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Harry Newton's In Search of The Perfect Investment Newton's In Search Of The Perfect Investment. Technology Investor.

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8:30 AM EST, Thursday, August 16, 2007:
To be depressed? To be happy? To be neither? First, the great market sage and good friend, Dan Good:

Media euphoria when it went up through 13000 and media gloom when it sank below.
Unless you were foolish enough to be on margin, how has your life really changed?

Time to be happy? Time to catch a falling knife. The concept is simple: Everything is attractive at some price -- perhaps even these two?

Or are Goldman and Lehman still both Cockroach Stocks -- with more bad news to come?

Cockroach stocks should be sold instantly, if not sooner. Find one cockroach in your new apartment. A day or two later, another will appear. Then another, and another.

Stocks become like cockroaches when they report a piece of unusual news -- like the SEC sending them a letter about something minor, like a delay in filing their financials, like one or two of their hedge funds in trouble. Enron, WorldCom, and all the great busts of recent years all began with seemingly minor piece of semi-bad news. But, over time, more crawled out of the wall and the stocks cratered. At one stage Enron, WorldCom were among the most prestigious companies around.

Today's stockmarkets are Cockroach Markets. It started with sub-prime (one cockroach) in the sub-prime lenders. Then we found the hedge funds were infested. Now the problem is that our financial institutions are having trouble pricing their assets... What next? Who knows? Cockroaches come in many variieties, a few of which I've highlighted here.

The brown cockroach is primarily tropical in distribution. In the United States, this species is found mostly in the South, from Texas to Florida, but some sightings have been made in northern states such as Pennsylvania and Ohio.
The German cockroach, which has worldwide distribution, is by far the most important and the most common cockroach. In addition to being a nuisance, it is associated with outbreaks of illness, allergic reactions in many people, and transmission of a variety of pathogenic organisms including at least one parasitic protozoan. The Australian cockroach (Periplaneta australasiae) can fly, though not far. You can now find this aggressive fellow in the U.S. If you approach him in a friendly manner, you can hear him say "G'day Mate!." The U.S. Government has issued a Cockroach Identification Chart, which will let you become more intimate with your little house guests.

If you think the market is going further down, the easiest way to make money is to short the QQQQs or buy the QID, which is effectively ultra-short puts on the QQQ. The QQQQ mirrors the movement of the Nasdaq 100.

When the Nasdaq goes down, the QID "ultra-short" goes up.

The DIA mirrors the Dow Jones Index.

And vice versa, there's the DXD which is the Dow Jones Industrial ultra short.

The S&P 500 has the SPY. (also called the spider)

and the ultra short index, the SDS.

The big news are BIG dividend yields. As stock prices have cratered, so dividend yields (on those paying dividends) have risen dramatically. My present favorite is Penn West Energy Trust (PWE). It's now sporting a 13% dividend yield. Energy stocks are out of fashion -- dah! (Most stuff is out of fashion.) But energy prices are high. And this one is doing all the right things -- expanding, drilling more, getting more efficient, etc. Read their latest quarterly report. Can PWE go lower? Yes. But, with a huge dividend yield, it seems somewhat unlikely. The

Yesterday we wrote about four commercial REITs. Reader Bill Brandenberger emails:

Of the yield on CHC, approximately 75% of it is tax free. So that someone in a 35% tax bracket would have a Taxable Equivalent yield of 17.32% (based on the yield today of 12.23%).

Another reader, Steve Pedian emailed:

Let me preface my response by stating I have not analyzed the companies you mentioned in today's column. The problem, as I see it with this whole group, is the difficulty in valuing their balance sheets. Like the home builders, the finance companies are starting to write down the value of their portfolios and there is no end in sight and likely further decline in book value. There is a lack of visibility in the mortgage market and significant liquidity pressure on the group to maintain their cash position, the likely result (like TMA) is not to pay a dividend or pay and further hurt their standing with creditors. Further, the problems in the mortgage markets have moved beyond sub-prime (remember TMA focused on high quality jumbos) and the issue now is liquidity, purchasers of mortgage paper are no longer buying mortgage loans. Again, like the home builders before them many of these companies are trading below book value but I would caution your readers to not place too much faith on this group maintaining its current book value. Remember, the homebuilders wrote down their portfolios over several months and not just one write down. I would recommend your readers focus their efforts on high quality companies with healthy long term prospects. The recent uncertainty is starting to present great buying opportunities.

Good advice Steve. But this stuff is volatile. Look what happened to TMA yesterday. It bounced back $2.95 or 39%.

Time to make some "offensive" bids? Every bleak moment has its opportunity. My favorite about-to-be son-in-law writes me:

If no one can get lending to buy and lots of people need to sell, there will probably be chances to pick up prime residential real estate at 20c-30c on the dollar if you can pay in cash. I think you should look into prime NYC residential property and make offers the sellers will find offensive. Let them know that you’re there with cash if they change their minds. While NYC came to mind because it’s close, places like San Diego, Las Vegas and Phoenix are probably places you can get the really “offensive” bargains. Make sense?

Makes logical sense. But it could be early. My phone calls to Manhattan brokers yesterday turned up:

1. People are still getting mortgages for apartments in New York, albeit much more expensively than a month ago.

2. Demand may have dropped, with fewer buyers. But prices haven't dropped to anywhere near "offensive" level. To wit, three years ago I bought a two-bedroom apartment for $1.5 million. Now the identical one, one floor up, is on sale and can be had for a "bargain" $1.8 million, down from the $1.995 million asking price. I'd buy the thing for under $1 million. But that won't happen, for now. Real estate is location. And Manhattan is still expensive. It hasn't yet priced in the financial community's firings and/or the paucity of 2007 Wall Street bonuses .

The new iMacs are getting rave reviews: The Apple iMac is its latest desktop, cheaper than a laptop and much more powerful. Walt Mossberg of the Wall Street Journal loves them. So does ComputerWorld magazine. There are two "issues" to check out: First, the screen. It's glossy, which means colors look brighter, but you get reflections. So it's important where you place it. Second, the keyboard. You may not like it. You can replace the keyboard with any corded keyboard. You can't replace the screen.

Apple's new iMac comes with new iPhoto and iMovie software, If you need a desktop, this is the one to get. I don't think Apple itself has become "offensive," yet. At $100 it could become offensive. It's hard to catch a falling knife and not get cut.

How to become a dictator. Read this and be amazed (or impressed). From The New York Times:

CARACAS, Venezuela, Aug. 14 — President Hugo Chávez will unveil a project to change the Constitution on Wednesday that is expected to allow him to be re-elected indefinitely, a move that would enhance his authority to accelerate a socialist-inspired transformation of Venezuelan society.

The removal of term limits for Mr. Chávez, which is at the heart of the proposal, is expected to be accompanied by measures circumscribing the authority of elected governors and mayors, who would be prevented from staying in power indefinitely, according to versions of the project leaked in recent weeks.

Willian Lara, the communications minister, said Mr. Chávez would announce the project before the National Assembly, where all 167 lawmakers support the president. Supporters of Mr. Chávez, who was re-elected last year with some 60 percent of the vote, also control the Supreme Court, the entire federal bureaucracy, public oil and infrastructure companies and every state government but two.

The aim of the overhaul is “to guarantee to the people the largest amount of happiness possible,” Mr. Lara said at a news conference on Tuesday. ...

Since Mr. Chávez’s re-election to a third term in December, he has surprised many with the breadth of the changes in his political and economic policies.

He has nationalized telecommunications, electricity and oil companies; forged a single socialist party for his followers; deepened alliances with countries like Cuba and Iran; and sped the distribution of billions of dollars for local governing entities called communal councils.

As Mr. Chávez, 53, settles into his ninth year in power, images of him have become impossible to avoid here. On billboards, posters and murals, he is seen hugging children, embracing old women, chanting slogans and plugging energy-saving Cuban light bulbs into sockets.

Foods that make major sense: Spinach, salmon, tomatoes, oatmeal and pomegranates.

Different logic. But logic nevertheless - 1
"Give me a sentence about a public servant," said a teacher.

The small boy wrote: "The fireman came down the ladder pregnant."

The teacher took the lad aside to correct him. "Don't you know what pregnant means?" she asked.

"Sure," said the young boy confidently. "It means carrying a child."

Different logic. But logic nevertheless - 2
A nursery school teacher was delivering a station wagon full of kids home one day when a fire truck zoomed past. Sitting in the front seat of the truck was a Dalmatian dog.

The children started discussing the dog's duties. "They use him to keep crowds back," said one child.

"No," said another, "he's just for good luck."

A third child brought the argument to a close. "They use the dogs," she said firmly, "to find the fire hydrants."

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. Thus I cannot endorse any, though some look mighty 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 Claire's law school tuition. Read more about Google AdSense, click here and here.
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