers:
A woman went up to the bar in a quiet rural pub... She gestured alluringly
to the bartender who approached her immediately. She seductively signaled that
he should bring his face closer to hers. As he did, she gently caressed his
full beard. "Are you the manager?" she asked, softly stroking his
face with both hands "
he replied. "Can you get him for me?
I need to speak
to him," she said, running her hands beyond his beard and into his hair.
I can't," breathed the bartender. "Is there anything I can do?"
"Yes. I need
for you to give him a message," she continued, running her forefinger across
the bartender's lip and slyly popping a couple of her fingers into his mouth
and allowing him to suck them gently.
I tell him?" the bartender managed to say.
she whispered, "There's no toilet paper, hand soap, or paper towels in
the ladies room.
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
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