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Harry Newton's In Search of The Perfect Investment Technology Investor. Auction Rate Securities. Auction Rate Preferreds.

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9:00 AM EST, Monday, August 10, 2008: Oil prices drop before elections. If you were OPEC, you wouldn't want the democrats in the White House. They might do something about cutting back our OPEC oil imports. Irrespective, I smell that the alternative energy business is coming to life. This issue of energy independence is actually becoming bipartisan. Congress is dicking around with extending its energy subsidies, which present run out at the end of this year. I think Congress will extend them and perhaps allow more drilling. The New York Times has a piece today on zillions of retailers covering their roofs with photovoltaic sells -- before this year's subsidies run out. The piece is called Giant Retailers Look to Sun for Energy Savings. Alternative energy stocks are way down.

From a wise correspondent:

As I understand it, at this point close to 80% of Americans want to drill anywhere there's oil, with proper safeguards. Frankly, if I were a Saudi prince or a Libyan ex-terrorist and America came to me begging me to ship more oil, I'd just say "Go to hell" as Ford did to NYC during the great fiscal crisis of the 70's. Namely, "Get your own house in order." That is a multi-pronged approach that involves drilling in ANWR (Northern Alaska) and the continental shelf, converting Rocky Mountain oil shale, building uniform nuclear power facilities along the lines of France, tapping low-head hydro wherever there's a five foot water drop, harnessing wind power as they do in much of Europe (most especially in Robert F. Kennedy, Jr.'s "viewshed" off Martha's Vineyard), emphasizing solar power in the sunny south and southwest, etc., as well as higher mileage standards for cars.

There is a mythic lie in Democratic circles that drilling won't reduce prices and drilling won't make a dent within 30 years. This is, of course, the same anal mentality that says "don't privatize Social Security because the risk of volatility and stupid decisions on the part of people won't justify the additional return," when in fact the difference between a 4% return and an 8% return over the years is mind-boggling. Similarly, a lot of new fields that incrementally add just 2% to US production 10 years down the road (NOT 30) will have an overwhelming difference on our overall production levels, and because prices are expectational will have an immediate impact on pricing in the pits. The great oil boom has just turned on a dime, largely because of the THREAT of new drilling. Imagine if we actually drilled!!

Thomas Friedman of the New York Times visited Denmark recently and wrote on Sunday:

Unlike America, Denmark, which was so badly hammered by the 1973 Arab oil embargo that it banned all Sunday driving for a while, responded to that crisis in such a sustained, focused and systematic way that today it is energy independent. (And it didn’t happen by Danish politicians making their people stupid by telling them the solution was simply more offshore drilling.)

What was the trick? To be sure, Denmark is much smaller than us and was lucky to discover some oil in the North Sea. But despite that, Danes imposed on themselves a set of gasoline taxes, CO2 taxes and building-and-appliance efficiency standards that allowed them to grow their economy — while barely growing their energy consumption — and gave birth to a Danish clean-power industry that is one of the most competitive in the world today. Denmark today gets nearly 20 percent of its electricity from wind. America? About 1 percent.

And did Danes suffer from their government shaping the market with energy taxes to stimulate innovations in clean power? In one word, said Connie Hedegaard, Denmark’s minister of climate and energy: “No.” It just forced them to innovate more — like the way Danes recycle waste heat from their coal-fired power plants and use it for home heating and hot water, or the way they incinerate their trash in central stations to provide home heating. (There are virtually no landfills here.)

There is little whining here about Denmark having $10-a-gallon gasoline because of high energy taxes. The shaping of the market with high energy standards and taxes on fossil fuels by the Danish government has actually had “a positive impact on job creation,” added Hedegaard. “For example, the wind industry — it was nothing in the 1970s. Today, one-third of all terrestrial wind turbines in the world come from Denmark.” In the last 10 years, Denmark’s exports of energy efficiency products have tripled. Energy technology exports rose 8 percent in 2007 to more than $10.5 billion in 2006, compared with a 2 percent rise in 2007 for Danish exports as a whole.

“It is one of our fastest-growing export areas,” said Hedegaard. It is one reason that unemployment in Denmark today is 1.6 percent. In 1973, said Hedegaard, “we got 99 percent of our energy from the Middle East. Today it is zero.”

Avoid ethanol, if you can. From the Honolulu Advertiser:

Over the past year, Hawaii's boaters — and even owners of older cars and trucks, and lawn mowers that have carburetors — have become victims of a nationwide problem of malfunctioning engines that has coincided with the introduction of fuel laced with 10 percent ethanol.

Boat owners are particularly vulnerable. And in the past year, Hawaii's boaters have faced a wide range of new problems:

# Ethanol that has more than a half percent of moisture introduced into it suffers "phase separation." The water pulls the ethanol and some hydrocarbons into a bottom layer that's difficult for engines to burn — while the lighter fuel floats on top.

"Alcohol attracts water like a sponge, and marine engines are surrounded by water all of the time, obviously," Hoevel said. "You're left with contaminated, junk gas."

# Fuel that has experienced phase separation should not be reused, but engine owners have no cheap way to dispose of it. Some boat owners have received quotes of $300 and $350 for private disposal companies to safely get rid of 18 gallons of contaminated ethanol.

# Ethanol acts as an efficient solvent that cleans out the accumulated gunk in fuel systems, which ends up clogging carburetors. The repairs can cost boat owners $500 and up. (New engines with fuel injection systems seem to handle ethanol without problems.)

# Ethanol also eats away at fiberglass-based marine fuel tanks, which not only destroys fuel tanks but also ends up clogging boat engines with the debris.

But boat owners hope they've found an answer in the past few weeks.

Aloha Petroleum last month started selling old-fashioned, 89 octane fuel without ethanol at five Oahu boat harbors and one on the Big Island.

ARPS lessons. I spent half the weekend updating my auction rate securities web site, and finally wrote a semi-intelligent piece on the lessons we've learned:

1. Don't trust your local broker, unless he's done his homework. Most don't have the time. They rely on their firm's specialist "desk" back at headquarters in New York (or wherever). A quick one minute phone call is the sum total of all their "research." Accept it: No broker has the time to research the crap he's selling you.

2. Don't ever buy a structured product, i.e. one Wall Street manufactured with the express intent of peddling it to investors at huge commissions.

3. Don't chase yield. The higher the yield, the riskier the security. I could write a whole book on "yield hogs." Suffice, in the old days "junk" securities paid maybe 14%-17% -- way above treasuries. That yield gap signaled the securities were "junk." But auction rate securities were maybe half of one per cent higher than other short-term places to put your money. That didn't signal they were "junk." But they were. Yield margins have gotten more complex.

4. Don't confuse security and marketability. Let me explain. Our brokers told us that our ARPS were backed by triple A rated muni bonds. They harped on this. But they didn't talk about "marketability." They mumbled about regular auctions. But those auctions were for the purpose of determining next week's yield. At least that was the rubbish I was fed. I was never told that if the auctions fail, I might never be able to sell my securities.

The Dark Knight is too long. It's nearly three hours. It's a comic made into a movie; hence total fantasy. It's got everything from a really bad villain to oodles of technology, from a twisted love story to some half-baked morality. Take the kids. But remember, it's a long movie. You'll get fidgety. I do like the poster.

The perfect investment
Moshe, 93, went to see his financial advisor.

“So what do you think is an appropriate investment for me?” asked Moshe.

“Well,” replied the advisor, “I have found a terrific investment that will double your money in 5 years.”

“Are you crazy?” said Moshe, “a five year investment? Why, at my age, I don’t even buy green bananas.”

Reality strikes
“We were so poor when I was young," Michael told his friend, "that I had to sleep in the same bed as my three brothers. We slept four to a bed for many years.

"I didn’t know what it was like to sleep alone until I grew up and married Sadie.”

What's best about oral sex?
250,000 Jewish men were asked to complete a survey on what they liked best about oral sex.

3% liked the warmth.

4% enjoyed the sensation.

93% appreciated the silence.

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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