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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 Monday, May 8, 2006: Though very tempting, speculating on currencies -- whether the dollar moves up or down -- is too hard for most of us. With companies, you eye the earnings, the fundamentals and the trends and you can pick likely successes. With currencies, you can figure all the fundamentals and be wrong 100% of the time. Currencies move partly because of fundamentals -- like deficits and interest rates -- but heavily because of what large, irrational investors, called Central Banks, do with their money. They don't do it for sane, business reasons. They do it for political reasons. For example, China shouldn't be buying US treasuries. It's a dumb investment decision. But it buys them an insurance policy that Congress won't do something that might jeopardize the jobs of all the millions of Chinese workers making things to sell in WalMart, and in turn jeopardize the jobs of all those top Chinese political leaders, should the workers get upset at not having a job.

There have been spectacular successes in trading currencies -- like George Soros' bet against the pound, which netted him a billion plus. In fact, his coup had nothing to do with great analysis or with great timing, it had to do with great insider information. The head of the German central bank told him over dinner that Germany was going to drop its support for the English pound. One of the beautiful things about currency trading is that there are no rules, regulations or laws against insider trading. And insider information, not analysis is what affects currency markets.

Warren Buffett seems to have learned this lesson the hard way. He lost megabucks trading currencies -- largely betting the dollar would fall. And he learned what we've all known all along -- that the best way to play the inevitable decline in the US dollar is to invest in good things overseas. The problem remains finding those "good" things. America remains commercially the most vibrant country in the world -- by far. Our businessmen are the best. (Sadly, our politicians are among the absolute worst.)

My best recent overseas plays have been four of the Vanguard funds -- the International Value Fund (VTRIX), the Total International Stock Index Fund (VGTSX), the Emerging Markets Stock Index (VEIEX) and the Pacific Stock Index Fund (VPADX). The best performer has been the International Value Fund, which has 20% of its assets in Japan, 20% in England and 4% in Canada and the rest all over the place, including Israel and Australia. For my taste, the fund has too many stocks -- 203 at least count. But heck, it's been working.

I like Canada. This year the Canadian dollar has risen strongly against the US dollar and should continue to rise. I have a little syndicated real estate there. But my favorite Canadian investments remain Canadian Oil Sands Trust, Penn West Energy Trust, Barrick Gold and Inco, Canada's biggest nickel producer and miner or copper. The oil sands stocks have come under pressure recently as the word has gotten out that these companies' costs have gone through the roof. These companies pay a crane operator $200,000 a year -- if they can find people willing to work in these cold, boring places.

Now you're ready to read today's Bloomberg story:

Dollar Drops to One-Year Low Versus Euro on Fed Speculation

May 8 (Bloomberg) -- The dollar fell to the lowest in a year against the euro and reached an eight-month low versus the yen on speculation the Federal Reserve will soon signal a pause in raising interest rates.

The biggest bond-trading firms say the Fed will increase its benchmark rate May 10 and then maintain it until at least August, while traders raised bets on more rate increases by the European Central Bank. The yen led a rally by Asian currencies after Bank of Japan Governor Toshihiko Fukui said policy makers may increase borrowing costs on signs of ``sustained'' growth.

``Everybody's looking for an excuse to sell the dollar,'' said Jeremy Stretch, a currency strategist at Rabobank Groep in London. ``If we assume the Fed will pause on Wednesday, it's very much the case that rate spreads are no longer enough to support the dollar.''

The dollar fell to $1.2760 per euro at 7:10 a.m. in New York, from $1.2727 on May 5. It touched $1.2787, the lowest since May 12, 2005. The U.S. currency dropped to 111.16 yen from 112.58. It reached 111.06, the weakest since Sept. 23 last year. Trading in Japan resumed after a three-day holiday.

A Bloomberg survey on May 5 showed that 65 percent of 51 traders, strategists and investors surveyed from Sydney to New York advised buying the yen against the dollar this week. Sixty- one percent recommended buying Europe's common currency against the dollar.

Billionaire investor Warren Buffett said he cut his foreign currency investments because there are better ways to hedge against a decline in the dollar. Buffett, chief executive officer of Berkshire Hathaway Inc., told investors at the company's annual meeting on May 6 in Omaha, Nebraska, that the $4 billion purchase of most of Israel-based toolmaker Iscar Metalworking Cos. represents a way of ``mitigating'' a fall in the dollar.

Buffett who reduced his bet against the dollar in the first quarter to $5.4 billion from $13.8 billion in December, said Iscar gets most of its earnings in currencies other than the dollar. Buffett has been betting the U.S. current account deficit would hurt the currency since 2002.

The U.S. currency is down 7.8 percent against the euro and 5.6 percent versus the yen this year on anticipation borrowing costs in Europe and Japan will rise faster than those in the U.S.

The Fed has raised its target rate 15 times since June 2004 to 4.75 percent, while the ECB has lifted borrowing costs twice since the start of December, to 2.5 percent. The BOJ has held rates near zero percent since 2001.

The yield advantage of U.S. debt has narrowed in recent days. The extra yield of benchmark U.S. 10-year notes over German bonds dropped 7 basis points last week from a six-month high of 1.19 percentage points on May 1. The spread over Japanese debt of a similar maturity narrowed 13 basis points to 3.12 percentage points.

Economists at 17 of the 22 securities firms that trade with the Fed, known as primary dealers, said last week that policy makers at the U.S. central bank will lift their target rate on May 10 for the last time until at least August.

The U.S. government said on May 5 that the economy added 138,000 jobs in April, the least since October. Interest-rate futures show traders are betting the Fed will raise rates to 5 percent when they meet in two days. The chance of a further increase to 5.25 percent at a June 29 meeting were 38 percent, down from 46 percent the day before the jobs data.

Fed Chairman Ben S. Bernanke told Congress on April 27 that policy makers "may decide to take no action'' at future policy meetings. All 56 economists surveyed by Bloomberg expect the Fed to lift rates this week.

At the same time, traders increased bets the ECB will lift rates three more times this year, interest-rate futures show. The yield on the three-month Euribor contract due December has risen 3 basis points this month to 3.51 percent.

The contracts, traded on the London International Financial Futures Exchange, settle to the three-month euro interbank offered rate, which has averaged 0.16 percentage point over the ECB rate since 1999.

ECB President Jean-Claude Trichet said May 4 that higher interest rates may be "warranted'' to stem inflation. A survey for Bloomberg LP by NTC Economics Ltd. today showed European retail sales rose in April by the most in at least two years.

Japan's currency has risen this year as the nation heads for its longest run of quarterly growth in five years. The South Korean won, Thai baht and Taiwan dollar also rallied today on speculation faster growth in Asia will lure investors.

"Investors have jumped back into the idea of BOJ rates moving up sooner, and so they've bought the yen,'' said Antje Praefcke, a currency strategist at Commerzbank AG in Frankfurt.

Fukui said on May 7 at a meeting of central bankers in Basel, Switzerland that Japan is ``completely on track for a sustained recovery.'' He added policy makers are ``quite open to the next step'' on rates, though ``we don't have any predetermined plans.''

Japan's currency also gained as officials in President George W. Bush's administration said they object to what they see as an attempt by Japan to reinterpret an April 21 statement by Group of Seven nations urging faster Asian currency gains. The officials, speaking last week, declined to be identified.

Japanese Finance Minister Sadakazu Tanigaki told reporters in India last week that investors had misinterpreted the G-7 statement as a call for a weaker dollar. He said recent declines in the dollar against the yen were ``excessive.''

The BOJ on March 9 ended a five-year policy of flooding the economy with money to fight deflation, a prelude to raising rates. Seven of 16 economists Bloomberg surveyed last month said the bank may raise its benchmark as early as July.

"The Southeast Asian economies are growing faster'' than the rest of the world, said Adrian Foster, a currency strategist at Dresdner Kleinwort Wasserstein in Singapore. ``The trend is definitely in the direction of Asian currency appreciation."

Heavy exercise makes hefty sense. The more I exercise the better I feel. The fewer old age ailments -- like back problems -- I seem have. The only downside -- the time. That's why I like tennis. While you're killing someone at the other end, time flies. I can't stand treadmills. They give boredom a whole new meaning. My son and wife like treadmills. They watch TV while running.

A touching Passover story:
Marilyn Monroe is attending her first Seder.
Arthur Miller asks her how she likes the Matzoh ball soup.
Marilyn answers, "I wish they could have used a different part of the Matzoh."

Useless factoids:
+ At any one time, 0.7% of the world's population is drunk.

+ The Boston Globe named Gilbert Gottfried the world's unsexiest man. Gildbert's claim to fame? He's the voice of the Aflac duck.

+ The average age at which an Italian child leaves his parents' home is 28. -- New York Times

The value of hype
"Without promotion, something terrible happens: Nothing." -- P.T. Barnum

Corporate slogans:
I've been reading annual reports. I'm struck by the banality of corporate slogans. My favorites:

"We expect more" -- XTO Energy

"Building Smiles" -- WalMart

"A brand above the rest" -- Pulte Homes

"Journalism & Democracy" -- The McClatchy Company

"Strategic focus" -- WSFS Financial Corporation

"Attaining Disciplined Growth" -- Assurant (In 2005, sales were up 1.2%)

"Excellence in progress" -- Progress Energy

Do you have a sense of humor?
This was Bill Maher's closing monologue the other night:

"Mr. President, this job can't be fun for you any more. There's no more money to spend - you used up all of that. You can't start another war because you used up the army. And now, darn the luck, the rest of your term has become the Bush family nightmare - helping poor people. Listen to your Mom. The cupboard's bare; the credit cards are maxed out. No one's speaking to you. Mission accomplished.

"Now it's time to do what you've always done best - lose interest and walk away. Like you did with your military service and the oil company and the baseball team. It's time. Time to move on and try the next fantasy job. How about cowboy or space man?

"Now I know what you're saying - there's so many other things that you as President could involve yourself in. Please don't. I know, I know. There's a lot left to do. There's a war with Venezuela. Eliminating the sales tax on yachts. Turning the space program over to the church.

And Social Security to Fannie Mae. Giving embryos the vote.

"But, Sir, none of that is going to happen now. Why? Because you govern like Billy Joel drives. You've performed so poorly I'm surprised that you haven't given yourself a medal. You're a catastrophe that walks like a man. Herbert Hoover was a shitty president, but even he never conceded an entire city to rising water and snakes.

"On your watch, we've lost almost all of our allies, the surplus, four airliners, two trade centers, a piece of the Pentagon, and the City of New Orleans. Maybe you're just not lucky. I'm not saying you don't love this country. I'm just wondering how much worse it could be if you were on the other side.

"So, yes, God does speak to you. What he is saying is, 'Take a hint.'

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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