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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 Friday, July 18, 2008: No market goes straight down or straight up. Every bear market has rallies. Every bull market has drops. I'm impressed with the last two days. But I don't believe it's time to sing "Happy Days are Here Again."

The stockmarket, according to contemporary wisdom, reflects things happening nine to 12 months out. Will the economy be happy then? I doubt it. Here's something that just came in from the news web site, The Big Picture.

ECRI's Leading Indicators in Recession Territory

The Leading Economic Indicators (LEIs) have not been are not my favorite of all data points.

Long term readers may recall my ire over the way the Conference Bureau tweaked the calculating of the Leading Economic Indicators' in terms of the yield curve in order to make them more bullish. Hence, why I look at them somewhat askance (NT's Paul Kasriel has convinced me this is a hasty opinion on my part).

Rather than rely on the Conference Board's Juiced Data, we can turn instead to the Economic Cycle Research Institute (ECRI) data leading indicators. Their indicators have a very good track record of forecasting recessions.

Leading Economic Indicators Index in Recession Territory

The ECRI’s weekly leading economic index is now deep into the territory associated with recessions. Its down over 10% this month, and this week is running down 8% on a year-over-year basis. As the chart above shows, that is something that only happens when the economy is in recession.

It may be time to go short again. We're not out of the woods with this bear market.

Cash is King. I opened a $95,000 CD yesterday at the Park Avenue Bank, a tiny bank with no exposure to subprime. They're paying a whopping 4.75% on a 90-day CD. They only want locals and locals fronting up personally to their bank. Check with Mercedes or Anthony. They're at 212-220-0878.

I'm still worried about banks. Sentiment changes quickly. The lines form. And the bank collapses. I prefer $95,000 in each FDIC-insured bank -- rather than joint and multiple accounts at the same bank. I don't want to muddy up the lives of the FDIC bureaucrats.

Pressure is working. I got stuck in $4.5 million of auction rate preferreds back in mid-February when the auctions collapsed. I was furious with the issuers. I started a site called specifically to bring news and advice to the thousands of fellow sufferers. My key advice has been to kick up a fuss, especially with state and federal regulators. Tell them how you were lied to about these auction rate securities being "cash equivalents." That strategy has been working. Yesterday regulators from 10 states raided the St. Louis headquarters of Wachovia Securities looking for smoking guns. Massachusetts already found a bunch with UBS and is going after UBS for fraud.

Meantime, some of the more progressive issuers, like Nuveen, are redeeming their auction rate preferreds ARPS, albeit slowly. Some already have completely. I'm down to $3.3 million.

I went on CNBC yesterday afternoon to tell the issuers who hadn't redeemed that, if they didn't redeemed at par in full, we'd be running full-page ads in the Wall Street Journal headlined "Why You Never, Ever Should Do Business With XYZ Corp."

More unintended economic consequences: From today's New York Times:

As Price of Grain Rises, Catfish Farms Dry Up

LELAND, Miss. — Catfish farmers across the South, unable to cope with the soaring cost of corn and soybean feed, are draining their ponds.

“It’s a dead business,” said John Dillard, who pioneered the commercial farming of catfish in the late 1960s. Last year Dillard & Company raised 11 million fish. Next year it will raise none. People can eat imported fish, Mr. Dillard said, just as they use imported oil.

As for his 55 employees? “Those jobs are gone.”

Corn and soybeans have nearly tripled in price in the last two years, for many reasons: harvest shortfalls, increasing demand by the Asian middle class, government mandates for corn to produce ethanol and, most recently, the flooding in the Midwest.

This is creating a bonanza for corn and soybean farmers but is wreaking havoc on consumers, who are seeing price spikes in the grocery store and in restaurants. Hog and chicken producers as well as cattle ranchers, all of whom depend on grain for feed, are being severely squeezed.

Perhaps nowhere has the rise in crop prices caused more convulsions than in the Mississippi Delta, the hub of the nation’s catfish industry. This is a hard-luck, poverty-plagued region, and raising catfish in artificial ponds was one of the few mainstays.

Then the economics went awry. Feed is now more than half the total cost of raising catfish, compared with a third of the cost of beef and pork production, according to a Mississippi State analysis. That makes catfish more vulnerable. But if the commodities continue to rocket up — and some analysts believe they will — other industries will fall victim as well.

Keith King, the president of Dillard & Company, calculates that for every dollar the company spends raising its fish, it gets back only 75 cents when they go to market.

“What’s happening to this industry is sad, but being sentimental won’t pay the light bill,” Mr. King said. ...

Chronic Lyme Disease is devastating. I know people with Lyme Disease for 10 years. It's ruined their life. You can get chronic Lyme Disease with one bite. 40% of the bites are stealth. They don't produce the telltale bullseye rash. Since the ticks are so small, you may never know what hit you. Lyme is one of the fastest-spreading infectious diseases in the United States, according to the Centers for Disease Control and Prevention, with roughly 23,300 new cases reported in 2005, up 22% from 2001.

I have seen Lyme's devastating effects. I am obsessed with not getting it. Because the disease is so new, little is known about it and myths abound. Two key myths:

1. If you remove the tick within 12 hours, you're safe. The tick does not have to be engorged (i.e. stay a long time) for the spirochetes to get into your system. As the tick sucks your blood in, he exchanges it for his saliva - and that's where the Lyme bacteria are. Remove ticks instantly.

2. One month of antibiotics will kill the Lyme spirochetes. Longer is better. According to one friend, "The problem is, if you find a tick on you, the chances of it passing the Lyme bacteria to your bloodstream is high -- and the ONLY way to stop Lyme spirochetes from your blood to your organs, brain, nerves, joints (the "white" areas of your body) is to kill the bacteria while they are still floating around in your bloodstream. The damage done from two months of antibiotics is NOTHING compared to the downward spiral you can take if you let the buggers get beyond your blood. Trust me. I've been fighting Lyme spirochetes for 8 years now."

High grass and the woods are for viewing, but not visiting. I look at pretty woods and pretty gardens and think "War Zone. Stay Out."

Columbia University has first research center in the world to focus on chronic health problems associated with Lyme disease. For the latest, read "Rash Judgment?" from the Columbia Magazine.

Psst. Want a gun business? A friend calls. He's checked 1,500 businesses in the past six months. The best he's found is an antique gun distributorship with earnings of $400,000 a year, which the owner only wants $750,000. It's a nice all-credit card business, no consumers as customers, just dealers. There are two lessons. First, it's worthwhile contacting business brokers asking about businesses for sale. You'll get lots of education. In today's economy you might find some very cheap businesses. Second, you'll need to ask hard questions, like why is he selling so cheaply? And what (if anything) do you know about the business he's selling? My friend knows guns. Which brings me to my latest fantasy purchase, an AK-47.

Apparently AK-47s are easy to buy in the U.S. $300 will get you a good used one. The magazine holds 50 rounds. Each round costs 50 cents. You can only shoot one bullet at a time, since the automatic mechanism has to be disabled for U.S. sale. The AK-47 is not as accurate as the U.S. equivalent, which is called the AR-15 but it's cheaper.

This is the AR-15, which costs around $600. It's more accurate than the AK-47.

Gun gurus predict booming sales this year as buyers fear what disasters the Democrats might prevail on the industry if the Democrats win the White House. I'm not investing in the gun business, nor do I want a collection of guns.

The gas crisis
Sister Mary Ann, who worked for a home health agency, was out making her rounds visiting homebound patients when she ran out of gas. As luck would have it, an Exxon Gasoline station was just a block away.

She walked to the station to borrow a gas can and buy some gas. The attendant told her that the only gas can he owned had been loaned out, but she could wait until it was returned. Since Sister Mary Ann was on the way to see a patient, she decided not to wait and walked back to her car.

She looked for something in her car that she could fill with gas and spotted the bedpan she was taking to the patient. Always resourceful, Sister Mary Ann carried the bedpan to the station, filled it with gasoline, and carried the full bedpan back to her car.

As she was pouring the gas into her tank, two Baptists watched from across the street. One of them turned to the other and said, 'If it starts, I'm turning Catholic.'

The outsourced call center
I was depressed last night so I called Lifeline.

Got a call center in Pakistan . I told them I was suicidal.

They got all excited and asked if I could drive a truck?

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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