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8:30 AM Thursday, June 2, 2005: My God. The Wall Street Journal headlines "Cash is King." What they mean is that short-term bonds are a better deal than long-term ones. And muni bonds, especially short-term ones, are an even better deal. (I like short-term muni bond floaters. I have my cash in them. I am getting 2.9% triple-tax-free -- the equivalent about 4.88% taxable.) The Fed has raised its short-term rates nine times in the past year. You'd expect that to have had some effect? Here's a chart from the Journal. This is weird stuff -- a powerless Fed?

Here are two charts I made this morning. The first shows the yield on the 10-year Treasury Note -- that's 3.907%)..

This one shows the longer-term treasury bond. Notice the steep decline in rates.

Here's what the Journal wrote:

It is tougher than ever for bond investors to find a bargain.

Enemy No. 1: the so-called yield curve. As the Federal Reserve has lifted short-term interest rates, and long-term rates have refused to rise in sympathy, there is scant difference between short and long rates. So the extra return that investors historically got for locking their money up in longer-dated bonds is disappearing. In fact, investors would do about as well holding cash.

That is bad news for banks, leveraged hedge funds and anyone who borrows money at short-term rates or lends it at long-term rates. But it is relatively good for investors willing to accept a humble return on supersafe securities such as money-market funds and municipal debt. "Cash is not a bad place to hang out," says Anton Pil, global head of fixed income at J.P. Morgan Private Bank in New York.

Money invested in cash and high-grade munis doesn't grow much faster than prices on consumer goods, so real returns are pretty low. But bond-market professionals say that with 10-year Treasurys paying only 4.08%, and corporate bonds looking shakier by the day, fixed-income investors should take what they can get.

"It's like the lesser of evils," says Mark Kiesel, executive vice president and portfolio manager at Pimco, an asset-management firm in Newport Beach, Calif. "The old world was 10% to 15% [return]. The new world is 3% to 5%."

The difference between short-term and long-term rates has narrowed at an impressive clip, defying analysts who expected long-term rates to also rise as the Fed boosted short-term rates. As of Friday, the yield difference between two- and 10-year Treasury notes had fallen to 0.43 percentage point, compared with 0.54 percentage point two weeks ago and more than two percentage points a year ago.

Economists offer various explanations for the phenomenon: Steady purchases of U.S. long-dated bonds by Asians (bond purchases drive down bond yields); increased demand from future pensioners for long-term investments; a shortage of long-term bonds; market expectations of a recession; and faith in the Fed's ability to fight inflation.

More economists have come to accept low long-term rates as reality -- and not just in the U.S.: Long-dated bonds sold by European governments, including France, Germany and the United Kingdom, pay even lower yields than Treasurys -- a function of lagging economic growth in those countries, among other factors. Low European rates also set a ceiling on U.S. rates: If the yield on Treasurys gets too high, global investors on the prowl for yield will switch from European bonds into U.S. bonds, pushing the latters' price up and their yield down. If long-term rates stay low, the difference between short and long rates may narrow further.

So cash -- market lingo for extremely short-term investments -- looks better than it has in a long time. One-month municipal paper, for example, pays as much as 3% interest a year. At first glance, that isn't a lot more than inflation, which is running at around 2%. Munis, however, are tax-exempt, so for an investor paying 35% in state and federal taxes, the effective return on muni cash is 4.62%. That is better than the yield on a 10-year Treasury, without the risk that the price of the bond will plummet if interest rates rise.

Longer-term munis beat Treasurys, too. Ten-year bonds issued by California and New York, for example, pay about 3.75%, the after-tax equivalent of a 5.75% yield. Mark Kiesel, an executive vice president and portfolio manager at Pimco, an asset-management firm in Newport Beach, Calif., attributes part of the difference to the fact that foreign investors, whose purchases of Treasurys help keep their yields low, don't buy munis, because they can't reap the tax benefit.

"The Treasury market is subsidized, the muni market is not," he says. "Personally I've got a lot of my money in closed-end muni-bond funds."

I also have money in closed end muni (New York State specific) bond funds -- including Eaton Vance and Blackrock. All have done well.

Point Therapeutics (POTP) holds and Research and Development Day: You have to picture this: I play two hours of tennis. I bicycle to the Four Seasons Hotel. I fold my bike, carry it downstairs, park it in the foyer of the meeting and plonk myself in stinky tennis whites down next to the dark-blue-suited CFO, who bats not an eyeball or a nose (at my sweaty smell). Such a nice man. There are 60 people in the room - half investors and half analysts. There's nothing in the world like attending a 1 1/2 meeting, hearing the company's pitch and then -- highlight of all highlights -- listening to two doctors tell us how their patients are responding to our drug called Talabostat. The doctor's conclusion? They're very pleased. This drug is going places.

The story: Talabostat is Point's drug. Its job to fight serious cancer. Today's cancer-fighting drugs aren't very effective, and are toxic. They can (and do) kill you before your cancer gets you. Talabostat is in Phase 2 trials. That means it's being used on seriously sick patients who've had (and exhausted) all the other treatments -- from surgery through chemotherapy. Talabostat has done well for these patients, keeping them alive beyond where all thought they'd be now.

All of us have an immune system. Contrary to earlier belief, the immune system of most cancer patients is in good shape. Its problem? It doesn't recognize the cancer as "the enemy." Talabostat mucks with the immune system, turning it on to fight the cancer. The goal is to turn cancer into a manageable disease that you can comfortably live with. Think diabetes. The very early indications are that Talabostat does just that -- and possibly more: A small handful of patients found their tumors gone after taking Talabostat and some others found their tumors substantially reduced. What's even better is that Talabostat has two major benefits (which means it will be prescribed by doctors and used by patients):

1. It's a pill. You swallow it. Some of today's cancer drugs need to be injected, often. Patients don't like that.
2. It doesn't have the side effects of other drugs, like edema (horrible swelling), fatigue, dizziness, anxiety, nausea, constipation and vomiting. (You feel like shit and you look like shit.)

Clearly Talabostat could be very big. Point Therapeutics' market cap is $100 million at last night's $4.60 close. There's a long way to go between now, Phase 3, FDA approval, tie-up with a big pharma (for distribution and marketing) and zillions of dollars of profits rolling in. Figure three to five years. This a stock for the kids. Point seems to have a good management team and know what it's doing. I'm rooting for them.

New York theater is great: This week we're going to three shows. The best one, so far, is:

Why the French rejected the EU constitution: The average French citizen eats 500 snails per year.

I love these teaser drawings.

The benefit of superior logic.
This joke and my comments on Point are purely coincidental. But they do show the way my twisted brain "functions":

Dave returned from a doctor's visit one day and told his wife Alma that the doctor said he only had 24 hours to live.

Wiping away her tears, he asked her to make love with him. She agreed. They made passionate love.

Six hours later, Dave went to her again, and said, "Honey, now I only have 18 hours left to live. Maybe we could make love again?"

Alma agreed and again they made love.

Later, Dave realized he now had only eight hours of life left. He touched Alma's shoulder and said, "Honey? Please? Just one more time before I die." She agreed. She rolled over and fell asleep.

Dave heard the clock ticking in his head. He tossed and turned until he was down to only four hours.

He tapped his wife on the shoulder to wake her up. "Honey, I only have four hours left! Could we...?

His wife sat up abruptly, turned to him and said, "Listen Dave, give me a break. I have to get up in the morning! You don't."

Harry Newton

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. Thus I cannot endorse any, though some look mighty interesting. If you click on a link, Google may send me money. That money will help pay Claire's law school tuition. Read more about Google AdSense, click here and here.
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