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8:30 AM EST Tuesday, February 26, 2008: Recently I've felt like the classic Jewish telegram: "Start worrying. Details to follow."

There are apparently many ways to solve the auction failures disaster, including making the closed-end funds open. The pressure for a solution is building up -- even from Wall Street itself. Brokers are reporting their "production has gone to zero", as their clients are frozen with fear and anger. What else will they be sold that will turn so quickly to drek?

To go from short-term cash to long-term un-sellable securities in one week is a major accomplishment.

Attorneys-general are poking around. And lawyers are salivating.

A reader sent me this clip of his ARS holdings. You'll notice that his broker has classified them as "Other Cash." This is pretty damning stuff. The lawyers could have a field day with this:

What solutions? There are many. And the good news is that we're "only" talking $60 billion. That's apparently how much auction rate preferreds are around.

Mark today's calendar: At 4 PM Nuveen has a conference call specifically to discuss Preferred Shares Auctions. Make sure you get on the call and ask some hard questions. Yesterday's press release:

CHICAGO, February 25, 2008 – Nuveen Investments, a leading provider of investment services to institutional and high net worth investors, announced it will host a conference call to discuss topics related to Nuveen closed-end fund preferred shares.

The conference call will take place Tuesday, February 26, at 4:00 p.m. ET/3:00 p.m. CT. The conference call can be accessed by calling 1-866-259-1024. Following the call, a telephone replay will be available beginning at 7:00 p.m. ET/6:00 p.m. CT. To access the telephone replay, call 1-888-266-2081 and enter conference access code 1207768 at the prompt. The call replay will be available through March 4, 2008.

Beginning last week, dislocations in the broader credit markets have caused the APS of many closed-end funds, including our own, to experience an imbalance the sale orders overbids in a regular auction with the result that the auctions have not cleared. An unsuccessful auction is not a default. The underlying fund continues to pay dividends to all our APS shareholders, but at a specified maximum rate rather than a market clearing rate. The specified maximum rate differs by fund and in most cases is not materially different than the market clearing rate in recent successful auctions.

Importantly, the earnings rate on the Eaton Vance funds' assets continues to exceed the cost of the APS based on the maximum specified rate and leveraging the funds with APS continues to be economically viable. Each of our closed-end funds remains in compliance with all asset coverage tests and all our issued APS continue to be highly rated either AAA or AA.

We understand that liquidity needs to be restored to APS shareholders and we are working with other market participants to develop possible solutions as quickly as possible.

Auction Rate Securities and Liquidity. Apparently us amateur investors are not the only idiots to get sold this junk. Even professionals got caught. Here's a quote from Aventine Renewable Energy's recent quarterly report:

At December 31, 2007, we had invested $211.5 million in taxable auction rate securities ("ARS") which we classified as current assets. The ARS held by the Company are private placement securities with long-term stated maturities for which the interest rates are reset through a Dutch auction every 28 days. The auctions have historically provided a liquid market for these securities as investors historically could readily sell their investments at auction. With the liquidity issues experienced in global credit and capital markets, the ARS held by the Company have experienced multiple failed auctions, beginning on February 8, 2008, as the amount of securities submitted for sale has exceeded the amount of purchase orders.

Subsequent to December 31, 2007, we began to exit our position in these securities. As of February 21, 2008, we had successfully liquidated $84.3 million of these securities, thereby leaving us with $127.2 million invested in ARS as of February 21. We incurred a pre-tax loss of approximately $1.5 million in connection with these liquidations. All of these securities continue to carry AAA/Aaa ratings, have not experienced any payment defaults and are backed by student loans which carry guarantees as provided for under the Federal Family Education Loan Program of the U.S. Department of Education. Nonetheless, if uncertainties in the credit and capital markets continue, these markets deteriorate further or there are any ratings downgrades on any ARS we hold, we may be required to recognize impairments and/or reclassify these investments from short-term to long-term investments.

In addition, these securities may not provide the liquidity to us as we need it, as it could take until the final maturity of the underlying notes (up to 35 years) to realize our investments' recorded value. Currently, there is a very limited market for any of these securities and further liquidations at this time, if possible, would likely be at a significant discount. Accordingly, we do not currently intend to attempt to liquidate any more of these securities until market conditions improve or our liquidity needs require us to do so. Cash and cash equivalents as of December 31, 2007 was $17.2 million. Successful ARS liquidations completed in 2008 generated $82.8 million. At December 31, 2007, we also had availability under our secured revolving credit facility of $122.6 million. Our total estimated remaining expenditures needed to complete our two new facilities at December 31, 2007 are estimated to be between $295 million and $305 million approximately evenly spent over the balance of the construction period through Q1'09. After utilization of our current available resources, should we not be able to liquidate a substantial portion of the remaining portfolio of these ARS securities on a timely basis and on acceptable terms, we will have to either attempt to raise additional funds or slow down the construction of our new facilities, or both. In addition, delays in the construction of our new facilities could expose us to material penalties.

The amount available to us under our secured revolving credit facility is calculated using a borrowing base. In addition to a component relating to inventory and receivables, there is a fixed asset component included in this borrowing base. The amount of fixed assets eligible to be included as collateral in our borrowing base at December 31, 2007 was $48.2 million, and decreases by $1.8 million each quarter thereafter. Our liquidity facility is a $200 million facility, subject to collateral availability, and is expandable under certain conditions to $300 million.

Good advice if you go on an African safari. Our safari was the best. I remember you could drive a Toyota Land Cruiser to within ten feet of a pride of lions and they'd ignore you. The vehicle wasn't threatening, or lunch. However, if you extended an arm out of the vehicle, or worse, got out, you were lunch.

The doctor's warning.
Ralph returns from the doctor and tells his wife that the doctor has told him he has only 24 hours to live.

Given this prognosis, Ralph asks his wife for sex. Naturally, she agrees, and they make love.

About six hours later, the husband goes to his wife and says, "Honey, you know I now have only 18 hours to live. Could we please do it one more time?" Of course, the wife agrees and they do it again.

Later, as the man gets into bed, he looks at his watch and realizes he now has only 8 hours left. He touches his wife's shoulder and asks, "Honey, please... just one more time before I die ?" she says, "Of course, dear." And they make love for the third time.

After this session, the wife rolls over & falls asleep. Ralph, however, worried about his impending death, tosses & turns until he's down to 4 more hours. He taps his wife, who rouses. "Honey, I have only 4 more hours. Do you think we could...?"

At this point the wife rolls over and says, "Listen Ralph, I have to get up in the morning... you don't.

The Monastery of Silence
Sister Mary Katherine entered the Monastery of Silence. The Priest said, "Sister, this is a silent monastery. You are welcome here as long as you like, but you may not speak until directed to do so."

Sister Mary Katherine lived in the monastery for
5 years before the Priest said to her, "Sister Mary Katherine, you have been here for 5 years.
You may speak two words."

Sister Mary Katherine said, "Hard bed."

"I'm sorry to hear that," the Priest said, "We will get you a better bed."

After another 5 years, Sister Mary Katherine was summoned by the Priest.

"You may say another two words, Sister Mary Katherine."

"Cold food," said Sister Mary Katherine, and the Priest assured her that the food would be better in the future.

On her 15th anniversary at the monastery, the Priest again called Sister Mary Katherine in to his office. "You may say two words today." "I quit," said Sister Mary Katherine.

"It's probably best," said the Priest, "You've done nothing but bitch since you got here!"

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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