Harry Newton's In Search of The Perfect Investment
Newton's In Search Of The Perfect Investment. Technology Investor.
AM EST Thursday, September 28, 2006: Five major influences
affect investing today:
1. Much money. So much that it way exceeds available opportunities.
2. Higher asset prices. Money sloshing around drives up asset prices.
3. Heightened desperation. There's so much money to be made by managing
money -- figure 2% and 20% for hedge funds and private equity funds versus 1%
or so for mutual funds. If you do well, you get rich instantly. If you don't,
you're out of business. Amaranth's energy trader was paid $100 million
in cash last year. That's one man's wages for the year. He tried to make even
more this year by taking a desperate gamble. Despite this year's mega-screwup,
he won't return last year's $100 million.
4. Fashion. Investments become fashionable quickly.
5. Lightning speed. Hedge funds move ultra-quickly, creating ultra-volatility
in asset pricing -- just look at the last few months in oil, natural gas, gold,
1. In 2003, 13.7 million natural gas contracts traded on the Intercontinental
Exchange (the ICE) with a notional value of $186 billion. Last year,
55.5 million such contracts traded, with a notional value of $1.3 trillion.
That's an increase of seven times in two years.
2. In 1994, the top 13 private equity funds raised $17 billion. In 2006,
the biggest eight funds will raise $100 billion. The top 100+ funds will
raise more than $300 billion. There weren't 100 private equity funds
§ "Buy and hold" as an investment policy is clearly dead.
§ Asset prices are now way beyond historical norms, e.g. P/Es in pubic
equities, cap rates in real estate and will continue their rise into nose-bleed
§ There are two classes of investors -- the quick or the dead.
§ Most "professional" money managers haven't figured the new
world yet and get stuck with their old focus and their old strategies.
§ You have to learn when to hold and when to fold. Better to play with
the bank's money. Most non-professionals leave their winnings on the
table, figuring their lucky streak will last longer. It rarely does.
This not your
Gas Is Down - Go Back to Sleep
This piece yesterday by Kelpie Wilson comes from a blog called t r u t h o u
Last year at
this time, gas prices were on the rise. Katrina and Rita had just rampaged
through the Gulf, wasting drilling rigs and shutting down refineries. In the
short term at least, the price rise made sense.
It also made
sense in the long term, as an increasing number of oil industry insiders and
analysts were coming forward with predictions that the world was very near
the peak of oil production. Oil is a finite resource. As such, its production
must follow the general outline of a bell-shaped curve known as Hubbert's
curve. Oil will peak, and then fall. If there were little elves inside the
earth making new oil for us all the time, then oil production would follow
a different curve. But there aren't, so it doesn't.
We are used
to gas prices going up and down in the short term, but in the last six weeks,
we've seen a dip of fifty cents or more in the price of a gallon. We haven't
seen anything this precipitous in a long time and it has excited a lot of
itself is interesting. True to form, the TV news reports tend to stick to
the "gee whiz, ain't it grand" type of story, interviewing happy
motorists filling up at the pump and bypassing any sort of context or analysis.
But you can
also find a strong current of suspicion in the public mind that the price
drop has something to do with keeping the electorate quiescent as we head
into November. A recent poll found 42 percent thinking this way.
we've seen a handful of "conspiracy debunker" articles labeling
those with suspicious minds as "tinfoil-hat-wearing conspiracy nuts."
The source of most of these articles is a group of self-appointed liberal
media "newsbusters" at the Media Research Center (MRC) funded by
a roster of right-wing foundations.
Dan Gainor devoted a whole column to attacking CNN commentator Jack Cafferty
for something Rafferty said on August 30:
if you were a real cynic, you could also wonder if the oil companies might
not be pulling the price of gas down to help the Republicans get re-elected
in the midterm elections a couple of months away."
I guess 42
percent of Americans are real cynics at this point. But can anyone blame us?
Here are few things we have noticed over the past several years:
* Energy prices
can be manipulated. Look at what Enron did to California.
* Oil companies
are in charge of our national energy policy. Dick Cheney invited heads of
oil companies to meet with his energy task force and refused to tell the American
public what went on at those meetings.
* The war in
Iraq is really about oil. Recent reports to Congress show that we knew well
before the March 2003 invasion that Saddam had no weapons of mass destruction.
And the latest National Intelligence Estimate reports that our Iraq adventure
has destabilized the Middle East and made democracy less, not more, likely.
Most Americans conclude from this that the real reason we invaded Iraq was
to control its oil.
No one denies
that the oil industry would like to see their Republican guard dogs stay in
power and that lower gas prices help them in the polls. Motive is established.
It remains to establish the means.
In fact, the
bulk of the price drop probably has to do with two things. First, it is normal
for prices to drop somewhat at the end of the summer driving season as demand
goes down and refiners dump their summer gasoline blends in preparation for
were spared the killer hurricanes this season. Refineries normally run at
higher profit margins during the summer and were encouraged by gas speculators
to produce all they possibly could in anticipation of hurricane disruptions.
Hence, we ended the summer with a larger than normal gasoline supply.
any refinery owner who thought that lower gas prices in the fall would help
get Republicans elected might easily have decided to err on the side of over-production
heading into the fall - hurricane or no hurricane. And if that refinery happened
to serve a swing state, so much the better. I hear Ohio has about the lowest
gas prices in the country.
also be manipulated in more subtle ways. Right-wing columnists want us to
think that the price of oil is a simple matter of supply and demand, but oil
is the most heavily traded commodity in the world. That means that oil trading
decisions are processed through thousands of minds that are all subject to
the mass psychology of politics and the media. Look what happened last week
after Bush made a conciliatory speech about Iran at the UN. According to Bloomberg,
oil prices posted their biggest drop in four months.
A real cynic
might say that all the recent US saber rattling at Iran has been about manipulating
oil prices upward during the summer and then down just before the elections,
with the side benefit of keeping the electorate in a high pitch of fear and
uncertainty about Iranian nukes.
Bush 'n' Big Oil are not in charge of every blip and trend in oil prices.
But that doesn't mean that they don't know how to steer successfully through
the bumpy terrain of the oil peak. That may account for the announcement just
after Labor Day of a big new oil find in the Gulf of Mexico. Chevron announced
that a deep water test well called "Jack 2" had proved that oil
was recoverable from an oil field lying 175 miles offshore where the ocean
is more than a mile deep. The find was hyped everywhere as the "next
Prudhoe Bay" that will rain the black gold down upon America once again.
But if that
were so, why wasn't the announcement made back in May when the test results
were first published? Here's where the conspiracy theories get real. The "Jack
2" discovery is basically a fake story planted at an opportune time.
It is extremely unlikely that the new oil field will yield anything like Prudhoe
Bay. First, because it is dispersed in small pockets throughout a large region
of the Gulf and second - well, you think drilling in the arctic is tough,
try drilling out in the middle of the Gulf where the hurricanes play.
Tom Whipple describes some of the challenges:
oil from 20,000 feet below the surface, where the pressures run to 20,000
pounds per square inch (psi) and the temperature of the oil is in the order
of 200 degrees centigrade, is going to be a major technical challenge. Wells
drilled to these depths will cost in the range of $100 million each.
that 300-500,000 barrels per day at the most could be got from all the wells
sunk into this new oil field. Not nearly enough to justify the hype and the
claim by some business journalists that our oil worries are over.
worries" attitude is just what the Republicans can use right now. It's
so great to have a happy face to put up next to those scowling Democrats bleating
on about gas prices.
at least 42 percent of us are starting to get wise to these tactics.
you believe anything you read? The simple answer is NO. Most
everyone has an agenda. To scoop the competition. To prove their own brilliance.
To change what others think. To float some political agenda. To pump a stock.
To get a cover story and a pay raise. A myriad of reasons.
reader alerted me to a story in the New York Sun, a tiny New York City
newspaper. The heading on the story written by Dan Dorfman was For Real Estate
Brokers, Business Has Dropped Dead.' The story began:
estate broker Deanne Esses, who plies her trade as a senior vice president
at one of the city's biggest firms, Bellmarc Realty, said eight people in
her Upper East Side office on Madison Avenue are leaving their jobs for alternative
careers. Those eight represent 20% of the office's sales staff of 40.
the beginning. Ms. Esses said she thinks more New York City brokers will be
leaving the scene. "Business here is just not quiet; it has dropped dead
over the past few weeks," she said. "At the same time, there's a
flood of inventory on the market. We run open houses, we run advertisements,
but nothing works. There are no buyers, and without buyers, there are no sales."
plethora of inventory on the market can be seen in the outburst of open houses.
In a Sunday advertisement earlier this week, for example, one Bellmarc ad
featured 87 open houses. In contrast, two years ago there were virtually none
as brisk demand quickly snapped up any available inventory.
As a cub reporter
my boss drummed into me, Check, Check, Check. So I called Ms. Esses and
asked her about the article and her quote about Manhattan real estate having
"dropped dead." She said the quote was inaccurate. Manhattan real
estate hadn't died. She didn't want to discuss the article any further. I could
hear the anger in her voice. She'd been misquoted. She'd been embarrassed. She
was furious at the author.
A bell rings in
my brain. I remember the name "Dan Dorfman." He was a famous New York
financial journalist, once. Four years ago, a blog written by someone called
here) had the following:
The fact that Dan Dorfman has joined the New York Sun says a lot about both
his fortunes and the paper's. Dorfman was, from the late 80s through the mid-90s,
one of the most powerful men on Wall Street. Numerous articles from the time
testify to his ability to move the market simply by repeating a rumor he had
heard, and he heard a lot of rumors. His move from CNN's 'Moneyline' to CNBC's
'Market Wheel' made headlines and he wrote columns for USA Today, Money magazine,
and syndication, the Money gig alone paying him $450,000 per year. And then
there was his popular series of videos. . . .
But it all started
to crash around October 1995, when Business Week informed readers that the
US Attorney for the Eastern District of New York was investigating Dorfman's
relationship with a stock promoter who was a regular tip source of Dorfman's.
The promoter, Donald Kessler, and Dorfman were suspected of possible illegal
insider trading, wire and mail fraud, and violations of securities laws according
to Business Week. The feds also wanted to know if Kessler was giving Dorfman
a cut of the money Kessler was being paid by corporate executives to introduce
them to Dorfman. (The best story in the Business Week article: the CEO of
a chain of porn shops paid Kessler ten grand to introduce him to Dorfman,
who Not long after wrote a USA Today column praising the porno
chains, as Business Week put it, optimistic growth plans.
Yeah, I got yer growth plans.)
followed up with another article on December 11, 1995, and although he was
never charged with anything, Dorfmans fall was cemented. Early in 1996
he was canned from Money for refusing to tell his editors who his unnamed
sources were, and in May 1996 Dorfman suffered a stroke, which led to the
end of his appearances on CNBC; CNBC then let his contract quietly expire.
Then, in 1999,
Dorfman reappeared with a column on JagNotes.com, an online financial information
provider. This was to be Dorfmans return to prominence; unfortunately,
one Warren Harrison, who had previously been a fairly regularly cited source
of Dorfmans, claimed that it had been his idea to have Dorfman write
a finance column for a website. So, Harrison sued poor Dorfman, claiming that
Dorfman took Harrisons idea to JagNotes. As you can see from the court
ruling linked to above, Dorfmans motion to dismiss the suit was denied;
no resolution to this matter has been located by Like Father Like Sun, but
we reckon it didnt go Dorfmans way. Why? Because nothing else
seems to. The most recent reference to Dorfmans JagNotes.com column
we could find was a November 2000 Business Wire, suggesting he lost the gig
sometime but not too much later; the fact that his departure went unrecognized
by the press speaks volumes as to how far this once mighty individual has
fallen. (In the meantime, JagNotes doesnt seem to be doing so well either.
In January 2002 a deal to sell 50.1% interest in the company fell through
when its suitor backed out. That suitor was the parent company of the New
York strip joint Scores. When the strippers dont even want you. . .
And 2002 finds
Dan at the New York Sun. The man who was easily the most influential
financial writer in America (Christopher Byron, TheStreet.com, 4/99)
is now working for a paper which manages to sell about three ads per issue.
Of course, you cant blame Dan; he is probably just happy to have work,
while Seth Lipsky gets to add another name writer past his prime. Lipsky has
already snagged the cast-offs Wallace Matthews, Jack Newfield, and Jerry Capeci
(more on Capeci, a Daily News veteran, when we get a chance). This time, Seth
just happens to have snagged a disgraced 70 year old stroke victim. Well done
do not want to see this movie.
Trust me. it's seriously awful.
Capitalism returns to Somalia:
A Somali woman, Hawa Elmi, 66, is charging a fee for visitors to see the wreckage
of the Black Hawk helicopter that was shot down in in Mogadishu on Oct. 31993,
killing 18 Americans, changing US foreign policy shift and spawning the movie
Black Hawk Down. Elmi grew up a nomad, herding camels in Somalia's deserts,
and never went to school. She moved to Mogadishu in the 1960s, when it was a
showcase of Italian architecture, a gem along the sea. Mogadishu is now ruled
by Islamist clerics who have delivered a level of order and stability that the
city has not seen for years. Part of the reason they came to power was that
the Islamists tapped into anti- U.S. sentiment by challenging warlords backed
by the United States. Some people fear the Islamists will impose a draconian
version of Islam in Somalia, which up until recently had been relatively secular.
But Elmi said she loves the Islamists. "They bring peace," she said.
"And peace brings tourists."
of the day:
I once wanted to save the world now I just want to leave the room with
some dignity. Lotus Weinstock, comedian
The ultimate gotcha
Four friends, who hadn't seen each other in 30 years, reunited at
a party. After several drinks, one of the men had to use the rest room. Those
who remained talked about their kids.
The first guy
said, "My son is my pride and joy. He started working at a successful company
at the bottom of the barrel. He studied Economics and Business Administration
and soon began to climb the corporate Ladder and now he's the president of the
company. He became so rich he gave his best friend a top of the line Mercedes
for his birthday."
The second guy
said, "Darn, that's terrific! My son is also my pride and joy. He started
working for a big airline, and then went to flight school to become a pilot.
Eventually he became a partner in the company, where he owns the majority of
its assets. He's so rich he gave his best friend a brand new jet for his birthday."
The third man
said: "Well, that's terrific!? My son studied in the best universities
and became an engineer. Then he started his own construction company and is
now a multimillionaire. He also gave away something very nice and expensive
to his best friend for his birthday: A 30,000 square foot mansion."
The three friends
congratulated each other just as the fourth returned from the restroom and asked:
"What are all the congratulations for?" One of the three said: "We
were talking about the pride we feel for the successes of our sons. ..
What about your
son?"The fourth man replied: "My son is gay and makes a living dancing
as a stripper at a nightclub." The three friends said: "What a shame...what
a disappointment." The fourth man replied: "No, I'm not ashamed? He's
my son and l love him.? And he hasn't done too bad either. His birthday was
two weeks ago, and he received a beautiful 30,000 square foot mansion, a brand
new jet and a top of the line Mercedes from his three boyfriends."
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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