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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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8:30 AM EST Wednesday, July 30, 2008:
"If you're looking for an explanation of why the market was down two and a half percent yesterday and up two and a half percent today, I have no clue. The market's retarded. That would be my learned explanation," mouthed Todd, my favorite market pundit, yesterday evening. "One day it's about the banks and how miserable they are and the next day it's about oil's falling price and how good that's for profits."

Todd has been a stockbroker for 26 years. He's still learning. His savings are stuck in ARPS (auction rate preferred securities).

The news today is not positive. Bloomberg headlines include:

•U.S. Profits May Drop the Most in a Decade, Led by Lehman, Merrill Lynch

•European Economic Confidence Slumps Most Since Sept. 11 Terrorist Attacks

•Garmin Profit Misses Estimates, Forecast Cut as Competition Hurts Prices

•Las Vegas's Gambling Slump Shows How Starbucks Expansion Bubble Lost Air

•WTO Talks Collapse Likely to Have Little Impact on Global Trade Expansion

Cash remains king.

Signs to sell short. Most mergers don't work. A merger of unlike cultures never works. The classic was the Lucent/Alcatel merger.

I was reminded of the Lucent/Alcatel awfulness by today's news that the combined mess is firing the two architects of the stupid merger -- Pat Russo and Serge Tchuruk.

Movies and TV shows on the Internet: The Internet is bursting with movies and TV shows you can watch for free. One key site is Hulu, which presently has movies and clips and full shows from NBC and Fox, but also has shows from Comedy Central, owned by Viacom. CBS and ABC have their own web sites. There's also an independent site called Joost, which comes from the guys who brought you Skype.

Your "charge" for free stuff is to watch a pre-roll ad and/or a mid-roll advertisement, for which Hulu charges the advertiser between $30 and $40 per thousand viewers. Their revenue model is similar to on-air TV. The quality on all sites is remarkably good. You need a plug-in with some, but not all. The sites are moving away from plug-ins. It's best to use Internet Explorer.

Harry sends money to Australia. Westpac, the third largest Australian bank, is paying me 8% for on demand money. The money is not government insured, but Westpac is solid, I believe. Several other Australian banks -- e.g. the ANZ -- are not solid. The risk in sending money to Australia is the exchange risk. Will the Australian dollar hold up? My favorite reader, Don Craig, says I'm "his best contrary indicator." This morning he sends me this chart. Since the Aussie dollar has now broken its trendline, I'm guessing Craig thinks it will fall.

Coincidentally, the Economist just ran a piece on Australia. The conclusion: Australia is feeling the world's woes. Here's the piece filed from Perth, Western Australia, my wife's home town:

The air goes out of one of the last remaining booms

IN THE early 1990s the mining town of Newman in Western Australia was in a deep slump. Its population had dwindled to 3,000 from a peak of 15,000 in the 1970s. Thanks to extraordinary demand (and prices) for commodities, primarily from China, migration has since been reversed. The population is nearing 11,000 and no tour of the local streets is complete without pausing at a home that was recently sold for A$800,000 ($770,000), having fetched A$80,000 just a few years ago.

The region is still thirsting for people. There are acute shortages of diesel-engine mechanics and electricians, as well as cooks and even jackaroos (cowboys). Lorry drivers can earn in excess of A$120,000 a year, plus benefits and vacations. Bringing in more people is tough because the waiting list for the kind of manufactured homes that can be brought in on trailers—the fastest solution to a housing shortage—is more than a year.

Commercial space is in short supply too. Bankers and mining companies have piled into Perth, the financial capital of Western Australia. Rents can exceed those in New York and London, if property is available at all. UBS, a Swiss bank, is working out of a temporary service office.

But even in Australia, a country with economic growth, rising corporate profits and stable home prices, there is growing financial distress. Mortgage credit will expand by less than 10% for the first time in 40 years in 2008, reckons Craig Williams, an analyst with Citigroup. The Australian stockmarket is down by 26% since its peak in November. Banks have been hit harder still, although they are not nearly as ravaged as those in America and Europe.

In part, the problems are a result of Australia’s split economy. The mining boom has produced wealth in the west while pushing up the Australian dollar, thus undermining the competitiveness of manufacturers in the more populated east. In part, the problems are also a product of a country with a low savings rate whose banks and financial institutions have relied on foreign sources for half of their funding. Thanks to the capital crises in America and Europe, credit is now much tighter. Collectively, these two forces are reshaping Australia’s financial sector.

First in the firing-line has been a series of debt-laden financial and real-estate companies. Centro Properties, an acquisitive mall operator, blew up last December. Others are sweating through brutal negotiations with lenders. Allco Finance Group managed to negotiate a loan extension with its bankers on July 1st in return for higher interest charges and a promise to cut its debt. Babcock & Brown, which manages a string of leveraged infrastructure funds, has also had to accept higher interest rates in order to stave off nervous creditors (although it was helped on July 23rd by a solid set of results from Macquarie, a bank with a similar business model).

The banks themselves are also under pressure. Adelaide Bank, which was heavily reliant on wholesale funding, was purchased last year for A$4 billion by Bendigo Bank, which is funded mainly by retail deposits. The proposed A$19 billion acquisition of St George’s, the country’s fifth-largest bank, by Westpac, its third-largest, partly rests on Westpac’s claim that it can fund itself more cheaply.

Even the miners are not immune. In 2000 there were only three companies producing iron ore in Western Australia, says an executive at one of the mining giants. With prices surging and resources in the Pilbara region abundant, by late last year 95 had announced production plans. The oxygen of capital has now thinned dramatically for the newcomers.

Mining companies tapped stockmarkets regularly in 2007, often raising just enough money to pay for a limited period of exploration and drilling. This year the market for initial public offerings has collapsed (see chart). If the financial spigot does not open again, most of the new entrants will disappear. That is not all bad. Tightening credit and a more discriminating equity market may be accomplishing what no business would do on its own: tamping down on supply to moderate the prospect of a future bust. Would that lenders everywhere had done the same.

What a great day for politicians:

+ The Justice Department indicted Alaska Republican Sen. Ted Stevens on Tuesday on criminal charges related to inproper disclosure of gifts and services valued at more than $250,000 in his home state. He is being charged with seven felony counts of making false statements between 1999 and 2006. The Justice Department is alleging that Stevens, 84 years old, accepted gifts from oil services company VECO in the form of material and labor to renovate his private residence in Alaska. Stevens is the longest serving Republican in the Senate in the party's history. He's been a Senator 40 years.

+ A federal judge on Tuesday sentenced former Mayor Sharpe James, 72, of Newark to 27 months in prison for failing to disclose a romantic relationship with his former mistress, Tamika Riley, whom he helped get a lucrative deal on city-owned land. Mr. James was convicted in April on fraud and corruption charges for illegally steering nine parcels of city-owned land to Ms. Riley between 2001 and 2005. She paid a total of $46,000 for the lots and resold them — often just weeks later — for a total of $665,000 without making any improvements to them. In addition to the fraud and corruption charges, Ms. Riley, 39, was found guilty of tax evasion and of lying about her income to collect housing subsidies.

Remember I don't make this stuff up.

I improved my desk. In the center I now have a 22 inch $260 Samsung monitor showing 1680 x 1050 pixels. It's great for big spreadsheets. The Samsung is powered by the Toshiba Tecra M5 laptop's docking station. On either side are 19 inch Mag Innovision monitors that are 1024 x 768 pixels. They are powered by the VTBook PC card which sticks out the front left of the laptop.

Harry's new monitor arrangement. All the screens are one big "desktop." I can drag anything to any screen. I usually have stockquotes on the left, a spreadsheet in the middle and my inbox on the right. On the laptop, I'll usually have this column or emails I'm working on. All LCD monitors get darker as they age. The new one in the middle, though the cheapest, is also the brightest.

The old dog
An old, tired-looking dog wandered into my yard; I could tell from his collar and well-fed belly that he had a home and was well taken care of. He calmly came over to me, I gave him a few pats on his head; he then followed me into my house, slowly walked down the hall, curled up in the corner and fell asleep. An hour later, he went to the door, and I let him out.

The next day he was back, greeted me in my yard, walked inside and resumed his spot in the hall and again slept for about an hour. This continued off and on for several weeks.

Curious, I pinned a note to his collar: "I would like to find out who the owner of this wonderful sweet dog is and ask if you are aware that almost every afternoon your dog comes to my house for a nap."

The next day he arrived for his nap, with a different note pinned to his collar: "He lives in a home with 6 children, 2 under the age of 3. He's trying to catch up on his sleep. Can I come with him tomorrow?"

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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