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

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9:00 AM EST, Tuesday, November 11, 2008: New York State and New York City will shortly increase their income tax rates. It won't be popular but they have no choice. Many states and cities which levy income tax will follow suit. The investment implications of this are ultra clear: Buy muni bonds, which are triple tax-free -- free of federal, state and city taxes.

Today, longer-term muni bonds are yielding over 5%. Which is extraordinary. That is equivalent to earning over 8% pre-tax. You cannot get that safety and return anywhere else. Trust me.

The theory among New Yorkers friends (yes, I have a few) is that you ought to own sufficient muni bonds such that the interest from them will pay for your life.

The economy continues to crater: I recommend you take 5% of your cash (I pray you no longer have a portfolio) and buy puts on or short stocks whose prospects and earnings are collapsing. I'm not going to give you many specifics today. Except to say: Think of all the industries that will suffer because of this:

Then think of industries like advertising, radio, employment agencies, etc. This morning I was mulling names like Google, which could easily fall another hundred points and Barnes and Noble, whose competitor Borders is teetering on the edge of bankruptcy.

The corollary to "Don't try and catch a falling knife," is "Just because it's fallen 50% doesn't mean it can't fall another 50%." (I made that up.)

Goldman Sachs' lost decade. Goldman Sachs went public in 1999. If you were stupid enough to buy the stock then and still hold it, you would now be losing money. GS closed last night at $69.06. It will fall lower. It was a favorite Cramer stock. But it's a stupid stock. Goldman's goal is not to increase its earnings to its shareholders. Its goal is to maximize partner and employee bonuses.

You think you got problems: Colleges are being hit hard by the economic downturn. They are firing people, imposing hiring freezes, stopping construction, cutting expenses (like academic journal subscriptions), etc. Even the richest of them is suffering. This email from Drew Faust, the president of Harvard University was sent to everyone at Harvard:

To Harvard Faculty, Students, and Staff:

I write today about the global economic crisis and its implications for us at Harvard.

We all know of the extraordinary turbulence still roiling the world's financial markets and the broader economy. The downturn is widely seen as the most serious in decades, and each day's headlines remind us that heightened volatility and persisting uncertainty have become our new economic reality.

For all the challenges such circumstances present, we are fortunate to be part of an institution remarkable for its resilience. Over centuries, Harvard has weathered many storms and sustained its strength through difficult times. We have done so by staying true to our academic values and our long-term ambitions, by carefully stewarding our resources and thoughtfully adapting to change. We will do so again.

But we must recognize that Harvard is not invulnerable to the seismic financial shocks in the larger world. Our own economic landscape has been significantly altered. We will need to plan and act in ways that reflect that reality, to assure that we continue to advance our priorities for teaching, research, and service.

Our principal sources of revenue are all likely to be affected by these new economic forces. Consider, first, the endowment. As a result of strong returns and the generosity of our alumni and friends, endowment income has come to fund more than a third of the University's annual operating budget. Our investments have often outperformed familiar market indexes, thanks to skillful management and broad diversification across asset classes. But given the breadth and the depth of the present downturn, even well-diversified portfolios are experiencing major losses. Moody's, a leading financial research and ratings service, recently projected a 30 percent decline in the value of college and university endowments in the current fiscal year. While we can hope that markets will improve, we need to be prepared to absorb unprecedented endowment losses and plan for a period of greater financial constraint.

The economic downturn also puts pressure on other revenues that fuel our annual budgets. Donors and foundations will be harder pressed to support our activities. Federal grants and contracts for sponsored research will be subject to the intensified stress on the federal budget. Tuition remains an important source of revenue, but in times like these we want to keep increases moderate, mindful that many students and families are facing economic strain.

Over the past several weeks I have been meeting individually and collectively with the deans of the faculties, as well as the Corporation, to share ideas on how we can best respond to this changed economic environment. We need to sustain our high academic ambitions at the same time that we bring greater financial discipline to all our activities. We have to think not just about what more we might wish to do, but what we might do at a different pace or do without. Tradeoffs and hard choices that can be avoided in times of plenty cannot be averted now. And, given the ongoing volatility and uncertainty, we need to plan and budget with a range of contingencies in view, including scenarios for reducing our spending both this year and next.

As we plan, we must also affirm our strong commitment to financial aid for our students. In Harvard College, that will mean carrying forward our recent years' initiatives to make a Harvard education affordable for outstanding students from low- and middle-income families. As before, families with incomes below $60,000 will pay nothing to send a child to Harvard College, and families with incomes up to $180,000 and typical assets can expect to pay no more than approximately 10 percent of income. Across our graduate and professional schools, we will maintain financial aid budgets at least at their current levels -- and ensure that our students still have access to needed loans, even though many banks are making them less readily available.

We have long been dedicated to research and the discovery of new knowledge across a wide range of fields of scientific and humanistic inquiry. In recent years we have made significant investments toward breaking down intellectual barriers across disciplines and across Schools to generate new knowledge and to develop new courses and educational opportunities for our students. These commitments must continue to guide us as we make decisions and choices in a significantly more constrained fiscal environment.

Harvard values its reputation as a stable and supportive employer, and we view our workforce as a critical part of all we do. We recognize as well the responsibility that comes with being one of the largest employers in the commonwealth of Massachusetts. At the same time, changing financial realities will require us to look carefully at compensation costs, which account for nearly half the University's budget.

We are assessing all aspects of our ambitious capital planning program, including the phasing and development of our campus in Allston.

We are working with administrative and financial deans from across the University to develop new approaches for generating both savings and new revenue sources, building on the ideas and best practices of each of the Schools.

Harvard is a famously decentralized place, and one size will not fit all. Each School will face its own particular challenges. But we must at the same time join together to address these new circumstances with creativity and a spirit of common enterprise.

Today, perhaps as never before, we need to work collectively to develop approaches and efficiencies that will allow every part of Harvard to thrive in the years to come. Together, we must continue to advance the priorities that define us.

For all that has changed in recent weeks, we remain devoted to attracting the very best students, faculty, and staff to Harvard. We will undertake the daily work of education and scholarship with the same intensity and imagination. We will set our academic sights just as high, and we will ensure that the ambitions and vibrancy of our community and the strength of its commitment to the pursuit of truth remain unsurpassed.

According to Bloomberg this morning, Harvard's endowment returned 8.6 percent in the year ended June 30 compared with the 13.1 percent negative return for the Standard & Poor's 500 Index. The Harvard pool provides funds for more than a third of the university's annual operating expenses, Faust said. The support from the endowment totaled about $1.6 billion in fiscal 2008, according to Harvard Management Co., the school's investment arm, based in Boston. ... Harvard officials have engaged in preliminary talks to sell some of the university's stake in private-equity funds held by the endowment, a person familiar with the negotiations said on Nov. 5.

Watch out for prescription drugs' side effects. My limited experience with investing in biotech tells me that every drug has some side affect. Often the side affects are really severe. And sometimes, the side affects are worse than what the drug cures. I also learned that drug companies are very lax about the warnings they provide with their drugs. They don't want to scare their customers off. The FDA is also slow about forcing warnings to be stronger.

Which brings me to Lariam, a popular anti-malaria drug. The December 2008 issue of Outside magazine carries a piece by Jordan Campbell, a climber, who took the drug, had severe problems for six years -- before he discovered two years later that the drug caused had serious side affects, including dizziness, severe anxiety, paranoia, disorientation, hallucinations, bad dreams, difficulty sleeping, depression and suicidal thoughts -- and at least two actual suicides. A 2006 study at the Walter Reed showed that the drug causes degeneration in the brain system of rats.

The drug is still being prescribed for children.

Horribly depressing column this morning. The good news is I played four hours of tennis yesterday. Two hours of singles and two hours of doubles and biked about six miles. I feel sore but healthy. Healthy is better than being wealthy.

Rebuilding New York & Afghanistan
George W. Bush and Osama bin Laden are having a conversation via Al Jazeera television. Bin Laden tells George Bush, "There is no point of engaging in further war. I can see total peace in the future!"

George Bush replies, "Oh yeah and tell me what you see?"

Osama answers, "I can see New York, with new great buildings on one side and beautiful new buildings on the other side, and everything is peaceful and wonderful."

George Bush says, "Wow is that what you see? Well I'll tell ya what I see for the future of Afghanistan... I see a house here, a house there, a small building here and small building there, but there are signs hanging in the middle of the street."

Osama asks, "And what do they say?"

George answers, "Hell, I don't know. I can't read Hebrew!"

Trouble with this site: The idiots at my web hoster, called, are messing with this site. I'm about to switch web hosters. If you can't get on the site, please email me .

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.