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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 Thursday, March 6, 2008: First, an apology. For those of you who don't own auction rate preferreds, I apologize for boring you silly in recent days. The good news is that my recommendations on gold (GLD and IAU) and silver (SLV) have been paying off big-time, with huge rises again yesterday. With the dollar in free fall, and more lost faith in the stockmarket, these three are proving most rewarding.

And for the craziest of speculations, a small American precious metals and mining company with no earnings:

My "big" mining preference is for the Australian miners -- BHP, RIO, KZL, ZFX, MRE, OXR, AXM, WSA, MEE, EQN and PNA. The Australian dollar continues its inexorable climb, now 93 U.S. cents. I remember the days -- it was only a few years ago -- when one Australian dollar cost 55 U.S. cents. No more. It's coming up on par.

Failed Auctions. The Case Against Your Broker.
You bought either the single insurer bonds or the auction rate preferreds (ARPS).

There are two institutions you have an issue with, and can sue:

1. The broker/bank who sold you your the auction rate securities -

2. The issuer, e.g. Nuveen, BlackRock, Eaton Vance, etc.

Lawyers are telling us that it will take them three to four weeks to prepare a case from the day you say, "Sue them."

Your strongest case is against the brokers. Virtually nobody told their broker to buy these things. Everyone gave different instructions -- short-term cash, 28-day muni bonds, etc. One reader instructed his broker to buy him "bonds and T-bills." The broker bought these. So what you asked for and what you received -- and the differences -- are what your legal case rests on.

It's critical you assemble emails, letters, notes of conversations, etc.

Suing the issuer may actually be easier since many of their marketing materials are decidedly misleading. I had some examples last week.

It's a bit early for suing. It is not early for collecting evidence and contacting everyone and their uncle and expressing how serious this is. I published a list in recent columns. And there are some names below.

If you own failed auction rate preferred securities (,ARPS), please send me an email. We need to talk. There are serious benefits in combining our thinking.

Auction-Rate Securities May Get Help. Money-Market Funds Check Out Conversions As 'Win-Win' Deals. From today's Wall Street Journal by Diya Gullapalli and Shefali Anand.

Money-market funds are emerging as a potential white knight for some troubled auction-rate securities.

Auction-rate securities are debt investments that reset their interest rates as regularly as every seven to 35 days. In recent weeks, the $330 billion market for such securities has seized up, leaving many investors unable to cash out.

Conversion Game
• The News: Some issuers of auction-rate securities are starting to convert the debt into different investments that can be purchased by certain money-market funds.
• The Impact: Such a move could open up a new market of buyers to relieve pressure on the auction-rate market.
• What's Next: Investors will be watching to see how many auction-rate borrowers convert their offerings.

That's where tax-exempt municipal money-market funds come in. They hold conservative short-term debt offerings and are subject to strict rules that typically prevent them from owning auction-rate securities.

Now there is an effort under way to convert auction-rate securities into more-liquid investments that would be acceptable to municipal money-market funds. The effort would benefit the money-market funds, which have been struggling in recent weeks to find attractive securities amid problems with the bond insurers backing many of their normal holdings.

Overall, the conversions are "a win-win for tax-free money funds," says Deborah Cunningham, a money-fund manager at Federated Investors Inc.

Converting auction-rate securities into money-fund eligible investments is often done under the original bond documents. The biggest sticking point could be that the borrower of the auction-rate securities or another financial institution must agree to buy the securities in the event no other buyers emerge. That backstop is what essentially differentiates auction-rate securities from investments called variable-rate demand notes that can be held by municipal money-market funds. But with financial institutions suffering losses, few may want to step up and take on that risk.

In some of the first deals, the borrowers using the auction-rate securities are providing the backing, rather than an outside financial institution. Restructurings are happening on a "deal-by-deal" basis says Federated's Ms. Cunningham.

The Georgia Power unit of Southern Co., for instance, recently had $700 million in tax-exempt auction-rate securities, and is now in the process of converting about $500 million of that into variable-rate demand notes, says David Brooks, managing director of capital markets at Southern. As the auction-rate market "got really ugly," in recent weeks, "we started putting out conversion notes," he says. Georgia Power priced about $33 million of the converted securities yesterday, and was planning to price another $100 million today and tomorrow that would be money-fund eligible. Rather than use an outside bank guarantee, it issued the new securities with the backing of its own credit. The benefit of such a move is lower borrowing costs than have recently been available in the auction-rate market. The pricing yesterday, for instance, was approximately 2.70%, while the borrower had recently seen auction rates from 5% to 7%.

The Massachusetts Health and Educational Facilities Authority had $79 million revenue bonds remarketed yesterday on behalf of Partners HealthCare System in Boston, with more to come next week. The borrower is using Bear Stearns Cos. and J.P. Morgan Chase & Co. as remarketing agents as the new securities are pitched to outside investors, and has elected to support the bonds with self-liquidity rather than an external bank facility. "We'd definitely look at that" deal says Joe Lynagh, a tax-exempt money fund manager at T. Rowe Price Group Inc.

More reading on Failed Auctions:
+ Auction Bond Failures Near 70%; No Sign of Abating (Update2). From By Michael McDonald. Click here.

+ Allianz Global Investors Fund Management Provides an Update on Auction Rate Preferred Shares issued by its Closed-End Funds. Click here.

+ Nuveen eyes auction-rate options, offers no timeline. Dow Jones Newswires. By Daisy Maxey. Click here.

+ No Answers Yet To a Trillion-Dollar Question, Wall Street Journal March 5, 2008, page D3 by James B. Stewart. Click here.

+ Risks of a 'Safe' Investment Are Found Out the Hard Way. Wall Street Journal. February 27, 2008; page D4 by James B. Stewart. Click here.

+ The reality of the Failed Auction Market. Capital Advisors Group. Click here.

+ Calamos releases comment on auction rate securities market. Click here.

+ Frozen Liquid: More Auction-rate Securities Put on Ice. SBA Communications becomes the latest company stung by auction-rate securities when its inability to liquidate them forces it to take a $15.6 million impairment charge. From By Tim Reason. Click here.

+ Another Kick in the ARS. As troubles continue in the auction rate securities market, Massachusetts's securities regulator begins probing financial firms for information. From by Tim Reason. Click here.

+ Nuveen Squeezed as Auction Failures Rise; OppenheimerFunds Buys. From By Jeremy R. Cooke and Adam L. Cataldo. Click here.

+ No Mark of ARS? Bristol-Myers Replaces Its CFO. Drugmaker says the change doesn't reflect its recent $275M charge. It selects Royal Numico finance chief Huet to succeed Bonfield. From By Stephen Taub and Roy Harris. Click here.

+ Replay of Eaton Vance conference call. 1-800-642-1687. Access code 37152796.

People to write to and express your anger: We are adding more names each day. Send your favorite villains.

+ Nuveen is owned by Madison Dearborn. Hence contact Tim Hurd, who is Madison Dearborn's partner in charge of their Nuveen investment. (They paid $5.75 billion for Nuveen.) His email address is His phone number is (312) 895-1170.

+ Eaton Vance chairman and CEO, Thomas E. Faust, Jr. His email is His phone number is 800-225-6265 ext 8201. His executive assistant is Kelly Creedon. His address is Eaton Vance, 255 State Street, Boston, MA 02109.

+ The closed end fund top dog at BlackRock is Brian D'anna. He's on Linkedin. Also CEO - Laurence Fink -
and CFO - Paul Audet -

+ Van Kampen CEO - Michael Kiley - and COO - Ed Wood -

Potentially vs. Realistically
A young boy went up to his father and asked him, "Dad, what is the difference between potentially and realistically?"

The father thought for a moment, then answered, "Go ask your mother if she would sleep with Brad Pitt for a million dollars. Then ask your sister if she would sleep with Brad Pitt for a million dollars, and then, ask your brother if he'd sleep with Brad Pitt for a million dollars. Come back and tell me what you learn from their answers."

So the boy went to his mother and asked, "Would you sleep with Brad Pitt for a million dollars?'

The mother replied, "Of course I would! We could really use that money to fix up the house and send you kids to a great university!"

The boy then went to his sister and asked, "Would you sleep with Brad Pitt for a million dollars?"

The girl replied, "Oh my God! I LOVE Brad Pitt! I would sleep with him in a heartbeat, are you nuts?"

The boy then went to his brother and asked, "Would you sleep with Brad Pitt for a million dollars?"

"Of course," the brother replied. "Do you know what you could buy with a million bucks, do you have any idea where you could travel or what you could do with that kind of money?"

The boy pondered the answers for a few days and then went back to dad. His father asked him, "Did you find out the difference between potentially and realistically?"

The boy replied, "Yes. Potentially, you and I are sitting on three million dollars, but realistically, we're living with two hookers and one homosexual."

Why Mexico won't be participating in the summer Olympics
President Felipe Calder of Mexico has announced Mexico will not participate in the next Summer Olympics. He stated, 'Casi cada uno que puede correr, saltar, o nadar ha salido ya del país.'

Translation: 'Pretty much everyone who can run, jump, or swim has already left the country.'

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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