His idea and mine is simple, but difficult: Pick your situations carefully. Play many of them short-term. Stay in cash for the rest.

The day the junk bonds come home to roost: My friend rates corporate bonds at a major investment banker. He worries about a huge default in corporate bonds in about 18 to 24 months. He says too many companies are raising debt. He sees companies with earnings that cover their debt payments by a miserly 1.1 times. At the slightest downturn in the companies' sales, they will default on their bonds, leaving pension funds with huge losses. What's curious, he says, is that these companies are paying 8-9% on this debt, when as junk debt, they should be paying 18-19%. But, as I mentioned, above, too much money is sloshing around in search of too few opportunities. As a result,

+ It's driving up the price of assets. Check out the price of real estate and especially the price of raw land.
+ It's driving down interest rates on instruments like junk bonds.
+ People are rushing into investment "opportunities" they know nothing about. Two of the biggest areas: real estate land subdivision on the West coast and hedge funds in New York.

The IPOs that will test our sanity: Two come this week: Google and Nanosys. The VCs are cashing out of Google at a ridiculously high price in order to cover their losses on so many of their disasters. As investors, we're securely at the bottom of the feeding chain. Our job is to make all those who came before us wealthy. Think of the fatted calf being sacrificed.

For more evidence of our holy role, I instance Nanosys, an IPO even more nutty than Google. Nanosys is in nanotechnology. Under a headline, "A Netscape Moment?," the Economist writes "According to Josh Wolfe of Lux Capital, one of the investors in Nanosys, the growing interest in nanotech today mirrors the early stages of Internet fever in the 1990s. In 2002, he looked at the growing press coverage of nanotech and concluded that a “Netscape-like IPO” would take place in 2004."



Nanosys is coming public with a valuation of $350 to $375 million. Yet, Nanosys, with 34 employees and only $3 million in sales last year (most of it research funds from the Feds), has no products to sell, no sales force, and in fact, no ability to manufacture nanotech products on a commercial scale. Its SEC filings say: "We do not anticipate that our first products will be commercially available for at least several years, if at all. ... We have a history of net losses, we expect to continue to incur net losses in the foreseeable future, and may never achieve profitability."

Nanosys really is a development stage company looking in a vague new area for a potential profitable product. It hasn't found one and may never. There is a remarkable similarity between Nanosys and many of the fantasy Internet companies that later went bust.

All about the Russian Oligarchs. Favorite weekend reading: Cover story in this weekend's New York Times Magazine. It details how the oligarchs got their money -- being in the right place at the right time, buying privatized assets at preferred insider prices and buying shares from Russian workers at ridiculous prices -- and which oligarchs are in trouble and which ones aren't, and why. Fascinating reading. Click here. (If that link doesn't work for you, you probably need to register with the Times first. It's free.)

Up in Oregon: A reader sent me a piece by someone called Double Eagle, who is a surety bond specialist on the West Coast. He writes, "In the meantime, at the local level, I continue to see the real estate bubble expand in Oregon. As a surety bond underwriter, part of my job entails real estate subdivision bond analysis. Developers are having little difficulty acquiring bank financing for real estate/housing development. Many of these developers are first-timers and have little to no experience with the platting process, dealing with financial institutions, hiring competent contractors to put in the subdivision improvements (streets, utilities, et cetera), and dealing with home builders. Nevertheless, banks are clamoring for this business. What is even more amazing is that many of these “developers” have terribly low personal credit scores. Yet, they still manage to secure development financing in the high six-figure to low seven-figure range. To say the least, this indicates that credit is still extremely loose. At this point in time, there does not appear to be any slowdown in Oregon’s housing-development market in spite of today’s somewhat higher interest rates.

There is no doubt that a slowdown will occur. Of course, this will be a function of interest rates. It is not knowable as to when rates will rise dramatically enough to pop the housing bubble. I have no doubt that this day will come as the Fed’s past monetary looseness will manifest itself in price inflation—as it already has in spite of the government’s obvious manipulation of the CPI and the PPI. It is my opinion that Alan Greenspan is severely behind the curve and that long-term interest rates are going to increase markedly due to an inflation premium eventually being priced into long-term bonds. When this happens, many developers will be caught with a painful amount of unsold inventory (houses) and their lending institutions will end up sharing the pain with them—as may the taxpaying public should government bailouts, of banks and the GSEs, ensue."

The economy slowed. But economists say it will speed up. The Commerce Department said gross domestic product -- the U.S.'s total output of goods and services -- increased at a 3% annual rate for the quarter, trailing a revised 4.5% pace in the first quarter and economists' expectations of a 3.6% growth rate. Economists, who are rarely right, expect this second half to speed up. They have some (meager) evidence. The University of Michigan reported an uptick in July consumer confidence to 96.7 from 95.6 in June, and Chicago-area manufacturing activity rose to a seasonally adjusted 64.7 in June from 56.4 in June.

Microsoft's Office 2003 Service Pak 1 is out: I'm not a shil for Microsoft. But Office 2003 is a significant improvement over previous versions, especially if you're using Outlook as your email client (as I am).

Microsoft never gets any software right the first time. The second version of Office 2003 is now out. It's called "Office 2003 Service Pack 1." It contains "significant security enhancements, in addition to stability and performance improvements," according to Microsoft. I've been testing it this weekend. It seems to work fine. To download Service Pak 1, you'll need a broadband circuit (DSL or cable modem). It's 18 megabytes. It's free if you already own Office 2003. You don't need the original disc. At least I didn't. Click here.

In Search of the Perfect Portable Music Player: I love my Apple iPod. I wrote these instructions out for a friend who has just bought one and wanted a painless installation:

1. You'll need a firewire connection. It's probably on your laptop. If not, check your PC. If not, buy a PC card from www.PCConnection and install it.
2. Charge your new iPod overnight.
3. Download iTunes software from Apple's web site to your PC - preferably your laptop. Don't use the software that iPod comes with.
4. Install iTunes on your PC.
5. Make sure you stay connected to the Internet, preferably on a broadband connection.
6. Put an audio CD in your PC. iTunes should recognize it and go out to the Internet to get info on the album. Hit the button on the top right of the screen. It should say "Import." That will copy all the songs from the CD onto your PC, from whence they will go to your iPod eventually.
7. Attach your iPod to your PC. Hopefully it will recognize your iPod. If it does, it should automatically move all your songs to your iPod. Turn off your PC. Unplug your iPod.
8. How to Shuffle songs on the iPod:
a. Go to your iPod's main menu
b. Click settings
c. Click shuffle until it says "songs" or "Albums." Click songs.
d. Start playing any song. Your iPod will now shuffle randomly through all its songs.

Every man's Ideal Plane trip:
A man was sitting in his seat on an airplane waiting for the other passengers to finish boarding. As he looked down the aisle toward the front of the plane he saw a gorgeous redhead step into view. As she walked towards him he was awestruck by her natural beauty and fabulous figure. She continued down the aisle and took the seat right next to his.

Gulping hard and trying to maintain his composure he decided to try to strike up a conversation. "So, where are you flying to today?" he asked. She flipped her long silky hair aside and looked at him and said "I'm flying to Chicago to the annual Nymphomaniacs Convention." Instantly crazed with excitement he squeaked out "Oh, I see, and what is your function at the convention?" "Actually", she said, "I'll be the guest speaker and I'll be debunking some of the myths of contemporary American sexuality."

His heart racing, he said "And what kind of myths would those be?"

"Well," she said, "One popular myth is that the African American male is the most well endowed, when in actuality it is the American Indian who is most likely to possess this trait, and another myth is that Frenchmen make the best lovers. In a survey we did of American wives we found that Jewish men were rated at the top."

"I see." said the man, not knowing what to say. Suddenly the woman blushed and said "I'm sorry. Here I am telling you all these very personal things and I don't even know your name."

The man extended his hand and said "Tonto..... Tonto Goldstein."

Excellent advice:

Stay healthy. Eat less. Exercise more. Wash your hands obsessively. Hug the kids. Don't take risks. Cash is king.

Harry Newton

I make my daily column -- In Search of the Perfect Investment -- (Monday through Friday) freely available for three reasons:
First, 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'm hoping some of you will send me your investing ideas and concerns. To email me, . You can't click on my email address and send me an email. You have to re-type it . I did this deliberately to protect myself from software scanning the Internet for email addresses to spam. The software is called spiders.

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