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8:30 AM EST, Monday, October 22, 2007: Collective insanity. The madness of crowds. Extraordinary ultra-popular delusions. I remember what my Australian boss told me 41 years ago, "You'll love the Americans. They're just like you. They substitute enthusiasm for intelligence." It was a great compliment, and a great warning. Be careful of madnesses. Check underlying logic. Does lending to deadbeats to buy houses really make sense? Does lending to people gambling on rising housing values to repay your loan really make sense? Does measuring eyeballs make sense for judging the success of dot com companies. Can "free" be translated into paid by a new buyer? (Think eBay's purchase of Skype.) We can lend billions (actually trillions) to people who can't afford the loan. And we can make millions selling the loans. And, if we do it fast enough, we'll never live with the consequences of the house of cards falling down -- which it is now doing.

Stuff I read over the weekend makes me more worried about the subprime borrowing contagion spreading. Real estate was the area of greatest employment growth in recent years. Without that huge housing construction, it's hard to see work for carpenters, electricians, plumbers, unskilled laborers. The factories have largely disappeared. I'm not trying to be gloom and doom, though I think that Friday's 2.6% stockmarket decline was a warning.

Adding to subprime contagion is escalating oil. Oil is presently high, it is conjectured, because of the volatile Turkey/Iraq border situation. The conventional wisdom is that as that problem subsides, oil price will drop. And it may – slightly and temporarily. But, the world is using more oil than the world can presently produce. Boone Pickens figures it can make 85 million barrels a day, but demand this winter may be 87-88 million, depending on the winter’s severity and the likelihood of a world recession.

The “smart” money’s present favorite trade is : Sell the dollar. Buy oil. And watch for bargains, whose earnings are growing. "Stocks on sale," intoned one of my insatiably optimistic brokers on Friday.

The weekend's BusinessWeek ran an interview by Maria Bartiromo with George Soros. Excerpts:

MARIA BARTIROMO
A lot of people feel that the housing crisis will lead America into recession. Do you see that happening?

GEORGE SOROS
I rate the chances of a recession higher than the officials [do].

How much oomph has the U.S. housing market taken out of global economic strength—which has been the redeeming factor in the whole economic picture, right?
Yes. I think that is going to continue and counterbalance the weakness in the U.S. So I don't expect a worldwide recession, but a rebalancing between the U.S. and the rest of the world.

So the strength around the world continues?
I think there's a very good chance, and also that sovereign wealth funds [entities that invest on behalf of a nation] will be investing in emerging markets, particularly India, Latin America, and Africa, as much as those markets can absorb those investments. So you have an investment boom going on in those countries.

Even with the sovereign funds becoming more aggressive investors—Abu Dhabi buying into the Carlyle Group, Qatar buying into big Western businesses—some people worry that Middle Eastern money is being turned away. Is America too protectionist about such investments?
There's a tremendous transfer of wealth under way. Part of it is going to the oil-rich countries and part to China. But there aren't enough financial instruments available to those countries to put their surplus in. So they have set up sovereign wealth funds. Unless we allow those funds to invest, the system is going to break down. These wealth funds are opaque, and they need to become transparent. But once they meet the rules of disclosure, they should be allowed to invest for the system...to survive.

A lot of U.S. senators and congressmen say: "Look, this is a national security issue." They want to investigate every time they see Middle Eastern money flowing in.
Yes, I think this is one of the dangers—that as we head toward a recession, we impose restrictions that lead to a breakdown of the system. This is what happened in the 1930s. In other words, globalization is not irreversible. In the past, it has been reversed several times.

Some of those same sovereign funds are lowering their exposure to the dollar. Qatar says it wants to get out of dollar-denominated assets. Is there any reason to believe that the dollar is going to get stronger any time soon?
No. We have had a housing bubble that sustained the economy for the last few years. The bubble has now burst. This has to affect consumer spending. And that has to lead to lower interest rates and a flight from the dollar.

What are the implications of all that for the U.S. economy?
It will moderate the economic decline because it will lead to an improvement in our trade products. So it's the correction of an imbalance that has been growing for the last few decades.

Do you worry that the uneasiness in markets that we've been seeing will cause more trouble for hedge funds?
It has already begun to create a shakeout. I don't think the hedge fund industry is going away, but it will undergo a correction. Both hedge funds and private equities will diminish in importance.

How concerned are you about the climate issue?
I think we have to stop the increased use of coal if we want to bring climate change under control, and find a way to extract carbon from coal—replace dirty coal with clean coal. Without that, and a price system that makes that possible, global warming is terminal.

Should America be worried about the incredible growth of China?
One major political and economic challenge facing us is how to integrate China into the world system without conflict, because the rise of new leadership there can easily lead to conflict.

The IPO Boom continues? From IPOScoop.com: "Friday’s single-day drop of nearly 367 points in the Dow Jones Industrial Average was significant. In the short run, it might slow down the IPO Express, but won’t derail it." As of October 19, of the last 99 IPOs, 64 are up; 33 are down. The percentage change from the issue price has been a strong 32.5%. For a list of upcoming IPOs, IPO Scoop.com

How crime declined: In the 1990s a surge in the number of teenagers threatened a crime wave of unprecedented proportions. But the crime rate fell. There have been many theories. One being Draconian drug laws and more money on police. Another being Roe vs. Wade which allowed abortion and eliminated many unwanted kids who later would turn out to be criminals. And the latest theory (from Sunday's New York Times Magazine) is that the removal of lead from gasoline was the cause. According to Jessica Wolpaw Reyes, an economist at Amherst College, even low levels of lead can caused brain that makes children less intelligent, and in some cases, more impulsive and aggressive. Reyes found that the rise and fall of lead exposure rates seem to match the arc of violent crime, but with a 20-year lag -- just long enough for children exposed to their highest levels of lead in 1973 to reach their most violence-prone years in the early '90s, when crime rates hit their peak. Herbert Needleman, The University of Pittsburgh psychiatrist and pediatrician whose work helped persuade the government to ban lead in the 1970s, recently studied a sample of juvenile delinquents in Pittsburgh; the group had significantly higher lead in their bones than their peers.

What am I interested in this stuff? And what's it got to do with investing? Actually a heck of a lot. Finding why things are really happening makes you a better investor. And the causes are often not what you think.

End of an era? I turned off the junk mail filter in my Outlook. There were three reasons: It was catching too many good emails. The number of junk emails has declined. And I had to go through my junk mail folder to check them anyway to fish out ones I wanted.

Userful airline site: Tips on getting upgraded: FlightBliss.com

Cuba, the basket case: My Australian sister and her husband went to Cuba after our wedding. Their conclusion: overwhelming sadness for the beautiful people and the lousy regime oppressing them. My sister and her husband believe Cuba may be the worst dictatorship in the world. Not only are all political opponents killed or in jail (some still there from the "revolution" nearly 50 years ago), but Castro has made all the economic decisions. From de-emphasizing sugar to ignoring tourism, roads, public transportation, etc. My family said it was thoroughly depressing (many Cubans are malnourished), but totally fascinating.

Clone Your Hard Drive For Free: From a computer site. I haven't trested the program.

Say you're upgrading to a new hard disk. How do you make an identical copy of your hard drive? You can't just drag and drop files in Windows to the new drive, alas. You have to make a bit-for-bit copy of your drive, including all the hidden files, files in use, and other junk that doesn't show up in Windows Explorer.

Power users have long relied on Symantec's Norton Ghost to make bit-for-bit copies, or clones, of their hard drives. But at $70 a copy, that can be a little pricey for something many people may use only once. (In fairness to Ghost, the software does include lots of additional features that make it suitable for general backup use too.)

You know what I'm going to say next: How about a free alternative? Enter Clonezilla, an open source cloning application that works well and... hey, did I mention it's free?

As with Ghost, Clonezilla isn't exactly for computer novices. You burn the program to a bootable CD, and DOS-like prompts guide you through the cloning process. The amount of information displayed can be daunting, but most of it can be ignored. To copy a disk, just select the disk-to-disk option at the menu, and let it do its thing.

I gave it a shot using two 250GB drives (with the source drive having about 100GB of data on it) and the job was done in about 20 minutes. When finished, I had a perfect copy of my original hard drive that I could have subbed in for the original. In my case, I just saved it as a handy "just in case" backup. Clonezilla works with SATA or IDE drives and even supports USB drives. Give it a spin next time you have a big drive copying job to do.

My friend swears this is true: Your gas gauge tells you which side you put gas in. Maybe this will solve my rental car problem.

The moral of this story
A Kansas farm wife called the local phone company to report her telephone failed to ring when her friends called - and that on the few occasions, when it did ring, her dog always moaned right before the phone rang.

The telephone repairman proceeded to the scene, curious to see this psychic dog or senile lady. He climbed the telephone pole, hooked in his test set, and dialed the subscriber's house.

The phone didn't ring right away, but then the dog moaned and the telephone began to ring.

Climbing down from the pole, the telephone repairman found:

1. The dog was tied to the telephone system's ground wire with a steel chain and collar.

2. The wire connection to the ground rod was loose.

3. The dog was receiving 90 volts of signaling current when the number was called.

4. After a couple of jolts, the dog would start moaning and then urinate.

5. The wet ground would complete the circuit, thus causing the phone to ring.

Which demonstrates that some problems CAN be fixed by pissing and moaning.

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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