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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 Friday, June 27, 2008: What can I say? I've been nagging everyone for months that Cash is King.

It hasn't been the worst June ever. But it's been close.

The red arrow shows June, 2008.

For me, there were bright spots in yesterday's totally miserable market: commodities, SLV (up 2.4%), GLD (up 3.6%), OIL (up 3.9%) and my trustworthy short, Lehman Brothers (down 8.4%).

By now, everyone knows my fears. Three now stand out:

1. The destruction of wealth on Wall Street. That destruction will affect spending. GM is at a 53-year low. Widows and orphans stocks are down 50%.

2. The collapse of the banking system. Toxic assets still populate and pollute bank balance sheets. Many banks need to raise money to fulfill Federal regulatory requirements. But who'd give them money today? All the recent capital infusers are staring at huge losses.

3. Inflation. The official government statistics way understate the extent of inflation. I look at my own spending. Two weeks ago, the salt crystals I need for my country house cost $5.49 a bag. Yesterday they cost $7.57. That's a 38% increase. My son Michael's condo apartment building reports that their cost of fuel is up 45% this year. They're raising their maintenance. My tennis court maintenance guy just raised his prices by 25%. My local pizza store raised its prices by 17%. Both the pizza shop owner and the tennis guy tell me their raises are not enough to cover their higher expenses. They're "eating some" of their cost increase for fear of losing customers.

Remember this accident eight years ago this March. This Southwest Airlines flight from Vegas overshot the runway at Burbank, California. The plane smashed past the airport fence, careened across the street and ended up with a collapsed landing gear, right next to a gas station. That's not the amazing part! Look at the price of gas. In California, premium is now over $5.00 a gallon.

Oil is now $140 a barrel, up more than double in the past year. It is the key factor behind our rampant inflation. What's horrible about inflation is that it slices our personal income and destroys our corporate profits . Many observers think this augurs badly. For example, Stephen Leeb, an investment advisor and bearish author, writes:

"Nothing has been a more reliable indicator for an upcoming recession as the price of Oil. Every major bear market, every major economic decline has been preceded by a large spike in oil prices. The 73-74 recession, recession of beginning 80's and the recession of 2000. Oil prices jumped 80% between 1999 and 2000. Oil prices have been the most important indicator of major economic disasters. Whenever Oil prices rise about 80% from year ago levels, a fair chance does exist that a recession/bear market will follow."

As I wrote yesterday, Warren Buffett says he is concerned about “stagflation”, or slowing in the US economy while inflation accelerates. “We’re right in the middle of it right now,” said Buffett, chairman of Omaha, Nebraska-based Berkshire Hathaway. “I think the ‘flation’ part will heat up and I think the ‘stag’ part will get worse.” You can see his entire interview with Bloomberg.

As to the immediate stockmarket? We are in the last few days of the quarter, traditionally a time Wall Street does "window dressing." There are people who believe Wall Street funds are selling because they want to show how smart they are -- by being heavily in cash. Hence, rampant selling.

Will UBS survive? Who knows? Who cares? This is one hugely irresponsible, disgusting investment bank. Yesterday Massachusetts Secretary of State William F. Galvin said he has charged UBS Securities LLC and UBS Financial Services Inc. "with fraud and dishonest conduct in retail sales of auction rate securities to investors who were told by their UBS representative that the investments were safe, liquid 'cash alternatives' when UBS knew they were not."

This gets better. Apparently, the UBS boss in charge of ARPS sells his own ARPS while recommending them strongly to UBS customers! Here's the chronology according to Galvin:

AUG. 22, 2007 David Shulman, UBS's municipal bond chief and head of fixed income, launches sales effort, urging brokers to get individual clients to buy auction-rate securities.

Shulman sells large portion of his personal holdings in auction-rate securities.

SEPT. 6 An internal e-mail from Shulman suggests the firm exit the auction-rate business. Notes "legal and reputational issues on this decision."

OCT. 31 Shulman, in e-mail to colleague, calls the investments "a huge albatross."

DEC. 11 Ross Jackman, a Shulman deputy, says in internal e-mail, "The auctions aren't going to come back."

DEC. 12 Shulman sells the rest of his personal auction-rate holdings.

DEC. 15 Shulman, in an e-mail to UBS chief risk officer Joseph Scoby, discusses whether to stop supporting auctions: "the moral obligation runs very deep."

FEB. 8, 2008 In "upbeat" UBS conference call, brokers are told, "the public auction continues to be very effective."

FEB. 12 Internal e-mail to Shulman urges, "we need to beat the bushes harder than ever to unload this paper."

FEB. 13 Auctions fail. Massachusetts investors are sold $50 million of the securities in prior five days.

YESTERDAY UBS is sued by Massachusetts Securities Division.

You can read all the gruesome details at my other site,

Remember Henry Blodget? He was the Merrill analyst who publicly recommended shares while privately telling his people internally they were "junk." He got disbarred from the securities industry. Will UBS be disbarred? God, I hope so. I have personally received dozens of emails telling me of the absolutely disgusting treatment UBS clients have received at UBS's hands -- regarding their auction rate adventures.

Intel opts for Windows XP. Which company is closer than Intel to Microsoft? Now comes word that Intel won't embrace Vista. From Steve Lohr of the New York Times.

Intel, the giant chip maker and longtime partner of Microsoft, has decided against upgrading the computers of its own 80,000 employees to Microsoft’s Vista operating system, a person with direct knowledge of the company’s plans said.

The person, who has been briefed on the situation but requested anonymity because of the sensitivity of Intel’s relationship with Microsoft, said the company made its decision after a lengthy analysis by its internal technology staff of the costs and potential benefits of moving to Windows Vista, which has drawn fire from many customers as a buggy, bloated program that requires costly hardware upgrades to run smoothly.

“This isn’t a matter of dissing Microsoft, but Intel information technology staff just found no compelling case for adopting Vista,” the person said. ...

Meanwhile, the Microsoft operating system engine chugs on, phasing out the old and proclaiming the new. The company reiterated this week that, despite some customer protests, it would halt shipments of the previous version of Windows, XP, to retail stores and stop most licensing of XP to PC makers next week. Microsoft also announced that the next version of its operating system, Windows 7, is scheduled to go on sale in January 2010.

Supreme Court strikes down handgun ban in historic ruling.

SAN FRANCISCO (MarketWatch) -- In a major backing of gun-ownership rights, the U.S. Supreme Court on Thursday struck down a 32-year-old municipal ban on handguns in Washington D.C., according to media reports. The justices, in a 5-4 ruling, cited the Second Amendment in supporting the right to own guns for self-defense and hunting. The court had not conclusively ruled on the Second Amendment since 1791, according to the Associated Press.

Wimbledon continues today. Roddick and Sharapova are out. You can watch 14.5 hours of tennis today. That will be much more enjoyable than watching the ticker today. Here is the TV schedule. All times listed are Eastern Standard Time (L) = Live (T) = Taped

Friday, June 27 7:00 am - 5:30 pm Early rounds ESPN2 (L)
Friday, June 27 7:00 pm - 11:00 pm Early rounds Tennis Channel (T)
Saturday, June 28 7:00 am - 12:00 pm Early rounds ESPN2 (L)
Saturday, June 28 12:00 pm - 3:00 pm Early rounds NBC (L)
Saturday, June 28 7:00 pm - 11:00 pm Early rounds Tennis Channel (T)
Sunday, June 29 7:00 am - 12:00 pm Early rounds ESPN2 (T)
Sunday, June 29 12:00 pm - 3:00 pm Early rounds NBC (T)
Sunday, June 29 7:00 pm - 11:00 pm Early rounds Tennis Channel (T)
Monday, June 30 7:00 am - 10:00 am Early rounds ESPN2 (L)
Monday, June 30 10:00 am - 1:00 pm Early rounds NBC (L)
Monday, June 30 1:00 pm - 6:00 pm Early rounds ESPN2 (L)
Monday, June 30 7:00 pm - 11:00 pm Early rounds Tennis Channel (T)
Tuesday, July 1 7:00 am - 10:00 am Quarterfinals (Ladies') ESPN2 (L)
Tuesday, July 1 10:00 am - 1:00 pm Quarterfinals (Ladies') NBC (L)
Tuesday, July 1 1:00 pm - 5:00 pm Quarterfinals (Ladies') ESPN2 (L)
Tuesday, July 1 7:00 pm - 11:00 pm Quarterfinals (Ladies') Tennis Channel (T)
Wednesday, July 2 7:00 am - 10:00 am Quarterfinals (Gentlemen's) ESPN2 (L)
Wednesday, July 2 10:00 am - 1:00 pm Quarterfinals (Gentlemen's) NBC (L)
Wednesday, July 2 1:00 pm - 5:00 pm Quarterfinals (Gentlemen's) ESPN2 (L)
Wednesday, July 2 7:00 pm - 11:00 pm Quarterfinals (Gentlemen's) Tennis Channel (T)
Thursday, July 3 7:00 am - 12:00 pm Semifinals (Ladies') ESPN2 (L)
Thursday, July 3 12:00 pm - 5:00 pm Semifinals (Ladies') NBC (L)
Thursday, July 3 8:00 pm - 10:00 pm Semifinals (Ladies') Tennis Channel (T)
Friday, July 4 7:00 am - 12:00 pm Semifinals (Gentlemen's) ESPN2 (L)
Friday, July 4 12:00 pm - 5:00 pm Semifinals (Gentlemen's) NBC (L)
Saturday, July 5 9:00 am - 2:00 pm Semifinals (Gentlemen's) ESPN2 (L)
Saturday, July 5 12:00 pm - 5:00 pm Semifinals (Gentlemen's) NBC (L)
Sunday, July 6 9:00 am - 3:00 pm Semifinals (Gentlemen's) NBC (L)
Sunday, July 6 3:00 pm - 4:00 pm Semifinals (Gentlemen's) ESPN2 (L)

Marriage Counseling. This is truly sick.
After 15 years of marriage a husband and wife came for counseling. When asked what the problem was the wife went into a passionate, painful tirade listing every problem they had ever had in the years they'd been married. She went on and on and on - neglect, lack of intimacy, emptiness, loneliness, feeling unloved, an entire laundry list of unmet needs she had endured.

Finally, after allowing this to go on for a sufficient amount of time, the therapist got up, walked around the desk and after asking the wife to stand, he embraced and kissed her passionately.

The woman shut up and quietly sat down as though in a daze.

The therapist turned to the husband and said, "This is what your wife needs at least three times a week. Can you make this happen?"

The husband thought for a moment and replied, "Well, I can drop her off here on Mondays and Wednesdays, but on Fridays, I play golf."

Keeping the family together. This is truly warm and charming.
Ethel goes to see Doctor Myers and tells him that she is feeling constantly tired and exhausted, especially after making love.

"So how often do you make love, Ethel?" asks Doctor Myers.

"I make love every Monday, Wednesday and Friday, doctor," she answers.

"Well," says Doctor Myers, "maybe you should cut out Wednesdays?"

"No, that’s not really a good idea," says Ethel, "that’s the only night I’m home with mine Arnold."

True feelings. This is truly charming.
Sharon tells her best friend Ruth, "I’ve broken off my engagement to Moshe."

"Oh Sharon," says Ruth, "I’m so sorry. Why?"

"Because my feelings towards Moshe have changed – they just aren’t the same anymore," replies Sharon.

"So tell me," whispers Ruth, "are you giving him back the engagement ring?"

"No I’m not," replies Sharon, "my feelings towards the ring haven’t changed."

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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