Technology Investor 

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

Previous Columns
8:00 AM EST, Thursday, October 9, 2008: My favorite magazine comments on the mess:

My friend, the analyst, prays the Economist would actually publish this cover. He figures then would be the perfect time to buy stocks. His theory: the press always gets it wrong.

Iceland nationalized its largest bank. In recent days, there have been trading halts in Brazil, Russia and Indonesia. The world is a mess.

Everyone is looking for "total capitulation." This happens when investors despair and dump everything in a widespread total panic. This total capitulation signals the market bottom, making it safe to buy equities again. No one believes this has happened yet. Hopes are running high for coming days. October is famous for its stockmarket crashes -- 1929, 1974, 1987, 1997 and 2002.

Another theory is we'll have a big bounce (maybe today), then a big crash. Then it will be safe to start buying again.

Everyone has their theories. Mine remains: Cash is King. When in doubt, stay out. (Thank you, Todd.)

What we do know about recent weeks:

+ There have been no buyers. What one guru calls a "Buyers' Strike." (Everyone's money is in treasurys, also spelled treasuries.)

+ The only BIG sellers are hedge funds anticipating huge redemptions. And they're dumping their erstwhile favorite stocks.

The big lesson I take away from 2008 will be the necessity for speed. Nothing works "long-term" any longer. I now believe I should change my inviolate 15% stop loss rule to 8%. Also I need to be much more conservative about profits. If I make a little profit, I should take it instantly, if not sooner.

In today's ultra-volatile world, there is no long-term. Repeat that: There is no long-term.

I continue to like some of the Ultra-Short funds, including (there are others)

Basic Materials
Emerging Markets
Dow 30
Russell 2000

Good weekend reading: This new book is a fast read. The title is a cute play on the flat world of Thomas Friedman and curved balls in baseball.


+ Liquidity .. is not much more than confidence.

+ The lifeblood of the global system was suddenly at risk as investors poured their funds into the one short-term investment deemed trustworthy -- three month U.S. Treasury bills. Why is that dangerous? It means that the financial market's liquidity is drying up. ... In a similar way during Great Depression, investors and savers stuffed their money into mattresses.

+ Consider the example of UBS, Switzerland's largest bank and one of the largest financial institutions in the world. During the 2007-2008 subprime crises, the Swiss central bankers discovered, to the utter dismay, that the total financial exposure of just one of their banks, UBS, amounted to more than 2 trillion Swiss francs. .. Yet Switzerland's entire GDP is only 475 billion Swiss francs. ... The liabilities of one bank alone are more than four times the size of the entire economy.

How attractive are muni bonds? Talented investor advisor, Paul Lobosco, questions my semi-love for muni bonds:

I read your column this morning. I am a little concerned about munis, Harry. Not a lot concerned, but a little. Here's why:
The insurance companies that gives some bonds an AAA rating are at risk.

Ratings agencies are under enormous political pressure NOT to downgrade certain bonds, especially in New York. Such a downgrade would place significant additional costs on issuers;

When the Governor of California holds his hand out for $7 billion, that sounds like prologue to the rest of the country.

Most importantly, the credit crisis in general.

So, why do munis look attractive? Because prices have declined, right? Why have prices declined? Value trap, perhaps?

Personally, I think smart money has been on the sell side of munis, generally. Municipalities might have a tough time making certain payments. As one example, it's not hard to picture a half-empty, brand new Yankee Stadium next year, is it? Wouldn't that increase the chances of default on that particular bond? I don't know, I'm just thinking about it.

In a fiscally conservative world, municipal bonds should not even exist. We should save the money thru taxes for whatever purpose, and spend it as it comes in. But America, and its politicians, want instant gratification. Spend now, pay later. That's the entire premise for the muni market. Seems to me that at times like this, with a massive credit contraction underway, default risk would rise for such an arrangement. I'm pretty sure that part of the bailout package was meant to address this.

The reason I'm sending you this is because I know you've had money in munis; too much might be another form of 'yield chasing', as you put it. I have a decent amount of client monies in munis and I'm not pulling any triggers. It's just worth another look. I am not the #1 expert on this topic.

How to spend your (taxpayer) money, in style. And we thought Washington could manage this. From the Washington Post:

AIG Gets More Government Bailout Cash

Only one day after it was revealed that AIG had sprung for a $440,000 spa vacation shortly after getting an $84 billion government-loan bailout comes this report: The government is loaning AIG another $38 billion.

AIG, the world's largest insurer, said it has already drawn down $61 billion on its $84 billion line of credit from the government. AIG's financial products division got into the mortgage-backed securities market and incurred billions in losses, sending the entire company teetering toward bankruptcy. The $84 billion loan was meant to help prop up AIG.

The New York branch of the Fed Reserve will borrow $37.8 billion in investment-grade securities from AIG in exchange for the cash.

During a hearing before the House Oversight committee on Tuesday, it was revealed that just last week, about 70 of the company's top performers were rewarded with a week-long stay at the luxury St. Regis Resort in Monarch Beach, Calif., where they ran up a tab of $440,000, ...

Monarch Hotel outside, Dana Point, California Sample bedroom and interior court

Oversight committee Henry Waxman (D-Calif.) showed a photograph of the resort, which overlooks the Pacific Ocean, and reported expenses for AIG personnel including $200,000 for rooms, $150,000 for meals and $23,000 for the spa, Whoriskey wrote.

Today, AIG chief executive Edward Liddy defended the vacation by pouring gasoline on the fire. Such trips "are standard practice in our industry," Liddy said, no doubt thrilling every other major insurance company.

In a letter to Treasury Secretary Hank Paulson, obtained by ABC News, Liddy said the vacationers were largely independent insurance agents who had sold well for AIG.

"Let me assure you that we are re-evaluating the costs of all aspects of our operations in light of the new circumstances in which we are all operating," Liddy wrote. "We understand that our company is now facing very different challenges -- and that we owe our employees and the American public new standards and approaches."

From the Reuters story:

As lawmakers grilled former top executives at a hearing, Rep. Elijah Cummings, a Maryland Democrat, said: "They were getting facials, manicures and massages, while the American people were footing the bill."

The new question in my life: Do I really need to subscribe to the paper version of the Wall Street Journal? Upside: I can read it all online. Downside: Guilt that I didn't read all of it, and disposing of the heavy newspaper. Today I'm putting it the paper Journal on hold for a two weeks. Will I survive?

A message of sympathy from Main Street to Wall Street.

A comment on the present political scene: From the wonderful New Yorker Magazine.

Paul Newman dies. I met him twice. He was charming. He did have the most beautiful eyes on the planet. My wife loves this true story.

A Michigan woman and her family were vacationing in a small New England town where Paul Newman and his family often visited.

One Sunday morning, the woman got up early to take a long walk. After a brisk five-mile hike, she decided to treat herself to a double-dip chocolate ice cream cone.

She hopped in the car, drove to the center of the village and went straight to the combination bakery/ice cream parlor. There was only one other patron in the store: It was Paul Newman, sitting at the counter having a doughnut and coffee.

The woman's heart skipped a beat as her eyes made contact with those famous baby-blue eyes.

The actor nodded graciously and the star-struck woman smiled demurely.

Pull yourself together! She chides herself. You're a happily married woman with three children, you're forty-five years old, not a teenager!

The clerk filled her order and she took the double-dip chocolate ice cream cone in one hand and her change in the other. Then she went out the door, avoiding even a glance in Paul Newman's direction.

When she reached her car, she realized that she had a handful of change but her other hand was empty.

Where's my ice cream cone? Did I leave it in the store? Back into the shop she went, expecting to see the cone still in the clerk's hand or in a holder on the counter or something! No ice cream cone was in sight..

With that, she happened to look over at Paul Newman.

His face broke into his familiar, warm, friendly grin and he said to the woman, 'You put it in your purse.'

In case you missed this brilliant Saturday Night Live skit.

To see the clip, double click on the photo. Or click here.

The is one of funniest and most politically searing comedy sketches ever. The seven-minute sketch featured a mock news conference of Democratic Congressional leaders on the bailout bill, during which Nancy Pelosi and Barney Frank inadvertently acknowledge that it was Congress that blocked reform and effective oversight of mortgage giants Fannie Mae and Freddie Mac.

Test your IQ
Mensa is an organization whose members have an IQ of 140 or higher. A few years ago, there was a Mensa Convention in San Francisco, and several members lunched at a local cafe.

While dining, they discovered that their saltshaker contained pepper and their pepper shaker was full of salt. How could they swap the contents of the bottles without spilling, and using only the implements at hand?

Clearly this was a job for Mensa!

The group debated and presented ideas, and finally came up with a brilliant solution involving a napkin, a straw, and an empty saucer. They called the waitress over to dazzle her with their solution.

"Ma'am," they said, "we couldn't help but notice that the pepper shaker contains salt and the salt shaker..."

"Oh," the waitress interrupted. "Sorry about that." She unscrewed the caps of both bottles and switched them.

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.