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8:30 AM EST Monday, May 1, 2006: The speculative real estate bubble is collapsing fast. A friend knows of a recent meeting of salespeople where sales for one week in April were reported at $2 million, down from $20 million the previous week. Now comes word of the collapse of a company called USA Capital, a Las-Vegas short-term mortgage lender that filed for bankruptcy recently. USA Capital had $1 billion in assets and office in Incline Village, Las Vegas and Reno. The company paid investors up to 15% and loaned the money to developers. Personally, I don't regard USA Capital's demise as significant, just indicative of the fringe madness out west and their belief that prices would continue inexorably onwards and upwards.

The madness out west was driven by thousands of speculators, also called "investors." These people would buy a property today in the belief they could sell it tomorrow for lots more. They wouldn't live in the property. And they often wouldn't fix it up. These "investors" figured strongly in the south-Florida condo boom. Investors would sign up for apartments on the architect's plan and flip the apartment when the thing was actually built. "Investors" have now essentially disappeared from the real estate scene. (Some observers say these people have fled to the stockmarket, accounting for much of this year's rise.)

What we're left with is not the Tech Wreck of 2000-2002, where share prices of hot Internet stocks collapsed to zero. Real estate has land, buildings and often rent rolls. That stuff is valuable, unlike shares of Webvan or DrKoop. We're now left with a real estate "boom" where real people account for the bulk of the sales. And "real" people are discerning, careful and studied about spending their money on where they want to live. But they do need a place to live. And there are powerful demographics -- new babies and immigration -- which will continue to power residential real estate, but clearly not at its erstwhile mad, frenetic pace.

The big slowdowns are in those places where we had the big speedups -- Southern California, Arizona, Nevada and Southern Florida.

For more on USA Capital's bankruptcy, click here.

By the way, the "shrewd" real estate investors are now eyeing India, where land is cheap and growth is explosive.

The key remains asset allocation: I put more money last week into those hedge funds performing well and took some money away from one manager, who were performing desultory. The big keys are:
1. You can't predict the future, though you can predict the obvious -- like the real estate bubble was ripe for pricking and we're all going to spend more on health care.
2. You need sufficient assured cash flow from things like bonds to pay for your living expenses -- if your other investments crater, as some will.
3. You have to sleep at night. Being 100% in anything makes for sleepless nights.
4. You have to deal with this stuff -- otherwise you really will have sleepless nights.

Estate planning -- Part 3 (or so). The "big family" fortunes all are managed by a staff of full-timers who get paid to alter asset allocation and fiddle with estate planning. We mere mortals don't have that luxury. But the need is as urgent. From my friend Frank Derfler, who like me is aged between 60 and death:

Harry -- Marlene and I have been "balancing" our trusts for years. Cars and trucks go in, houses and condos go in, etc. You glide along nicely for a while, but occasionally the bureaucrats bite you. In Florida, vehicles in a family trust become "commercial". They have different licensing and tax structures. Just another hassle.

We recently got stuck by bureaucrats in a way that hurt. After Hurricane Wilma the local village, normally pure hell-on-wheels on permits and inspections, gave a short-term dispensation to home owners for dock repairs. You could go through a shorter permitting process, only pay $100, and repair your dock to be like it was before the storm. Nice of them, eh? That is, until you are ready to leave and some evil-eyed clerk notices that the house is in a trust. Oh, no! That's a commercial property and you need to pay an architect for plans, wait for review by the DNR and the Army Corps of Engineers, and pay a $900 permit fee.

Just goes to prove two of my favorite sayings:
1. No good deed goes unpunished.
2. You can't do "just one thing" anymore, EVERYTHING has unforeseen and unintended consequences.

The keys to investing in biotech startups:
1. Their drugs seem to make sense, i.e. they solve a large, often unmet, need.
2. They're beyond R&D. They're into testing for the FDA.
3. Patience. You never know when they might pop.
4. When they do pop, it's time to take profit off the table.

One biotech stocks I've written about, own and still like:



One I've written about looks a little 'poppy,':

This chart is small because it covers only the time after Hana changed its symbol to HNAB and my charting service -- Quote.com -- sucks.

Bank of America gets weirder and weirder. In the same day's mail:
1. They're threatening if I don't pay them $27.68, I will be "unable to establish an account in any financial institutions for up to five years, even after you (meaning me) repay the debt." (I "owe" them the $27.68 for bank charges on an account I closed.)
2. They sent me an offer for a US Airways Platinum credit card.
3. They sent me an offer for a Bank of America Platinum card.

On Saturday I reached a nice BofA person, who confided, "There has been a system issue on closing accounts. They don't stay closed. Several different functions need to be addressed. I'll see what I can do."

I've been flooded with emails from readers telling me how they love their little, local bank. I did too, until monster BofA gobbled it.

Four reasons from Thomas Friedman on why our nation's present energy policy is in big trouble. (And why alternative energy ultimately makes huge sense.)

First, we are financing both sides in the war on terrorism: financing the U.S. military with our tax dollars, and Islamist radicals and states with our energy purchases.

Second, continued dependence on fossil fuels is going to bring on climate change so much faster in an age when millions of new consumers in India and China are driving cars and buying homes. And that's why renewable fuels and energy-efficient cars, buildings and appliances are going to be the biggest growth industry of the 21st century. The tougher the energy-efficiency standards we impose on our own companies, the more likely it is that they will dominate this new industry.

Third, because of the steady climb in oil prices, the seemingly unstoppable wave of free markets and free peoples that we thought was unleashed by the fall of the Berlin Wall is now being stymied by a counterwave of petro-authoritarian states — like Iran, Venezuela, Russia, Nigeria and Sudan — which now have more petro-dollars than ever to do the worst things for the longest time. They will poison the post-cold-war world unless we bring down the price of crude.

Fourth, we will never plant the seeds of democracy in Iraq and the wider Arab world if we don't also bring down the price of oil. These Arab oil regimes will not change unless they have to, and as long as oil prices are soaring they won't have to. Iraq will become just another Arab state that taps oil wells instead of developing its people.

The real estate boom -- Part 37
When NASA was preparing for the Apollo Project, it took the astronauts to a Navajo reservation in Arizona for training. One day, a Navajo elder and his son came across the space crew walking among the rocks. The elder, who spoke only Navajo, asked a question. His son translated for the NASA people: "What are these guys in the big suits doing?"

One of the astronauts said that they were practicing a trip to the moon.

When his son relayed this comment the Navajo elder got all excited and asked if it would be possible to give to the astronauts a message to deliver to the moon.

Recognizing a promotional opportunity when he saw one, a NASA official accompanying the astronauts said, "Why certainly!" and told an underling to get a tape recorder.

The Navajo elders comments into the microphone were brief. The NASA official asked the son if he would translate what his father had said.

The son listened to the recording and laughed uproariously. But he refused to translate.

So the NASA people took the tape to a nearby Navajo village and played it for other members of the tribe. They too laughed long and loudly but also refused to translate the elders message to the moon.

An official government translator was summoned. After he finally stopped laughing, the translator relayed the message:

"Watch out for these guys. They have come to steal your land."

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. 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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