Harry Newton's In Search of The Perfect Investment
Newton's In Search Of The Perfect Investment. Technology Investor.
AM EST Tuesday, September 5, 2006: How can I not feel
... after a great weekend with my children?
... a new seasonal low on the price of oil?
... when I see the latest inflation numbers as benign -- signaling the likelihood
the Fed won't raise rates at its next meeting later this month? No more "fighting
the Fed" should be good for stocks.
But I remain cautious. Cash remains king -- until I find the next "sure
always loved GE, the company -- not the stock,
which has, sadly,floundered...
But I do love Jeff Immelt, GE's boss. Here are excerpts from a fascinating
Q&A BusinessWeek just did with him:
downside of the public company experience these days?
The pendulum [on regulation] has gone too far one way and needs to come
back some. My job is to play by the rules of the day. I tell people in GE,
"You're not allowed to complain about the referee, at least not in public."
We keep our mouths shut and just keep going. But money flows are just not
coming to the New York Stock Exchange. You can say what you want about the
GE stock, but the S&P 500 is lower today than it was in 2000. That's not
good. Companies' earnings have doubled, tripled, or quadrupled. Money flows
to the NYSE have a lot to do with how people view the U.S. economy. The U.S.
economy over the past few years has been, in many ways, better than in the
late 1990s. It's more sustainable. Even though interest rates will go up,
I still think the economy is pretty gosh darn good. GE is half outside the
U.S., and that's growing twice as fast as our business in the U.S. This is
going to be a profoundly global company.
David Calhoun just left GE for a potential payout of $100 million to run [private
media outfit] VNU. Has private equity changed the game?
A lot of dollars go to alternative investments nowhedge funds and
private equitydollars that used to go to the New York Stock Exchange,
GE stock, and things like that. It's a very different job from what we do.
We get to see ideas come together. That's what makes GE fun in a way that
the private-equity experience isn't. I remember the day when our sales in
China were zero. Now, they're $6 billion. In private equity, you buy, fix,
and sell. Here, you buy, invest, and build
How do you
get investors excited about the stock again?
My job is to figure out how to grow and manage risk and volatility at the
same time. We're in better shape than we were in 2001. GE is 65% bigger, and
earnings have doubled. We're going to outperform the S&P 500 in revenues,
earnings, and return on total capital. I'll keep drumming that home.
lot of attention on GE and others going green. Why now?
In 2004, we were going through our summer strategic plan, and about two-thirds
of the business reviews included new products in energy efficiency, water
conservation, environmental technologies, and things like that. So we turned
it into a growth campaign.
right now is NBC.
We've developed more shows for the fall. Studio 60 is just phenomenaledgy,
funny, and shocking. And the Tina Fey show is great. Alec Baldwin plays the
thug from GE, and he's hilarious.
I think about the intensification of globalization a lot, and preparing
the company for that. We sell MRI scanners that cost about $1.5 million in
the U.S. Now it's about designing a scanner that can be sold for $500,000
in China. We need to do that 10 or 15 times.
vacation do you take?
A couple of weeks, I guess, but there's probably not a day where I disengage
from the company. But that's not a burden. I love work. I have an exceptionally
close relationship with my wife and daughter. We've all grown up that way.
If I'm home four straight nights for dinner, they start to ask: "Don't
you have something to do?"
mail explodes. I received 370 spam emails in the last 24 hours, a
record. Fortunately Outlook's Junk E-Mail filter catches 95% of them
and I then permanently delete them. Still, it's a pain. I have no solution,
other than to control my own exchange server. That's too costly.
Stocks May Climb Wall of Worry:
Sometimes Jeremy Siegel Ph.D. he gets it right. Here are excerpts from
his piece yesterday::
I believe that
odds are about five to one against the U.S. falling into a recession over
the next year. There is no doubt plenty to worry about, and pessimists point
to two major risks in the economy: soaring oil prices and a severe housing
Oil prices would
soar if the Mideast melts down into open warfare or if an effective terrorist
attack struck oil supplies. In this hurricane season, there is also the possibility
that another Katrina-like storm could disrupt oil and gas production in the
sector is a risk because if house prices decline severely and the consumer
responds by sharply curtailing his spending, this would greatly harm the economy.
A lot of consumption has been spurred by funds generated through second mortgages
and home equity loans. If homeowners see capital gains on their homes turn
to losses, it could spell trouble for the consumer sector.
But I think
both of these risks are unlikely to occur. Oil producing countries are as
addicted to their revenue from oil as we are to using it. They also know if
they set the price of oil too high, determined conservation will hurt their
long term prospects. Embargoes against specific countries (such as Iran against
the U.S.) dont work because oil is a transferable commodity from a world-wide
supply. The total oil pumped, not who sells what to whom, is the critical
factor determining the price.
the energy markets have built these risks into prices. Seventy dollar oil
already contains a $10 to $20 dollar premium for the grim possibilities mentioned
above. That does mean that a disaster wont send the price of oil soaring.
But it means that in the absence of these disrupting events, oil prices will
fall (note the sharp decline in such prices when Ernesto veered away from
the Western Gulf).
housing bust will set into motion events that will limit the impact of reduced
housing expenditures on the rest of the economy. Housing is a big user of
borrowed funds and a downshift in that sector will reduce loan demand and
lower interest rates. A housing decline will also takes pressure off of sensitive
commodity prices such as lumber, copper, and other materials used in construction.
This will allow the Fed to ease monetary policy if necessary.
And it is very
unlikely that a moderate fall is housing prices will send homeowners into
shock. Only wide-eyed optimists felt the housing prices would continue their
rise (see my article Is Real Estate a House of Cards on Yahoo!
Finance from last December) and most level-headed homeowners at the peak of
the bubble assumed prices would eventually stabilize or even decline. Even
if housing starts in 2006 fall 20% below the 2005 level, that would still
be well above the average of the last 20 years.
Its a well-known (and true) Wall Street aphorism that markets hate uncertainty.
Investors do not like to make commitments when there are major risks ahead.
Anxious investors claim they will put money in the stock market only when
major sources of uncertainty are resolved.
But there has
always been uncertainty in our economy. If investors waited until all uncertainties
worked themselves out, they will never have bought stocks.
call the ever present risk facing investors the Wall of Worry.
History shows that stocks have often climbed this wall of worry,
amply rewarding investors who stay with equities. Uncertainty is one of the
reasons why the stock market has over the long run been such a good investment
and why stock returns have sported such a hefty premium return over fixed
No one knows
what the future will bring. There will always be risks in buying stocks and
if worst-case scenarios materialize, stock will no doubt fall. But I think
the odds favor continued economic expansion and if this turns out to be the
case, stocks will no doubt be your best investment.
Rumsfeld's dance with the Nazis. I supported
the war in Iraq. I voted for Mr. Bush the first and second time. But this investment
in Middle East democracy-building is simply not working. We are wasting our
money and our boys' lives. And we're souring much of the world on us. This November's
elections loom. The balance of power in Congress needs to shift to those politicians
with a more balanced view of the Iraqi war's efficacy. Thus, with trepidation,
I reprint a September 3 piece by Frank Rich from The New York Times.
I think the piece is important:
US Tennis Open is on. Here is the TV schedule
-- only it varies, depending on the length of the matches. Late last night it
moved from USA to CNBC. For today's Schedule of Play, i.e. who's
NEW YORK President
George W. Bush came to Washington vowing to be a uniter, not a divider. Well,
you win some and you lose some. But there is one member of his administration
who has not broken that promise: Donald Rumsfeld. With indefatigable brio,
he has long since united Democrats, Republicans, generals and civilians alike
in calling for his scalp.
Last week the
man who gave us "stuff happens" and "you go to war with the
army you have" outdid himself. In an instantly infamous address to the
American Legion, he likened critics of the Iraq debacle to those who "ridiculed
or ignored" the rise of the Nazis in the 1930s and tried to appease Hitler.
Such Americans, he said, suffer from a "moral or intellectual confusion"
and fail to recognize the "new type of fascism" represented by terrorists.
Presumably he was not only describing the usual array of "Defeatocrats"
but also the first President Bush, who had already been implicitly tarred
as an appeaser by Tony Snow last month for failing to knock out Saddam Hussein
What made Rumsfeld's
speech noteworthy wasn't its toxic effort to impugn the patriotism of administration
critics by conflating dissent on Iraq with cut- and-run surrender and incipient
treason. That's old news. No, what made Rumsfeld's performance special was
the preview it offered of the ambitious propaganda campaign planned between
now and Election Day. An on-the- ropes White House plans to stop at nothing
when rewriting its record of defeat (not to be confused with defeatism) in
a war that has now lasted longer than America's fight against the actual Nazis
in World War II.
Here's how brazen
Rumsfeld was when he invoked Hitler's appeasers to score his cheap points:
Since Hitler was photographed warmly shaking Neville Chamberlain's hand at
Munich in 1938, the only image that comes close to matching it in epochal
obsequiousness is the December 1983 photograph of Rumsfeld himself in Baghdad,
warmly shaking the hand of Saddam in full fascist regalia. Is the defense
secretary so self-deluded that he thought no one would remember a picture
so easily Googled on the Web? Or worse, is he just too shameless to care?
go to Baghdad in 1983 to tour the museum. Then a private citizen, he had been
dispatched as an emissary by the Reagan administration, which sought to align
itself with Iraq in the Iran-Iraq war. Saddam was already a notorious thug.
Well before Rumsfeld's trip, Amnesty International had reported the dictator's
use of torture -- "beating, burning, sexual abuse and the infliction
of electric shocks" -- on hundreds of political prisoners. Dozens more
had been summarily executed or had "disappeared." American intelligence
agencies knew that Saddam had used chemical weapons to gas both Iraqi Kurds
declassified State Department memos detailing Rumsfeld's Baghdad meetings,
the American visitor never raised the subject of these crimes with his host.
Within a year of his visit, the American mission was accomplished: Iraq and
the United States resumed diplomatic relations for the first time since Iraq
had severed them in 1967 in protest of American backing of Israel in the Six-Day
In his speech
last week, Rumsfeld paraphrased Winston Churchill: Appeasing tyrants is "a
bit like feeding a crocodile, hoping it would eat you last." He can quote
Churchill all he wants, but if he wants to self-righteously use that argument
to smear others, the record shows that Rumsfeld cozied up to the crocodile
of Baghdad as smarmily as anyone. To borrow the defense secretary's own formulation,
he suffers from moral confusion about Saddam.
suffers from intellectual confusion about terrorism. He might not have appeased
Al Qaeda but he certainly enabled it. Like Chamberlain, he didn't recognize
the severity of the looming threat until it was too late. Had he done so,
maybe his boss would not have blown off intelligence about imminent Qaeda
attacks while on siesta in Crawford.
proof, read the address Rumsfeld gave to Pentagon workers on Sept. 10, 2001
- a policy manifesto he regarded as sufficiently important, James Bamford
reminds us in his book "A Pretext to War," that it was disseminated
to the press. "The topic today is an adversary that poses a threat, a
serious threat, to the security of the United States of America" is how
the defense secretary began. He then went on to explain that this adversary
"crushes new ideas" with "brutal consistency" and "disrupts
the defense of the United States." It is a foe "more subtle and
implacable" than the former Soviet Union, he continued, stronger and
larger and "closer to home" than "the last decrepit dictators
of the world."
And who might
this ominous enemy be? Of that, Rumsfeld was as certain as he would later
be about troop strength in Iraq: "the Pentagon bureaucracy." In
love with the sound of his own voice, he blathered on for almost 4,000 words
while Mohamed Atta and the 18 other hijackers fanned out to American airports.
later, Rumsfeld would still be asleep at the switch, as his war command refused
to heed the urgent request by American officers on the ground for the additional
troops needed to capture Osama bin Laden when he was cornered in Tora Bora.
What would follow in Iraq was also more Chamberlain than Churchill. By failing
to secure and rebuild the country after the invasion, he created a terrorist
haven where none had been before.
That last story
is seeping out in ever more incriminating detail, thanks to well-sourced chronicles
like "Fiasco," "Cobra II" and "Blood Money,"
T. Christian Miller's new account of the billions of dollars squandered and
stolen in Iraq reconstruction. Still, Americans have notoriously short memories.
The White House hopes that by Election Day it can induce amnesia about its
failures in the Middle East as deftly as Rumsfeld (with an assist from John
Mark Karr) helped upstage first-anniversary remembrances of Katrina.
is that White House allies, not just Democrats, are sounding the alarm about
Iraq. In recent weeks, prominent conservatives, some still war supporters
and some not, have steadily broached the dread word Vietnam: Chuck Hagel,
William Buckley Jr. and the columnists Rich Lowry and Max Boot. A George Will
column critical of the war so rattled the White House that it had a flunky
release a public 2,400-word response notable for its incoherence.
If even some
conservatives are making accurate analogies between Vietnam and Iraq, one
way for the administration to drown them out is to step up false historical
analogies of its own, like Rumsfeld's. In the past the administration has
been big on comparisons between Iraq and the American Revolution - the defense
secretary once likened "the snows of Valley Forge" to "the
sandstorms of central Iraq" - but lately the White House vogue has been
for "Islamo-fascism," which it sees as another rhetorical means
to retrofit Iraq to the more salable template of World War II.
certainly sounds more impressive than such tired buzzwords as "Plan for
Victory" or "Stay the Course." And it serves as a handy substitute
for "As the Iraqis stand up, we'll stand down." That slogan had
to be retired abruptly last month after The New York Times reported that violence
in Baghdad has statistically increased rather than decreased as American troops
handed over responsibilities to Iraqis. Yet the term "Islamo-fascists,"
like the bygone "evildoers," is less telling as a description of
the enemy than as a window into the administration's continued confusion about
exactly who the enemy is. As the writer Katha Pollitt asks in The Nation,
"Who are the 'Islamo-fascists' in Saudi Arabia - the current regime or
its religious- fanatical opponents?"
Next up is the
parade of presidential speeches culminating in what The Washington Post describes
as "a whirlwind tour of the Sept. 11 attack sites": All Fascism
All the Time. In his opening salvo, delivered on Thursday to the same American
Legion convention that cheered Rumsfeld, Bush worked in the Nazis and Communists
and compared battles in Iraq to Omaha Beach and Guadalcanal. He once more
interchanged the terrorists who struck the World Trade Center with car bombers
in Baghdad, calling them all part of the same epic "ideological struggle
of the 21st century." One more drop in the polls, and he may yet rebrand
this mess War of the Worlds.
not overwhelmed by foreign terrorists," said the congressman John Murtha
in succinct rebuttal to the president's speech. "It is overwhelmed by
Iraqis fighting Iraqis." And with Americans caught in the middle. If
we owe anything to those who died on 9/11, it is that we not forget how the
administration diverted American blood and treasure from the battle against
bin Laden and other stateless Islamic terrorists, fascist or whatever, to
this quagmire in a country that did not attack the United States on 9/11.
The number of American dead in Iraq - now more than 2,600 - is inexorably
approaching the death toll of that Tuesday morning five years ago.