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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, November 16, 2006: It's getting time to take more off the table. Thus runup does not have the underpinnings of sufficient solid growth in the economy for it to continue much longer. Cash has rarely looked so good -- I'm earning 5.2% on one-week "CDs" from my local Sovereign Bank. Ironically that 5.2% has way exceeded some of my hedge funds.

My worst hedge fund was down 30% to end October. After a disastrous first 15 days of November, it's now down 38.1%. My commodities fund is break-even for the year. But my conservative hedge fund is up 15% to end October, while my young, go-getter hedge fund is up 43%.

The moral of this lesson is old and simple. Diversification is key -- if you're not personally in control. And you're not -- because no one listens.. Given also that you never know, the rule should be no more than 5% of your net worth with one manager. Not only do they not listen, but they often go nuts on you -- changing their professed strategy for no apparent reason. For example, Private Capital Management, a money manager out of Florida, was doing well until the boss fell in love with newspaper stocks ... and you know what happened to those. They went down the toitee -- though not as fast as some big pharmas have done recently.

My friend Ed, who's also in the 38% disaster, did some figuring yesterday. This year, he's up 22% and 20% in two other hedge funds, thus offsetting the 38% disaster. Ed got me into real estate syndications -- both commercial and residential. It's been our absolute best investment -- his and mine. Over the past 13 years, he's been in 45 deals. He figures his IRR of 24%. That's an average of 24% a year for 13 years. And those 13 years included the Tech Wreck of 2000-2002 in the stockmarket.

The Economist wrote this just before our election. It's worth reading now:

RARELY have Wall Street's seers been so split. Not only are they divided about where the economy is headed, they even disagree about how it is faring today. Pessimists, such as Nouriel Roubini of Roubini Global Economics, reckon output is slowing from its already desultory pace of 1.6% a year in the third quarter and that recession is imminent. Optimists say GDP growth is rising after a weak summer. After analysing bond, equity and credit markets, Stephen Jen of Morgan Stanley recently argued that the risk of recession was only 13%, down from 19% a month before.

How can opinion be so divided? The glib answer is that America has two economies: residential construction and car production are in a slump, but the rest is still chugging along. Such resilience is why the jobless rate fell to 4.4% in October, its lowest since 2001, and why both wages and hours worked grew smartly. But how sustainable that is depends on whether the sectoral declines worsen and spread.

Whether you look at housing or manufacturing it is hard to avoid some pessimism. Despite Alan Greenspan's recent declaration that the worst of the housing bust is over, the evidence suggests otherwise. The pace of decline in residential construction may (perhaps) have peaked, but the size of inventories and the weakness of demand suggest builders will be cutting back for many months yet, and that prices have farther to fall.

Stephen Roach, also of Morgan Stanley and a well-known contrarian, points out that less than a third of the run-up in construction spending over the past decade has been reversed. As a share of GDP, residential investment is still far above its long-term average (see chart). And even if the worst is over for house builders, it may not be for the construction industry as a whole. Up to now, non-residential construction—the building of offices and shopping malls—has been booming. But September's figures suggest that this, too, is losing steam. And the cuts are finally translating into fewer jobs. Overall, the construction sector shed 26,000 jobs in September. More layoffs seem inevitable.

The news from manufacturers is also likely to get worse rather than better. Industrial production was flat in August and fell in September. Surveys of purchasing managers in October bode ill for the coming months. Carmakers are slashing production to reduce big inventories. The housing bust is hitting too. The production of housing-related goods—such as appliances and furniture—has fallen.

No matter, argue the optimists. The overall labour market is tight, wages are up and petrol prices have fallen. With wage income up almost 3% in real terms, spending will remain firm and the economy will rebound from its third-quarter lull.

This logic is sound, but there is little evidence, for now, to support it. Despite more pay and cheaper petrol, there are few signs that consumers splurged in October. According to Merrill Lynch, 62% of retailers missed their sales estimates. Wal-Mart had a particularly feeble month and expects sales to be flat in November. With their homes worth less, more Americans may be saving their wage gains rather than heading to the mall. The household saving rate, although still negative, rose from –0.8% in July to –0.2% in September.

Unless spending picks up as Christmas approaches, demand growth in the fourth quarter of 2006 is likely to be little better than in the third. It does not mean, however, that a full-blown recession is inevitable. Even if job losses in construction and manufacturing begin to push up the unemployment rate, the labour market will still be tight. With jobs plentiful and wages rising, consumer spending is unlikely to collapse. Slow growth and gradually higher saving is a less dramatic outcome than either the pessimists or optimists predict. But it has the advantage of being just what the economy needs.

Buying something for your business? Try They ask you some simple questions and then forward your lead to five or so local suppliers, who will call you. You may or may not save money. You may or may not get the lowest price, but you should get some interest in winning your business. After all, the vendors are paying $10 to $30+ for each lead -- so they are motivated to sell you something. Using BuyerZone is more convenient than using the local yellow pages.

The momentum plays continue: There are always "hot" sectors in the market. Today's are the exchanges -- CME, ICE, ISE, NDAQ and NYX. For more, see yesterday's column -- click here and Monday's column -- click here. It's like 1999 in tech all over again. CME -- the Chicago Merc -- rose $18.79 or 3.66% yesterday. I don't know how long this madness will last. But it's nice while it lasts.

How to treat your printer cartridges: Don't buy too many. They don't have a long shelf life. Don't shake the cartridge before you install it. Rock it gently. This advice from my friends at, who also sell refurbished (cheap) toner cartridges.

How to collect back taxes. I don't make this stuff up. Tax authorities in Bihar, India have hit on a novel idea to collect back taxes: They hire a troupe of singing eunuchs to serenade the debtor. Eunuchs are feared and reviled in many parts of India, where some believe they have supernatural powers. Often unable to gain regular employment, the eunuchs have become successful at persuading people to part with their cash. The eunuchs will get a commission of 4% of any taxes collected.

Mahesh Pandey of the BBC recently wrote that eunuchs from across India have gathered in Bhopal, the capital of the central state of Madhya Pradesh to celebrate a unique festival. More than 2,500 eunuchs will sing, dance and make merry for several days in memory of their spiritual teacher, Haji Rahamatullah.

Eunuchs have long lived on the fringes of society. India has several hundred thousand of the so-called "third sex" who are traditionally regarded as auspicious. The venue of the meeting is significant as several eunuchs in Madhya Pradesh have had a high profile over recent months. Shabnam Mausi has become India's first eunuch to occupy a seat in a state assembly. And another eunuch Kamla Jaan has been fighting a court battle to retain the mayorship of the city of Katni in Madhya Pradesh.

Known as "hijras" in Hindi, eunuchs are mainly either castrated men or transvestites. They mostly earn a living by collecting cash gifts from people on occasions like marriages and births.

But this is not what has brought them to Bhopal. They are here as representatives of their society. For eunuchs, this conference is a festival where they get to meet "their-own-kind" from all over India. Asha, who has come all the way from Baroda in Gujarat, said: "We don't have a son or a daughter at whose marriage we can expect a get-together. It is this festival which fulfils our wishes."

Organizers of the festival said discussions were also held on certain "internal issues" but the media was not allowed to cover the debate. There have been some suggestions recently that eunuchs are considering forming their own political party. Participants, however, rejected suggestions that politics were discussed.

"If we get into politics, who will sing and dance at marriages?", a senior eunuch Jyoti said.

This is a true and heartwarming Thanksgiving story. Try it with your friends next week.

One year at Thanksgiving, my mom went to my sister's house for the traditional feast.

Knowing how gullible my sister is, my mom decided to play a trick. She told my sister that she needed something from the store.

When my sister left, my mom took the turkey out of the oven, removed the stuffing, stuffed a Cornish hen,and inserted it into the turkey, and re-stuffed the turkey. She then placed the bird back in the oven.

When it was time for dinner, my sister pulled the turkey out of the oven and proceeded to remove the stuffing.

When her serving spoon hit something, she reached in and pulled out the little bird.

With total shock on her face, my mother exclaimed, "Patricia, you've cooked a pregnant bird!"

At the reality of this horrifying news, my sister started to cry.

It took the family two hours to convince her that turkeys actually lay eggs!

Yep................SHE'S BLONDE!

Reverse logic
Reverse logic is the purest form of humor. Here are my two best examples:

The U2 Concert
At a U2 concert in Ireland, Bono asks the audience for some quiet. Then in the silence, he starts to slowly clap his hands. Holding the audience in total silence, he says into the microphone..."Every time I clap my hands, A child in Africa dies."

The atmosphere is electric.

Finally a voice from the audience pierces the silence.

"So, stop clapping your hands."

The cold weather
"Susan, you're sitting next to the window. Please close the window. It's cold outside."

"Harry, if I close it, will it get warm outside?

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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