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Harry Newton's In Search of The Perfect Investment Newton's In Search Of The Perfect Investment. Technology Investor.

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8:30 AM EST, Friday, March 23, 2007: Soon there will be a Federal election in Australia. To get re-elected, the governing party often produces a pre-election, BIG tax break. This election's BIG tax break is that from May 10, 2006 to June 30, 2007 (the end of the Australian financial year), you're allowed to put up to $1 million tax-free in your super fund/s (your retirement superannuation fund/s). That money can be contributed by you, and/or your employer.

Now think where the money will go. Most of it (and I mean most of it) will go into the Australian stockmarket. And guess what the Australian stocks have done since the compulsory super law was passed in 1992? This chart compares BHP to the ASX200, over the past ten years. The ASX200 is Dow Jones index of Australia, except it covers not 30 stocks, but the 200 biggest Australian companies.

There has always been a big incentive to put money in your super fund. Ordinary income tax can be as high as 46.5%. Allowable contributions to your super fund are deductible. But "allowable" has been low. This is the first time the government has opened it to a huge amount. A $1 million is a lot of money in Australia. And Australians are scrambling to scrounge the money before the June 30 deadline. You should hear what's going on in my sister's family, who live in Sydney, my home town. To raise cash, my sister is trying to sell her grandchildren. (Well, not really. But you get the idea.)

Like the U.S., Australia has zillions of us baby boomers about to retire. The Australian Government, like the U.S. government, doesn't have the money to pay their old age pensions. The compulsory super fund system -- introduced in 1992 -- was to address that lack of money problem. And it's worked brilliantly.

Australians now have more money invested in managed funds per capita than any other country, including the U.S. Compulsory superannuation in combination with buoyant economic growth has turned Australia into a 'shareholder society', where most workers are now investors in the stock market. Apart from sport, it's all everyone in Australia talks about. Wikipedia has a good piece on Australian superannuation. Click here.

My recommendation remains: Vanguard Australian index funds. For more, click here.

Chutzpah Today, Part 1: from today's Wall Street Journal:

Brian Hunter, the energy trader whose risky bets triggered the largest hedge-fund failure in history, has formed a new fund only six months after Amaranth Advisors' collapse. Solengo Capital, of Calgary, Alberta, and Greenwich, Conn., is hiring traders and seeking money for "a series of funds across the commodities space," according to a preliminary marketing document circulating among potential backers.

Mr. Hunter is seeking hundreds of millions of dollars from overseas investors, potentially in Europe and the Mideast, people familiar with the matter say.

Although Amaranth's recent loss of more than $6 billion makes it unlikely that he can raise capital from U.S. institutions such as pension funds, he could benefit from the willingness of cash-flush investors elsewhere to take risks in the commodities markets. Investors also can invest in Solengo funds that are separate from the portfolio that the 32-year-old Mr. Hunter will manage....

Two energy traders who worked for Mr. Hunter from his Calgary trading outpost at Amaranth, Shane Lee and Matthew Calhoun, are among the portfolio managers. A former Amaranth quantitative analyst for risk management, Karl Koster, is also listed as part of the team.

A person familiar with Mr. Hunter's new fund says a launch could come by midsummer. Solengo is the name of an Italian wine, but the organizers declined to elaborate on how they selected the name.

Mr. Sabad, a Calgary energy trader, says the fund has imposed restrictions on the size of individual portfolios and how much money each can have at risk. A trader's violation of maximum-capital restrictions "eliminates ALL capital locks for investors," enabling them to withdraw funds without penalty, the marketing document states. Says Mr. Sabad: "We've given a lot of thought to risk management and how we can prevent what happened at Amaranth."

Mr. Hunter was allowed to invest billions of dollars at Amaranth, mostly in the natural-gas markets. His initially successful, but risky, bets took a wrong turn in September, when prices for natural gas for future delivery plummeted amid the absence of major hurricanes and a glut of gas inventory.

Amaranth tried to stay in business but had to pay large concessions to its investment bank and another investor who agreed to take on its undesirable trades. Clients rushed to withdraw money, and the fund said it would close; it is still the subject of various regulatory investigations.

Solengo will offer stand-alone portfolios tailored to specific market sectors, such as crude oil or base metals, the document states. Mr. Hunter will manage a "commodities volatility" fund that takes positions in options and other instruments based on how prices move.

Solengo offers a generous portion of profit to its traders. It will charge investors 2% of assets and 20% of profit; each manager gets to keep all of his own portfolio's 20% profit fee and as much as half of the 2% annual asset fee. Usually, hedge funds pay traders a smaller percentage. It calls its compensation "perhaps the most attractive work environment in the hedge-fund world."

Other traders involved in big blowups have started new investment funds, most notably John Meriwether, the head of Long-Term Capital Management when it collapsed in 1998.

Chutzpah Today, Part 2: from today's Wall Street Journal:

Joseph P. Nacchio, the former chief executive of Qwest Communications who is on trial for insider trading, knowingly repeated unreliable growth forecasts in 2000 and 2001, a former company official testified yesterday.

Mr. Nacchio projected revenue growth of 15 percent to 17 percent a year, without disclosing that the increase relied on one-time sales of network capacity, a former investor relations chief, Lee Wolfe, told jurors yesterday in Federal District Court in Denver.

Investors and analysts became skeptical of Mr. Nacchio’s claims that revenue from Internet and data services drove growth, he said.

Joe Nacchio, a propitious stock timer.

“They were becoming increasingly accusatory in terms of, ‘What are you guys doing that enabled you to beat the numbers?’ ” said Mr. Wolfe, the trial’s first witness.

Prosecutors accuse Mr. Nacchio, 57, of selling $101 million in Qwest shares from January to May 2001, before the price plunged, based on internal warnings that the company would not be able to meet its targets. Mr. Nacchio denies engaging in insider trading and said he believed Qwest’s public projections were accurate.

On cross-examination, Mr. Nacchio’s lawyer, John Richilano, suggested that Mr. Wolfe had tailored his testimony to avoid prosecution on insider-trading charges. Mr. Wolfe said prosecutors had agreed not to charge him as long as he told the truth.

Both Mr. Nacchio and Mr. Wolfe worked at Qwest from 1997 to 2002 after working at AT&T.

Mr. Wolfe said he learned in company meetings in late 2000 and early 2001 that Qwest was not reaching Mr. Nacchio’s targets for Internet and data service growth. Mr. Nacchio controlled virtually all the information released to investors, Mr. Wolfe said.

“Qwest found ways, and Mr. Nacchio found ways, to trivialize and minimize the one-time transactions, and way understated the true impact they were having,” Mr. Wolfe said.

Mr. Wolfe said he implored Mr. Nacchio not to reaffirm the revenue growth rate of 15 percent to 17 percent before a conference call announcing Qwest’s first-quarter earnings in April 2001.

“I said there were problems with growth,” Mr. Wolfe said. “I’m not sure that he responded to my concerns.”

Shares of Qwest reached a closing high of $64.50 in March 2000 on expectations that use of its fiber-optic network would surge. Mr. Nacchio sold the last of his shares in May 2001 at $38.25. Shares fell to $1.11 in August 2002, meaning Qwest lost more than $100 billion in market value.

In testimony yesterday, Mr. Wolfe said that in early 2001, he exercised options to buy 20,000 shares and sold them for $646,000. He allowed options to buy 25,000 shares to expire, he said.

“I knew deep down that I had material information in the form of the fact that we were using one-timers to make our numbers,” Mr. Wolfe said. “I knew it was wrong. It was a crisis of conscience to say I should not do that anymore. I knew I shouldn’t have done it before.”

Under questioning from Mr. Richilano, Mr. Wolfe said he had never consulted company lawyers before making his stock sales based on inside information.

He said he had testified for six days to the Securities and Exchange Commission and spent many days cooperating with the Federal Bureau of Investigation.

The Jewish Mistress
A Jewish husband and wife were having dinner at a very fine restaurant when this absolutely stunning young woman comes over to their table, gives the husband a big open mouthed kiss, then says she'll see him later and walks away.

The wife glares at her husband and says, "Who was that?"

"Oh," replies the husband, "she's my mistress."

"Well, that's the last straw," says the wife. "I've had enough, I want a divorce!"

"I can understand that," replies her husband, "but remember, if we get a divorce it will mean no more shopping trips to Paris, no more wintering in Barbados, no more summers in Tuscany, no more Jaguar in the garage and no more yacht club. But the decision is yours."

Just then, a mutual friend enters the restaurant with a gorgeous babe on his arm. "Who's that woman with Moishe?" asks the wife.

"That's his mistress," says her husband.

"Ours is prettier," she replies.

Spring is here. Part 1. Park benches beckon.
An elderly man is sitting on a park bench reading a newspaper. A bird flew overhead and a copious dropping lands on the man's best navy blue suit.

He looks up, shakes his fist in fury at the bird and cries out, "For others, you sing."

Spring is here. Part 2. Park benches beckon.
Moishe and Yankele are sitting on a park bench. A bird drops a copious present on Moishe's beautiful suit.

Moishe says to Yankele, "Can you please get me a Kleenex."

Yankele answers: "Why? By the time I get the Kleenex, the bird will have long flown away."

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. Please note I'm not suggesting you do. That money, if there is any, may help pay Claire's law school tuition. Read more about Google AdSense, click here and here.
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