Harry Newton's In Search of The Perfect Investment
Newton's In Search Of The Perfect Investment. Technology Investor.
AM EST Wednesday, October 4, 2006: There's muted cheering.
Dow set a new high yesterday. Its close
broke the record of 11.722.98 set on January 14, 2000. The Dow is the narrowest
of all major stockmarket indices. It measures only 30 stocks. Even then,
only 10 of the Dow 30 are higher than they were in 2000; 20 are
lower. The three that have done best are Altria (formerly Phillip Morris),
Caterpillar and United Technologies.
The worst performers,
down by more than half from 2000, include two tech names the Dow added
when it was trying to appear relevant Intel and Microsoft.
And GM is down by 65%.
The Nasdaq 100,
which is filled with big tech names is still down more than 55%
from where it was when the Dow peaked in 2000. Four stocks in that index are
off more than 85 percent: JDS Uniphase, Sirius Satellite Radio, Verisign
and Sun Microsystems.
In short, it's not a cross-the-board victory celebration. Some people said the
big caps were overdue for "a run." These same people believe tech
stocks are now overdue for a run. Careful stockpicking remains the name of the
game. How difficult is that? In 2006 so far, most hedge funds have had their
worst year ever. When in doubt stay out.
Here are the companies in the Dow Jones 30 index:
Vehicles & Trucks
DuPont de Nemours
Oil & Gas
Chase & Co.
The Dow Jones
average is price weighted rather than market capitalization weighted. The movement
of the Dow is affected only by changes in the stocks' prices, in contrast with
other indexes' weightings that are affected by both price changes and changes
in the number of shares outstanding. When the average was initially created,
its values was calculated by simply adding up the component stocks' prices and
dividing by the number of components. Later, the practice of adjusting the divisor
was initiated to smooth out the effects of stock splits and other corporate
economic forecast. Stratfor is a leading private
intelligence firm. It does seriously good work. Here are excerpts from its latest
cycle finally has crested. The yield curve has inverted (albeit only slightly)
and stayed that way; commodities of all sorts have come off of their highs;
and growth in the United States and Asia is slowing, with the American housing
market (finally) showing signs of strain. Only European growth is doing better
than normal, having surpassed U.S. growth in the second quarter of 2006 for
the first time since 2000. At roughly 2 percent on an annualized basis, however,
European growth is hardly robust enough to resist the downdrafts from elsewhere.
signs of a slowdown, many investors are behaving as if global growth were
accelerating, not stalling. Investment monies are flowing hot and furious
into the developing world, and initial public offerings in particular are
garnering record amounts despite an utter dearth of transparency, as with
Russian state oil firm Rosneft, or a well-chronicled litany of shortcomings,
as with the Chinese state-owned banks.
There is a fancy
economics term for this: "irrational exuberance" or, more simply,
a market top. And just as in physics, what goes up must come down. There is
a not-quite-so-fancy economics term for that: "recession."
The fourth quarter will be a time of sliding asset and commodity values as
slowing growth pulls the system back from its giddy highs. This is not a process
that can happen overnight, however. U.S. growth is unlikely to dip into the
negative until the first half of 2007, and a formal recession -- two consecutive
quarters of negative growth -- is hardly a foregone conclusion. But make no
mistake: At the end of 2006 it will have been 81 months since the last
American recession ended, and the average U.S. expansion is only about 57
months. The United States is most certainly due for a correction. Now
more than ever the Europeans and Japanese will be forced to depend on the
resurgence of strong demand from the United States. Both Europe and Japan
will follow the United States down, albeit with a lag of unlikely more than
a quarter. Recessions in both places -- particularly in Europe -- tend to
be a more protracted affair. This one is unlikely to be different except in
one way. While interest rates in the United States have already returned to
a "natural level" of 5.25 percent in the aftermath of the
2001 recession, in the eurozone they are only 2.75 percent, vs. only 0.25
percent in Japan. Unlike the United States, neither the Europeans nor the
Japanese have many tools to get their economies going again when they start
Now more than
ever they will be forced to depend on the resurgence of strong demand from
the United States - which means that their recoveries will have to wait until
after the American one has built steam. Chinese demand will help as well and
we do not expect Chinese growth to slide along with the developed world. This
is not because the Chinese economy is more resilient - hardly - it is because
the Chinese economy is not based upon market principles. In the United States
profitt and sustainability are the keywords; in China they are market share
and maximum employment. Bottom lines are not important; maintaining a fast
throughput of cheap loans is. Such a values disconnect does make one largely
immune to the business cycle, but at the cost of rampant inefficiency, pervasive
corruption and fraying social stability.
In other words,
remain wary. Cash remains king, despite the Dow.
other Google sites
1. SearchMash.com looks different to normal Google -- no ads, but
three neat images.
2. Froogle.com is a fast way to find cheaper ways of buying your shiny new thing.
It's not comprehensive. It's a start.
3. Maps.google.com is the best mapping service on the Internet.
4. News.google.com is today's breaking news organized by category, including
business, health and top stories.
5. All the many Google services, including Gmail, Picasa, Desktop search, Calendar,
Translate and free software (including Google Pack screensaver) are available
on "options." Click
email is latest virus: Don't open attachments to emails that talk
about "Delivery Status Notification (Failure)." The attachments contain
viruses, worms and other nasties.
my reader friend, Gene Tomba
Financial planners love to use money managers, hedge funds and mutual
funds because the planner will take no blame for losses. The planner can always
say "Those hedge fund managers are idiots! Let's fire them right now! I'll
never use them again (to make the client feel good)"!! That is why the
"Financial Planning" business is a farce now. They have become salesmen,
my friend Dan Good:
Anyone who needs a so-called financial planner is pretty dumb financially to
start with. We once had financial planning service which was offered to unsophisticated
investors. It probably was somewhat useful to them (widows and orphans, so to
speak) but useless to anyone with financial savvy. If you ever interview a representative,
in the first five minutes you would conclude these types were nothing but salesmen.
From Dennis Mykytyn, hedge fund manager: "Not for me. These crappy otcbb
stocks can make you money in the short term, long term somebody is left holding
the bag. I dont like to be the bag holder."
a little steep. I found this in a venture proposal.
the Company's operating agreement, management shall receive an annual management
fee equal to $300,000 and a 10% incentive fee on the gross profit of the Company,
as well as 10% of the cash contributed to the Company for structuring, negotiating,
and providing other services to the Company. The gross profit of the Company
shall include, without limitation, the operating income generated from subsidiaries
and joint ventures engaged in manufacturing or in similar activities. Going
forward, the Company intends to maintain a low-cost operation so as to keep
corporate overhead to a minimum.
to say Thank You meaningfully? Assemble your photos into a memory
book. For a big collection, try the Kodak Gallery. Click
BlackBerries making us dumb? ComputerWorld magazine wonders
if "BlackBerries are developing a generation of workers who can't make
independent decisions. ... These dooes are developing a cyclical co-dependence."
I just cancelled my subscription to BlackBerry email. I didn't need the freneticsm.
Laptops work better answering emails. Cell phones work just fine when there's
victim finally laid to rest
An old telecom guy like me. This ad threw
could happen to you
I was barely sitting down when I heard a voice from the other stall saying:
"Hi, how are you?"
I'm not the type
to start a conversation in the restroom but I don't know what got into me, so
I answered, somewhat embarrassed, "Doin' just fine!"
And the other
person says: "So what are you up to?"
What kind of question
is that? At that point, I'm thinking this is too bizarre so I say: "Uhhh,
I'm like you, just traveling!"
At this point
I am just trying to get out as fast as I can when I hear another question. "Can
I come over?"
OK, this question
is just too weird for me but I figured I could just be polite and end the conversation.
I tell them "No.......I'm a little busy right now!!!"
Then I hear the
person say nervously... "Listen, I'll have to call you back. There's an
idiot in the other stall who keeps answering all my questions.
to interpret art
A couple attending an art exhibition at the National Gallery was staring at
a portrait that had them completely confused. The painting depicted three very
black and totally naked men sitting on a park bench. Two of the figures had
black weenies, but the one in the middle had a pink weenie.
The curator of
the gallery realized that they were having trouble interpreting the painting
and offered his assessment. He went on for nearly half an hour explaining how
it depicted the sexual emasculation of African-Americans in a predominately
white, patriarchal society. "In fact," he pointed out, "some
serious critics believe that the pink weenie also reflects the cultural and
sociological oppression experienced by gay men in contemporary society."
After the curator
left, a young man in a Kentucky T-shirt approached the couple and said, "Would
you like to know what the painting is really about?"
would you claim to be more of an expert than the curator of the gallery?"
asked the couple.
I'm the guy who painted it," he replied. "In fact, there are no "African-Americans"
depicted at all. They're just three Kentucky coal miners. The guy in the middle
went home for lunch."
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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