Harry Newton's In Search of The Perfect Investment
9:00 AM EST, Monday, September 8, 2008: Today's
BIG news is that the Federal Government has taken over Fannie and Freddie. It's
the biggest bailout ever. At this stage we have no idea if this is a
good thing or a bad thing long-term.
A "good thing" is that it stabilizes housing markets and adds confidence
to our ailing financial markets.
"bad thing" is that it does nothing for housing or for confidence,
but ends up hurting the value of the U.S. dollar.
government has figured $100 billion of cash to each one -- a total of $200 billion.
But taking them over has effectively doubled the U.S.'s debt to slightly
over $10 trillion.
The U.S. government is presently running a huge deficit. It's spending far
more than it "earns" (i.e. receives in taxes). To keep spending, it
borrows money from everyone, but especially from foreign governments like China
and Japan. Adding Fannie and Freddie debt means adding more obligations.
Fannie and Freddie's present and future mortgages will pay off some of
their debt -- but not all. We have no idea how much. Fannie and Freddie management
lied about the strength of their balance sheets. They were much much worse.
And with housing in free fall, no one (including Paulson, Bernanke, and Buffett)
has any idea what Fannie and Freddie mortgages might be worth. Homeowners continue
to default on their mortgages.
I watched Paulson
on CNBC this morning. He did this bailout because he had to, not because
it was a good investment for the federal government, or for you and I, taxpayer.
He talked about "Fragility in our capital markets"
and "grave concern that these two companies are too big." Buffett
on CNBC by phone this morning also said this had to be done. He was cautious
about what it all means.
As I've written
before, this financial crisis (i.e. the one we're in) is different to
any other. All others going back to the Great Depression (but excluding that
one) required a single large check, some reorganization and little time. Things
starting improving from the moment the check was written.
This one is different.
The checks have been written and written and things continue to worsen. The
ailments spread. It started out as sub-prime problems. Now we look like we'll
lose at least one of our big three auto makers.
There are only
1. When in doubt,
2. Cash remains
king, though today the stockmarkets look like they're ready to celebrate big-time.
It won't last. Good time to get out if you're still holding equities.
to be really depressed about the Fannie-Freddie bailout? A
fellow called Martin D. Weiss has written a long piece called
The Fannie-Freddie Bailout Will Fail. It's
good tennis to watch. The rain postponed the men's final. It's on
Open 2008 Tennis TV Schedule
under the stars
Lone Ranger and Tonto were camping on the prairie. After they got their tent
all set up, both men fell sound asleep.
hours later, Tonto wakes the Lone Ranger and says, "Kemo Sabe, look towards
sky; what you see?"
Lone Ranger replies, "I see millions of stars."
that tell you?" asked Tonto.
Lone Ranger ponders for a few moments, then says, "Astronomically speaking,
it tells me there are millions of galaxies. Time wise, it appears to be approximately
a quarter past three in the morning. Theologically, the Lord is all powerful
and we are small and insignificant. Meteorologically, it seems we will have
a beautiful day tomorrow.
it tell you, Tonto?"
dumber than buffalo shit. Someone stole tent."
A 5th grader asked her mother the age-old question,
'How did I get here?'
Her mother told her, 'God sent you.'
'Did God send you, too?' asked the child
'Yes, Dear,' the mother replied.
'What about Grandma and Grandpa?' the child persisted.
'He sent them also,' the mother said.
'Did he send their parents, too?' asked the child.
'Yes, Dear, He did,' said the mother patiently.
'So you're telling me that there has been NO sex in this family for 200 years?
No wonder everyone's so damn grouchy around here.'
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
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