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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 Wednesday, June 11, 2008: Lehman Brothers (LEH) dropped another couple of bucks yesterday. I can't see Lehman collapsing, like Bear Stearns did. But I don't see Lehman's continuing (and increasingly desperate) moves to save itself shoring up the stock significantly. This is still a Cockroach Stock. I'm still happily short. From Bloomberg

Lehman's second-quarter loss was compounded by market bets against mortgage indexes that were made in preparation for the company's de-leveraging effort, according to people familiar with the investment bank's finances. Lehman lost $500 million to $700 million from the trades when the indexes rose, the Financial Times reported last week, citing people close to the matter.

``Fuld should have known better than piling on assets as the mortgage market was peaking,'' Bove said. ``But Fuld is a hands-on manager, so he's biting the bullet and bearing losses as he sells assets. Lehman will come through with this.''

Hedge fund manager David Einhorn, who has bet Lehman's shares will fall, has criticized the firm's accounting techniques, saying it hasn't taken realistic markdowns on its mortgage portfolio. Although an index of commercial mortgage- backed bonds fell 10 percent in the first quarter, Lehman's writedowns on its $39 billion portfolio was 3 percent, Einhorn said in a speech last month. While Einhorn expects Lehman's losses to increase as it takes further asset writedowns, he said last week that he doesn't expect the company to collapse.

Australia is booming. It added jobs 13,500 jobs for a record 19th month in May. Unemployment is close to a three- decade low as mining and energy companies expand. Jobless rate is at 4.2% last month and falling. (The U.S. jobless rate is at 5.5% and rising.)

Resource companies, led by the two biggest, Rio Tinto and BHP Billiton, have stepped up production to meet Chinese demand for raw materials, helping drive Australia's 17-year economic expansion.

BHP Billiton, the world's largest mining company, approved a $US1.9 billion expansion in May of its Worsley alumina project in Western Australia. Rival Rio Tinto plans to boost output by 26% at its Queensland Alumina refinery.

Concern a shortage of skilled labor would drive up wages and stoke inflation, already at a 17-year high, the central bank boosted the overnight cash rate target to 7.25%, the fourth increase in seven months.

Australian government bonds yield much more than American ones. And the Australian dollar has risen sharply in value over the years. It's now almost par with the American dollar.

Australian stocks have been caught in the U.S. downdraft. That makes them even more attractive. It's hard to go wrong with BHP and Rio Tinto.

The stockmarket will rise. Women will soon be wearing very short pants.

This picture from Fashion Shows, New York Magazine. The pants cost $60 to $175.

I'm guessing what she spends on clothes, she saves on food. They have to be the skinniest legs I've ever seen.

Wall Street disgusts: As you know I'm trapped in auction rate preferreds. I write a web site, My goal is to keep everyone informed and to keep the pressure on the issuers. There's over $330 billion of people's savings stuck in these. It's a major disaster. How major? That's nearly three times the Bush stimulus tax plan, which was only $120 billion. (You didn't get a Bush check? Sorry about that.)

Because of my being at the center of the auction rate mess, I get a lot of very sad phone calls.

A lady called yesterday. Her life savings are in these securities. Merrill Lynch sold it to her as "cash equivalents." They never told her of the riskiness of these securities, or warned her that auctions had failed.

She read my column and decided she wanted to sell her securities on the secondary market. There are two "secondary" markets -- Restricted Trading, which deals with individuals, like you and me and companies like Fieldstone, which deals only with "institutions," like Merrill Lynch.

She asked Merrill to sell her securities through Fieldstone. Eventually, after prodding and prodding them, (and waiting two weeks for Merrill to answer each of her emails), she finally learned that Merrill doesn't do business with them. Why? Because they're not a "counter-party" -- whatever that is.

In desperation, she'll probably sell through Restricted Trading, which will get her less money and charge her more than if she had sold them through Fieldstone.

Merrill is not the only brokerage firm which won't deal with the secondary market for auction securities and won't give a reason.

I know the reason: They're afraid if they sell the securities at a discount, their client will sue them, arguing that the brokerage firm had sold them as "cash equivalents" and now owes the client the money they lost.

As I said, Wall Street disgusts.

Save big on energy bills. Insulate your home, starting with your attic. The head of Owens Corning (OC) said on TV that 60 million homes in the U.S. -- especially those built before 1980 -- lacked adequate insulation. We blew in three inches of insulation on all outside walls in our new house. It's made a huge difference.

Hope is not a new (or useful) strategy. The pregnant girl used the "Hope Strategy" when she rubbed vanishing cream on her stomach. The Fed chairman Ben Bernanke used the same Hope Strategy on Monday when he said he believes that sluggish growth will hold down inflation.

Meantime, The Wall Street Journal has a huge kickoff story this morning headed "Inflation's Bite Worsens Around World." Pretty gruesome stuff, with implications for much higher interest rates and potentially much lower stock prices. On Tuesday China's stockmarket dropped 7.7% after the government announced steps to remove cash from the financial system in an attempt to tamp down inflation, according to the Journal.

Toll Brothers boss (the guys who build MacMansions) went on CNBC yesterday and said there was a pent-up demand for housing. His company had found by offering discounts and specials he could sell a heck of a lot more houses. He said there was "a lot of pent-up demand." The big two stumbling blocks to selling new houses were

1. Their fear of their new house losing value as values tumble.
2. Difficulty in selling their old house.

Wonderful birthday card. My dear friend Steve Schone send me an electronic birthday card. Normally these things are total junk. But this one is the best singing birthday card I've ever received. Play it. Listen carefully to the words. Send it to your friends and families on their birthdays. Thank you Steve. The card is from a company called

Don't disappoint:
Now that Big Brown came in last at the Belmont Stakes, his next appearance will be at Belmont Steaks, where he will be smothered in onions and served as the early bird special.

Who knows if any of this is true. Who cares? It's great stuff.

+ 'Smoking kills. If you're killed, you've lost a very important part of your life,' -- Brooke Shields, during an interview to become spokesperson for federal anti-smoking campaign .

+ 'I've never had major knee surgery on any other part of my body,' --Winston Bennett, University of Kentucky basketball forward.

+ 'Outside of the killings, Washington has one of the lowest
crime rates in the country,' --Mayor Marion Barry, Washington, DC.

+ 'Half this game is ninety percent mental.' --Philadelphia Phillies manager, Danny Ozark

+ 'It isn't pollution that's harming the environment. It's the impurities in our air and water that are doing it.' --Al Gore.

+ 'We've got to pause and ask ourselves: How much clean air do we need ?' --Lee Iacocca

+ 'The word 'genius' isn't applicable in football. A genius is a guy like Norman Einstein.' --Joe Theisman, NFL football quarterback & sports analyst.

+ 'We don't necessarily discr iminate. We simply exclude certain types of people.' -- Colonel Gerald Wellman, ROTC Instructor .

+ 'Traditionally, most of Australia 's imports come from overseas.' -- Keppel Enderbery

+ 'If somebody has a bad heart, they can plug this jack in at night as they go to bed and it will monitor their heart throughout the night. And the next morning, when they wake up dead, there'll be a record.' -- Mark S. Fowler, FCC Chairman

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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