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8:30 AM EST Friday, April 4, 2008: This is Winnie.

She is my son Michael's yellow lab. When he went away to graduate school last Fall, we got her. Yesterday she threw up, bigtime.

I must have had Winnie on my mind when I got to my computer at 2:00 AM this morning and wrote what I thought of Nuveen's conference call yesterday on ARPS. Here's Nuveen management telling me basically nothing I want to know -- like what they're doing and when I'll get my money back (if ever) -- and a bunch of Wall Street creeps are calling in and complimenting Nuveen for -- wait for this -- holding a conference call.

Fawning is what I do over my wife (she's cute). It's not what I do over Nuveen. You can catch my middle-of-the-night thoughts on Nuveen at Auction Rate Preferreds.

I've been floating around Wall Street looking for genuinely interesting ideas. So far I've dredged up two -- a distress real estate fund and a distress private equity fund. They buy stuff from investors desperate for cash. They buy the stuff at "bargain" prices. There's more and more of distress stuff around. It seems that to be successful there are three rules:

1. Don't buy distress with money you'll need to pay upcoming living expenses, like food and rent.

2. Expect to hold distress for a long time. If you get out faster, you're lucky, not smart.

3. Think long and hard before you commit cash. Your bargain will undoubtedly be cheaper tomorrow. There's an expression on Wall Street -- don't try to catch a falling knife. All those Middle Eastern investors who "saved" Citibank, Bear Stearns and others with huge capital "infusions" know what I mean. The knife was very sharp.

I was thinking of lessons learned when I saw a story on the cover of today's New York Times:

Investors Stalk the Wounded of Wall Street

Almost two centuries ago, as Napoleon marched on Waterloo, a scion of the Rothschilds banking dynasty is said to have declared: The time to buy is when blood is running in the streets.

Now, as red ink runs on Wall Street, the figurative heirs of the Rothschilds — bankers, traders, hedge fund gurus and takeover artists — are plotting to profit from today’s financial upheaval.

These market opportunists — vulture investors is the Wall Street term — have begun to swoop. They are buying up mortgages of hard-pressed homeowners, the bank loans of cash-short businesses, and companies that seem to be hurtling toward bankruptcy. And they are trying to buy them all on the cheap.

One Wall Street specialist in so-called distressed debt recently spent at least $450 million for assets of Thornburg Mortgage, the battered mortgage servicing company. Others are buying beaten-down corporate bonds and looking at car and credit card loans.

A former executive of the Countrywide Financial Corporation, one of the mortgage giants that fostered subprime lending, recently helped start a company — to buy mortgages. And executives of the Blackstone Group, those lords of the now faded buyout boom, just raised $10.9 billion from investors to scoop up real estate.

The vultures are betting, and betting big, that some people have thrown the good out with the bad, and that the prices of some investments have simply fallen too far.

But even many of the vultures warn that the worst is not over for the markets or the broader economy. The investors say that they are spotting deals that are good values and that their footsteps do not always track the broader economy.

Opportunity investing, as the trade is politely known, takes nerve: the best time to buy is when others panic or are forced to sell something they wish they could keep.

And the moment to buy is often clear only in hindsight. Even supposedly savvy traders, as well as cash-rich investors from the Middle East and Asia, have lost big in recent months by jumping into the markets too early. Among the most prominent is the billionaire investor Joseph Lewis, who lost a reported $1.19 billion when Bear Stearns collapsed last month. “The only time you really know you’ve reached the bottom is when you’re back on the other side and things are going back up,” said Wilbur L. Ross Jr., a dean of vulture investing, who made a fortune buying steel companies when no one else seemed to want them.

Such caution aside, his firm, W. L. Ross & Company, recently spent $2.6 billion for two mortgage servicers and a bond insurance company. He said he planned to buy more as hedge funds and other investors sell at bargain prices.

Some deep-pocketed investors are following his lead. Wealthy individuals, endowments and pension funds are giving the vultures billions of dollars to invest.

Last year, as the mortgage crisis erupted and then ripped through the credit markets, about $21 billion flowed into hedge funds that specialize in distressed investments — just over $1 out of every $10 flowed into those loosely regulated investment vehicles, according to Hedge Fund Research.

“There are a lot of dead carcasses on the road, and the vultures are out sniffing,” said Andy Kessler, a former hedge fund manager. “This is the cycle of Wall Street. When bubbles crash, you get the value guys who come in and say, ‘This thing is cheap.’ ”

To some, Wall Street looks like a big bargain basement. All kinds of financial assets are selling for a fraction of what they were only months ago. The average corporate loan, for example, fetches less than 90 cents on the dollar in the secondary, or resale, market. Some mortgage bonds sell for pennies on the dollar.

It is no surprise more hedge funds and private equity firms are getting into distressed investing given the outlook for the economy, said Abraham Gulkowitz, a portfolio manager at FrontPoint, the hedge fund business within Morgan Stanley.

“A lot of companies are under stress,” Mr. Gulkowitz said. “When you have more and more companies under stress, suddenly by force everyone becomes a distressed investor.”

Mr. Ross is already planning a reshaping of the mortgage industry. He said he would use his mortgage servicing companies — Option One and a unit of American Home Mortgage — to expand into mortgage origination and eventually to purchase loans. He predicts huge consolidation in the troubled bond reinsurance business, where he will play a role through Assured Guaranty. He paid $1 billion for a stake in Assured a few weeks ago.

Some longtime vulture investors, however, said they were waiting for prices to get even cheaper. “There aren’t many great bargains around,” said David A. Tepper, founder of Appaloosa Management, a hedge fund in New Jersey that is a major investor in the auto parts company Delphi.

When asked about mortgage assets, he said, “The fact that things are distressed or down doesn’t mean that they’re cheap or good buys.”

The outcome of several big investments last fall is still up in the air. For example, the Citadel Investment Group, a hedge fund known for buying distressed assets, purchased $3 billion of E*Trade’s asset-backed securities for $800 million, or 27 cents on the dollar, last November. Only time will tell if that trade, and Citadel’s 18 percent stake in E*Trade, pays off.

For now, many investors have a “buried optimism” about distressed assets, said Mark Patterson, chairman of MatlinPatterson Global Advisers, which bought substantial assets from Thornburg Mortgage. His firm made hundreds of millions of dollars purchasing distressed bonds from WorldCom during the last economic downturn.

Investors have fled some kinds of assets indiscriminately in recent months. Standard & Poor’s data shows that corporate bonds are selling for less than 90 cents on the dollars — across the board. In the 2002 downturn, particular bonds like those in telecommunications fell far more than the average bond. The broad flight this time leaves an opening for firms that can pick out the valuable ones, said Leon Wagner, chairman of GoldenTree Asset Management, an investment fund in New York.

“People know there will be money made out of this,” Mr. Wagner said, adding that “distressed” has become a buzzword on Wall Street.

Already in the private equity world, more distressed companies are under review. Stephen Presser, a partner at Monomoy Capital Partners, said a year ago he was seeing 15 to 20 midsize companies a month that were in trouble. Now, that figure is 30.

“There is an actual consumer spending slowdown that we can see almost throughout the companies,” Mr. Presser said. “The same companies have typically borrowed their way out of trouble in the past.”

Banks are also trying to sell the mortgage loans that they did not bundle into bonds and resell, said Stanford L. Kurland, the former president of Countrywide.

Mr. Kurland now runs a joint venture that will buy mortgages on the cheap and rework their terms. The venture is backed by the investment funds BlackRock Inc. and Highfields Capital Management.

Mr. Ross predicted that the debt troubles of ordinary Americans will spread far beyond mortgages. And on Wall Street, some hedge funds are selling good assets on the cheap.

Just last month, Mr. Ross spent $1 billion buying municipal bonds at a discount from a hedge fund that faced margin calls. The fund, which Mr. Ross declined to identify, had bet that municipal bonds would increase in price and Treasury bond prices would fall. The bet went wrong, and the fund had to sell — fast.

In swooped Mr. Ross.

The alternative energy (AE) bubble inflates: Yesterday I published Goldman Sachs' AE bullishness. Last night Cramer pounded the table at length (and ad nauseum) for First Solar.

First Solar is the only alternative energy company he likes and he's threatening to pump it up in many upcoming shows. His reasons:

1. It does not need government subsidies to survive.

2. Its technology is good and is coming down in cost. It can mass produce its panels. Moreover it doesn't rely on scarce silicon.

3. Its products are meant for industrial use -- not the fickle consumer/residential market. Its products are meant for utilities.

4. All the presidential candidates endorse solar.

5. It doesn't leave a stinky footprint -- like gas or coal.

6. It's in the early stages of becoming "the next Intel."

Restaurants and their menus: Looking for a restaurant in Boston, Chicago, LA, New York, Philadelphia, South Florida or Washington? Wondering what its menu looks like (and costs)? Go to MenuPages. My recent favorite New York restaurant is Scalinatella Ristorante 212-207-8280, 201 East 61 Street on the corner 3rd Avenue., Ask for the pasta in white truffle sauce.

Can you trust anything you read? The answer is NO. Check. Check. Check. Remember I told you about my friend Michael Marcus who enjoys spoofing the media. On April he issued a fake press release about Panasonic using plasma screens in its cell phones. The press picked up Michael's garbage. This morning Michael emails me:

In Google, type Panasonic plasma, and then click on news, and you should see links for websites around the world who fell for my fake news.

Many of the writers were professional enough to embellish the story with opinions and added information that demonstrated their expertise, but I got only ONE call for verification, and I told him it was a spoof.

There's an unfortunate trend in contemporary journalism, particularly in online journalism, to reporting by repetition and even reporting by robots.

Press releases are "read" by robots, that in turn re-publish them for human beings and other robots to read.

Sometimes human beings do read the press releases, but they do little or none of the traditional fact checking that was once an important part of journalism. In many media outlets, there is an automatic assumption of accuracy and honesty that allows almost anything to get published and widely permeated.

If "news" arrives in the proper format, with authentic language, it is almost always believed and is not likely to be challenged by journalists who are in a hurry to publish faster than their peers.

The Sony Ericsson Open Tennis. I've been so busy I've not had the time to watch the tennis out of Miami. The semis and the finals are on this weekend. They'll get my mind out of sewer pit of auction rate preferreds. The Fox Sports Net can usually be found co-mingling with the MSG (Madison Square Garden) network. L means live.

Two recent favorite New Yorker cartoons: These were yesterday's cartoons that never appeared because I was an idiot and forgot to follow my checklist. Item 2: Upload the images for today's column. They're still funny.

They're willing to throw in their kidneys.

You have to shake it if you want to see it snow again.
(A Kanin cartoon.)

Useful financial definitions:
BULL MARKET -- A random market movement causing an investor to mistake himself for a financial genius.

BEAR MARKET -- A 6 to 18-month period when the kids get no allowance, the wife gets no jewelry, and the husband gets no sex.

MOMENTUM INVESTING -- The fine art of buying high and selling low.

VALUE INVESTING -- The art of buying low and selling lower.

P/E RATIO -- The percentage of investors wetting their pants as the market keeps crashing.

BROKER -- What my broker has made me.

STANDARD & POOR -- Your life in a nutshell.

STOCK ANALYST -- Idiot who just downgraded your stock.

STOCK SPLIT -- When your ex-wife and her lawyer split your assets equally between themselves.

FINANCIAL PLANNER -- A guy who actually remembers his wallet when he runs to the 7-11 for toilet paper and cigarettes.

MARKET CORRECTION -- The day after you buy stocks.

CASH FLOW -- The movement your money makes as it disappears down the toilet.

YAHOO -- What you yell after selling it to some poor sucker for $240 per share.

WINDOWS 2000 -- What you jump out of when you're the sucker that bought Yahoo at $240 per share.

INSTITUTIONAL INVESTOR -- Past year investor who's now locked up in a nuthouse.

PROFIT -- Religious guy who talks to God.

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.

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