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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 Tuesday, February 19, 2008: Today I initiate a new financial definition -- not cash, but Mattress Cash. In the past, cash has meant money market funds, muni bond floaters (also called auction rate securities -- ARS), and accounts at banks -- CDs, savings accounts,etc. But many of these instruments, I believe, are no longer safe.

I am obviously freaked by what's happening in throughout the financial community. Past financial crises needed a check (albeit a big one) to fix them. Think the Mexican crisis. Or a big injection of confidence by the government (e.g. Chrysler) or a leading banker (think J.P. Morgan in 1907). This time I see no one stepping up to the plate. I see the crisis spreading daily.

Everyone is scared, uncertain what this might touch next. They see no end in sight. Everyone is getting ultra conservative. Banks are not lending. And when they are lending they are lending less, under far more stringent rules. The investment banks are not fronting the monies they used to. They are shutting down everything from financing private equity deals and commercial real estate to buying unsold auction rate securities.

Everyone is questioning (and hence fearful) of the places they put their money. Cash is no longer the place to be. Mattress Cash is the place to be. An explanation. My grandfather kept his savings in his mattress. In 1959, my grandfather accused me of stealing his money. I denied it. I went searching. I eventually found the $AUS9,500 in his mattress. As he turned in his sleep, the money had moved over the years from one side of the mattress to the other. He had grown up in the Great Depression in Warsaw, had lived through the German hyperinflation of the 1930s, had run away from the Nazis in 1939 and, in 1959 in Australia, could only speak Yiddish and Polish. He was as fearful of banks and financial institutions as I am today.

It's time for everyone to step back and spend a few hours quietly checking our entire portfolio. Ask questions such as:

1. How will the accelerating financial crisis hurt what I presently own? Be ruthless about the possible impact. This crisis is spreading its tentacles everywhere. On Monday, for example, Australia & New Zealand Banking Group, Australia's third largest bank, fell to a 2 1/2-year low in after CEO Michael Smith said the "bloodbath'' in debt markets will erase profit growth this year. The bank will also make a $200 million provision for derivatives linked to U.S. debt insurer ACA Capital Holdings.

There are now estimates that we'll see $400 billion of write-offs from financial institutions around the world as a result of the credit contagion. So far, I believe the banks and other financial institutions have only written off $150 billion. Only! A billion here. A billion there. Pretty soon it adds up to real money, said Senator Everett Dirksen.

2. Do I really know what this is? Most people who own the muni bond auction rate securities (ARS) -- whose auctions failed last week -- had no idea what these things really were. They relied on brokers and other financial advisers. But, it turns out that these people had no clue either. They just assumed that because the auctions had worked last week, they'd work next week. Wrong! Check what you own.

3. Do you own money market funds? My research on some of them last week shows they're not the safe animal we think they are. They could collapse. There are provisions in their rules -- buried deep in their prospectuses -- to freeze your monies and not return your monies when you want them back. My auction rate munis are frozen. I was keeping them as "cash." Imagine I needed the money from them to pay Uncle Sam or an operation I need. I'd be screwed. Many people are. What value does something have if you can't sell it?

4. Question the assumption behind everything you own. Is the assumption still OK or has it changed? The sub-prime and other mortgage business was based on one assumption -- namely that homes would continue to rise in value forever. Whatever bad loan was made yesterday could be covered by tomorrow's rising home price. That one assumption had now been broken. Home prices are plummeting. I have examples of homes selling today in California for half the price they sold two years. Read that again -- half the price they sold for only two years ago. That's one sure way to make a small fortune. Start with a large one.

Check your portfolio. Do I really want to own this? Do I really want all that money in one bank? Uncle Sam only insures $100,000 per person. I should now have that money in many banks.

If you don't like what you own, mark it for sale today. And pray you'll be able to.

Last Thursday, Ron Insana, a CNBC senior analyst said:

"I am going to go way out on a limb here Maria. I think this credit crisis is viral and it's spreading quickly in all corners of the credit markets.

We talked earlier this week about auction rates on municipal bonds where we are having some failures on auctions taking place with banks unwilling to take the overflow when investors don't buy. We are going to have another crisis in munis beyond the bond auction issue.

I think ultimately when it's all said and done, the Fed is going to have to be the bank of Japan and go to zero interest rate policy to reflate our way out of this thing.

This is far bigger, far more misunderstood, than anybody knows. This is a real crisis of historic proportions and still no one is paying full attention.

I'm beginning to really like mattresses.

Kosovo declared its independence on the weekend. Yugoslavia has now broken into seven countries. Count them: Bosnia and Herzegovina, Croatia, Macedonia, Montenegro, Serbia, and Slovenia and now Kosovo.

On January 1, 1993, Czechoslovakia peacefully split into the Czech Republic and Slovakia.

My dream has been for Iraq to split into three countries -- Kurdistan, Sunnistan and Shiitestan (or whatever names they want).

There are now 192 countries in the United Nations, most of them new. There were 51 original member countries when the U.N. was created in 1945.

Two movies worth seeing.

Charming story. Take the kids. They'll love the jargon and the humor. Not charming story. Don't take the kids. Incredibly violent, but appropriate for the story.

Actual Walmart cake:
I guess this is how the conversation went:

Walmart: "Hello 'dis Walmarts, how can I help you?"

Customer: "Yes, I would like to order a cake for a going away party this week."

Walmart:"Whatchu want on da cake?"

Customer: "Best Wishes Suzanne. And underneath that We will miss you."

Giving thanks for answered prayers.
The pastor asked if anyone in the congregation would like to express Praise for answered prayers.

A lady stood and walked to the podium. She said, "I have a Praise. Two months ago, my husband, Jim, had a terrible bicycle wreck and his scrotum was completely crushed. The pain was excruciating and the doctors didn't know if they could help him."

You could hear an audible gasp from the men in the congregation as they imagined the pain that poor Jim experienced. She continued, "Jim was unable to hold me or the children and every move caused him terrible pain. We prayed as the doctors performed a delicate operation . They were able to piece together the crushed remnants of Jim's scrotum and wrap wire around it to hold it in place."

Again, the men in the Congregation squirmed uncomfortably as they imagined the horrible surgery performed on Jim.. She continued, "Now, Jim is out of the hospital and the doctor's say, with time, his scrotum should recover completely."

All the men sighed with relief.

The pastor rose and tentatively asked if any one else had anything to say.

A man rose and walked to the podium. He said, "I'm Jim and I want to tell my wife, the word is sternum."

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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