Harry Newton's In Search of The Perfect Investment
Newton's In Search Of The Perfect Investment. Technology Investor.
8:30 AM EST, Wednesday, September 5, 2007:
I met with two Australian hedge fund managers yesterday, trolling for new monies.
They were up a respectable 16.5% for their fiscal year to June 30. They
like big caps with a "tailwind" behind them. An example of a tailwind
is broadband communications (hence Cisco and Nokia). A headwind is higher commodity
prices and the necessity to raise prices, e.g. processed food producers such
by randomness: Not one learned observer --
not one -- figured David Ferrer would oust Rafael Nadal. Everyone figured it
would be a Nadal-Federer final.
But it happened last night after three hours and 28 minutes when Nadal's volley
sailed long at 1:50 AM. If you can't predict something as simple as a tennis
game, who can predict a recession, tomorrow's price of corn.... or today's stock
market? As my friend Mike O'Rourke, chief market strategist of BTIG wrote last
A funny thing
happened on the way to the Feds anticipated easing next week. The S&P
500 rallied 9% in two weeks, the NASDAQ 100 rallied 12.5%, the August ISM
came in essentially in line with expectations, GM posted a 6% gain in August
Auto sales verses expectations for a 4% loss, oh yeah GM also said they are
not seeing evidence of tightening in the auto loan market. As we stated yesterday
it is our belief, the companies who are complaining they dont have access
to credit are the ones who dont have adequate collateral. A great deal
of focus will be upon the numerous economic reports and Fed speaking engagements
in the next two weeks for signals of the Feds intentions.
As is usual
during this time of year the shorts are being squeezed. Today the S&P
500 crossed through two technical resistance levels a 61.8% Fibonacci retracement
of the mid-July to mid-August correction (1485.12). The S&P also cleared
its 50 Day Moving average (1487.72). This rally off of the low has been notably
different than recoveries from the other corrective moves over the past couple
of years. While volume is generally heavier on sell offs and lighter on the
recovery rally, this rally has been exceptionally light. We used a 61.8% retracement
as the definition of recovery rally. For example during the recovery from
these sell offs, February-March 2007, May-June 2006 and September-October
2005 the average volume during the recovery rallies were respectively 12.4%
lighter, 12.2% lighter and 1.2% heavier than the volume than during the sell
off. During this recovery the average volume has been 32% lighter than
that of the sell off. This reinforces the belief that a good deal of the activity
is short covering and not institutions putting money to work.
has again fallen in love with Tech. The group is being touted as impervious
to the credit market, once again. In early 2000 it was also touted as impervious
to the credit market, and the Feds tightening at that time. The argument
then was that since so few Tech companies use little or no debt, the tightening
would have little effect upon them.
Today the argument is that since they generally dont seek access the
credit markets the recent problems there will not affect them. The fact is
they do have exposure to the economy and should growth slow markedly,
they will surely be affected as well. Many large cap Tech names have very
healthy looking technical patterns, so we would not be looking to pick a fight,
our only point is if you are a tech bull please be sure it is for the right
reasons. Leadership has been narrow since the August 16th low, two stocks
Apple Inc. (AAPL) and Research in Motion (RIMM) contributed
1/3 of the NASDAQ 100s gain.
markets had some interesting activity today. Gold started a new move towards
the $700 level. The 6 month base creates an excellent foundation for a potential
breakout. The other noteworthy move was the limit up move in Wheat. The commodity
is up approximately 50% in the past 3 months, and now nations are starting
to limit its export.
support for Iraq: Bush is in Australia. Australia is the only country
to have its troops fight alongside American troops in every war from
1914-1918 on. Australia, at 20 million people, relies on the much-bigger America
for its defense. In 1942 America saved Australia from a Japanese invasion in
the Battle of the Coral Sea. Australia is probably now America's strongest ally.
Australia has 1,600 troops in Iraq. Their presence is increasingly unpopular
in Australia. Polls show Australia's prime minister, John Howard, in office
for for the past very-prosperous 11 years, is trailing opposition leader Kevin
Rudd, who has promised to pull combat troops out of Iraq if he wins. Mr. Howard
has refused to set a deadline.
Mr. Howard is the last leader among the major original "coalition of the
willing" partners still serving. Among those who have paid the supreme
political price (i.e. lost their jobs) for standing with Mr. Bush on the war
are former Prime Ministers Tony Blair of Britain, Silvio Berlusconi of Italy
and Jose Maria Aznar of Spain.
Wall Street Trader Draws Some Subprime Lessons: Michael Lewis is
one of our best financial writers. Here's his latest piece.
Sept. 5 (Bloomberg)
-- So right after the Bear Stearns funds blew up, I had a thought: This is
what happens when you lend money to poor people.
Don't get me
wrong: I have nothing personally against the poor. To my knowledge, I have
nothing personally to do with the poor at all. It's not personal when a guy
cuts your grass: that's business. He does what you say, you pay him. But you
don't pay him in advance: That would be finance. And finance is one thing
you should never engage in with the poor. (By poor, I mean anyone who the
SEC wouldn't allow to invest in my hedge fund.)
That's the biggest
lesson I've learned from the subprime crisis. Along the way, as these people
have torpedoed my portfolio, I had some other thoughts about the poor. I'll
share them with you.
masters of public relations.
I had no idea
how my open-handedness could be made to look, after the fact. At the time
I bought the subprime portfolio I thought: This is sort of like my way of
giving something back. I didn't expect a profile in Philanthropy Today or
anything like that. I mean, I bought at a discount. But I thought people would
admire the Wall Street big shot who found a way to help the little guy. Sort
of like a money doctor helping a sick person. Then the little guy wheels around
and gives me this financial enema. And I'm the one who gets crap in the papers!
Everyone feels sorry for the poor, and no one feels sorry for me. Even though
it's my money! No good deed goes unpunished.
2) Poor people
don't respect other people's money in the way money deserves to be respected.
Call me a romantic:
I want everyone to have a shot at the American dream. Even people who haven't
earned it. I did everything I could so that these schlubs could at least own
their own place. The media is now making my generosity out to be some kind
of scandal. Teaser rates weren't a scandal. Teaser rates were a sign of misplaced
trust: I trusted these people to get their teams of lawyers to vet anything
before they signed it. Turns out, if you're poor, you don't need to pay lawyers.
You don't like the deal you just wave your hands in the air and moan about
how poor you are. Then you default.
3) I've grown
out of touch with "poor culture.''
Hard to say
when this happened; it might have been when I stopped flying commercial. Or
maybe it was when I gave up the bleacher seats and got the suite. But the
first rule in this business is to know the people you're in business with,
and I broke it. People complain about the rich getting richer and the poor
being left behind. Is it any wonder? Look at them! Did it ever occur to even
one of them that they might pay me back by WORKING HARDER? I don't think so.
But as I say,
it was my fault, for not studying the poor more closely before I lent them
the money. When the only time you've ever seen a lion is in his cage in the
zoo, you start thinking of him as a pet cat. You forget that he wants to eat
4) Our society
is really, really hostile to success. At the same time it's shockingly indulgent
of poor people.
president now wants to bail them out! I have a different solution. Debtors'
prison is obviously a little too retro, and besides that it would just use
more taxpayers' money. But the poor could work off their debts. All over Greenwich
I see lawns to be mowed, houses to be painted, sports cars to be tuned up.
Some of these poor people must have skills. The ones that don't could be trained
to do some of the less skilled labor -- say, working as clowns at rich kids'
birthday parties. They could even have an act: put them in clown suits and
see how many can be stuffed into a Maybach. It'd be like the circus, only
entire neighborhoods of poor people to upper Manhattan and lower Connecticut
might seem impractical. It's not: Mexico does this sort of thing routinely.
And in the long run it might be for the good of poor people. If the consequences
were more serious, maybe they wouldn't stay poor.
5) I think
it's time we all become more realistic about letting the poor anywhere near
to poor countries was a bad idea: Does it make any more sense to lend money
to poor people? They don't even have mineral rights!
There's a reason
the rich aren't getting richer as fast as they should: they keep getting tangled
up with the poor. It's unrealistic to say that Wall Street should cut itself
off entirely from poor -- or, if you will, ``mainstream'' -- culture. As I
say, I'll still do business with the masses. But I'll only engage in their
finances if they can clump themselves together into a semblance of a rich
person. I'll still accept pension fund money, for example. (Nothing under
$50 million, please.) And I'm willing to finance the purchase of entire companies
staffed basically with poor people. I did deals with Milken, before they broke
him. I own some Blackstone. (Hang tough, Steve!)
But never again
will I go one-on-one again with poor people. They're sharks.
Call That Can Save Your Life in a Heart Attack. This is an important
What do asking
for directions and calling 911 have in common?
Men, it seems,
don't like to do either. When it comes to a heart attack, reluctance to call
911 could make the difference between life and death.
Gender differences in calling for rescue services emerged in a recent Minnesota
study of 1,263 patients who suffered a major heart attack. It found that 37%
of men from rural communities arrived at a hospital in an ambulance, compared
with 49% of rural women. The rest of both sexes drove themselves or were chauffeured
by a relative or friend.
gender, the bigger issue is that only about half of people in the throes of
a heart attack decide to call 911, and that can have important consequences
not only for survival, but also for the long-term health of your heart if
you do survive.
and public-health officials have long been stymied in efforts to get people
to pick up the phone instead of their car keys when experiencing symptoms
such as chest pain, sweating and shortness of breath. Indeed, many people
fail to take any immediate action, not wanting to bother anyone in case it's
a false alarm.
fresh reason to act quickly by calling 911. Thanks in part to initiatives
of the American College of Cardiology and the American Heart Association,
hospitals and communities around the U.S. are scrambling to improve heart-attack
care. They're improving coordination with emergency squads and adopting measures
to speed door-to-treatment time once a patient arrives at the hospital. The
faster the heart-attack causing clot is cleared, the quicker blood supply
is restored to heart muscle. That minimizes permanent damage that can lead
to chronic heart failure.
One big reason to call for an ambulance is the risk of sudden death. Up to
5% of patients go into cardiac arrest en route to the hospital. If you're
not revived within two minutes, your odds of survival plummet. "If you
go into a lethal arrhythmia while you're driving to the hospital, it's pretty
hard to do CPR on you," says Barbara Unger, head of cardiac emergency
services at the Minneapolis Heart Institute. An ambulance is typically equipped
with gear to spark your heart back into rhythm.
emergency squads are increasingly able to do an electrocardiogram in the field,
enabling a pre-hospital diagnosis that can speed the path to treatment. In
Boston, some heart-attack patients are taken from the ambulance directly to
the cardiac-catheterization lab for an angioplasty, bypassing a time-consuming
workup in the emergency room that would be necessary for patients arriving
wisdom is that people balk at calling 911 because they're in denial. But embarrassment
and loss of control may be more important. Joseph Ornato, chairman of emergency
medicine at Virginia Commonwealth University, Richmond, says a Baltimore woman
called an ambulance for her first heart attack, but came by car when she had
a second a few years later. Her neighbors, drawn by sirens and flashing lights,
had come to watch as she was carried from her home on a stretcher, and she
vowed she "would never let that happen again," Dr. Ornato says.
are often hard to diagnose, and ambulance services vary in sophistication
and training. But the Minnesota study, presented by Minneapolis Heart Institute
researchers at a meeting of the Society of Academic Emergency Medicine last
May, offers a hint of the advantage in calling 911. Rural patients were treated
six minutes sooner if they called 911; patients from urban areas got their
arteries opened 18 minutes faster when they called an ambulance. For the record,
urban men and women called 911 in equal percentages -- 65%.
If you're at
heart risk, learn the capabilities of your local emergency squad, suggests
Elliott Antman, director of the coronary-care unit at Brigham and Women's
Hospital, Boston. And whether you're male or female, ask your doctor for directions
on what to do should symptoms arise.
What a great
weekend. There were two big benefits -- oodles of exercise for me playing
and watching tennis and oodles of business for the makers of SPF 30 suntan
cream, who sold me lots of it.
note on layout: Some of you may have suffered a horribly laid-out
web site yesterday. I apologize. I always check the site. And I did -- in Firefox.
But in Internet Explorer it looked horrible. A reader alerted me. But it was
after 10 AM when I fixed it. The lesson: If your web site looks weird in one
browser, try another. I personally prefer Firefox,
which is free, ultra-reliable and open. You can download
many free add-ins, which make it more useful. My favorite download is
two years of cash at hand: I repeat from yesterday:
When everybody runs for the doors, assets
get sold in a panic and their prices plummet. Two years of the cash you need
for expenses is now my rule.
Tennis Open. I do not know how you can hit the ball as hard as Ferrer
and Nadal did last night. I don't know how you can get to as many balls as those
two did last night. It was awesome and ultra-thrilling to watch. One day I'll
get some sleep.
you hungry, Moses?" asks God
eat," Moses replies.
So God opens a
can of tuna and reaches for a chunk of rye bread and they share it. While partaking
of this humble meal, Moses looks down into Hell and sees the inhabitants devouring
huge steaks, briskets, pheasants, pastries and wines. Curious but deeply trusting,
he remains quiet.
The next day God
again invites Moses to join him for a meal. Again it's tuna and rye bread. And,
again, Moses can see those denizens of Hell enjoying salmon, champagne, lamb,
truffles, and chocolates Still he says nothing. The following day, mealtime
arrives and another can of tuna is opened. He can't contain himself any longer.
Meekly, he says:
"God, I am grateful to be here in heaven with You as a reward for the pious,
obedient life I led. But here in heaven all I get to eat is tuna and a piece
of rye bread, and in that 'other place' they all eat like emperors and kings!
I just don't understand."
God sighs. "Let's
be honest," He says. "For just two people, it doesn't pay to cook."
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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