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9:00 AM EST, Thursday, October 23, 2008: The good news: Overseas just got cheap. Thanks to the skyrocketing dollar -- as a result of the present flight to safety and quality -- you can now vacation cheaply in nice places like Australia, Hungary, Iceland, and Lake Como, Italy:

As I was researching my trip to Lake Como (if I can convince my wife), I found words like "Price reduction. Cancellation." I've never been to Lake Como, but it sure looks like a nice peaceful place.

You won't get peace from playing with ultra-shorts, But you should continue to reap handsome profits, as the markets continue to fall. Yesterday's action:

That's huge one-day gains. Check them out.

I don't know when this bear market will end. I'm not trying to pick a bottom. That's far too dangerous. Everyone who's done it has been wrong. Nor am I trying to invest in high-dividend yielding stocks -- as Cramer has been touting. I believe dividends will be cut -- many already have. The high dividend yields you see in the stock tables are based on past dividends.

Back to credit default swaps. This recession is not just only about sub-prime mortgage problems. The financial community is infected with cockroaches. Every week or so, another one emerges. Today's lesson -- I'm writing this to explain it to me -- is about CDSs, credit default swaps. Remember this chart from yesterday:

Here's an email conversation I had with my favorite financial guru, Dan Good:

Harry: Let’s say I’m a sound, public company and I raise $100 million in a bond offering. I pay interest when it’s due. And I pay off the bonds when they’re due. In the old days that was it. Correct?

Dan: Correct.

Harry: In the old days, there was no need for credit default swaps. Correct?

Dan: Correct, except if you wanted to enhance your credit rating, say, from a Baa to an A.

Harry: It strikes me that if I, as an investor, didn’t trust the company to pay interest and pay off the bonds I would never have lent them the money in the old days. Correct?

Dan: Correct. The bond yield would have been set depending upon the credit rating (Baa, higher, A, lower).

Harry: Credit default swaps were sold initially on products like muni bonds that had little chance of default. Correct?

Dan: Correct but they were used to enhance the credit rating to enjoy a lower interest rate.

Harry: They became manna from heaven to Wall Street because the issuer of the credit default swap collected premiums, but there were no catastrophic events, so the issuer never paid off. It was the perfect business. All income. No expenses. Correct?

Dan: Correct 99.9% of the time.

Harry: After a while Wall Street started selling Credit Default Swaps (i.e. insurance) on everything and anything. Good stuff and bad stuff. Correct?

Dan: Correct.

Harry: Buyers saw it as a way to remove the risk of their investment? Correct?

Dan: Correct.

Harry: Hence Credit Default Swaps reduced the “need” for due diligence. Correct?

Dan: No.

Harry: If no one was doing any due diligence, then everyone and their uncle saw this as an opportunity to sell everything and anything, including bits and pieces of sub-prime loans. Correct?

Dan: Due diligence was slipshod, because buyers of the bonds were relying on the credit default swaps.

Harry: Basically there is no reason for bond insurance if you do your due diligence. Correct?

Dan: A bank or writer of the insurance has a difficult time doing due diligence compared to what was typically done in the old days with credit rating agencies. In the latter instance, the issuer made an exhaustive presentation to the agencies and substantial due diligence was conducted. It was never a slam dunk. Today, very little information is (was) provided to the writer of the insurance and bad decisions were made.

Harry: Paying extra for credit default swap insurance seems to me like a total waste – not only does it cost me extra money but it also means that I have to check the validity of the insurer, the issuer of the credit default swap… And then, maybe, I should insure against his default? This would never end. Correct?

Dan: Correct.

Harry: But it did. And now many of the credit default swaps (i.e. insurance) on toxic debt (like sub-prime) will never be paid. This is like having a house fire and your insurance provider not being able to pay your claim because it also had a fire....

Dumb. Dumb. Dumb. It's not my money. It's not taxpayer money. So, I don't care. But I do remember how offended I was that Democratic presidential candidate John Kerry had spent $4,000 on a ski outfit and then was photographed skiing in it. Sarah Palin's new wardrobe doesn't seem like the smartest expenditure of $150,000. From today's New York Times:

Sarah Palin’s wardrobe joined the ranks of symbolic political excess on Wednesday, alongside John McCain’s multiple houses and John Edwards’s $400 haircut, as Republicans expressed fear that weeks of tailoring Ms. Palin as an average “hockey mom” would fray amid revelations that the Republican Party outfitted her with expensive clothing from high-end stores.

Cable television, talk radio and even shows like “Access Hollywood” seemed gripped with sartorial fever after campaign finance reports confirmed that the Republican National Committee spent $75,062 at Neiman Marcus and $49,425 at Saks Fifth Avenue in September for Ms. Palin and her family.

Advisers to Ms. Palin said on Wednesday that the purchases — which totaled about $150,000 and were classified as “campaign accessories” — were made on the fly after Ms. Palin, the governor of Alaska, was chosen as the Republican vice-presidential candidate on Aug. 29 and needed new clothes to match climates across the 50 states. They emphasized, too, that Ms. Palin did not spend time on the shopping, and that other people made the decision to buy such an array of clothes.

Yet Republicans expressed consternation publicly and privately that the shopping sprees on her behalf, which were first reported by Politico, would compromise Ms. Palin’s standing as Senator McCain’s chief emissary to working-class voters whose salvos at the so-called cultural elite often delight audiences at Republican rallies.

That possibility was brought to life, for instance, on “The View” on ABC, as Joy Behar, a co-host, noted the McCain campaign’s outreach to blue-collar workers — like an Ohio plumber who recently chided Senator Barack Obama over taxes — after another co-host, Elisabeth Hasselbeck, defended the expenditures.

“I don’t think Joe the Plumber wears Manolo Blahniks,” Ms. Behar said.

Advisers to Mr. Obama — as well as those of his rival in the Democratic primaries, Senator Hillary Rodham Clinton — said that campaign money was never spent on personal clothing but that potentially embarrassing purchases could be blended into advertising budgets.

Mr. Edwards, the former North Carolina senator, however, listed two $400 haircuts as a campaign expense, and after they were detected he struggled to shake an elitist image in his failed Democratic presidential bid.

Such an image is unhelpful at this late stage of the general election, Republicans said, especially when many families are experiencing economic pain, and when the image applies to a candidate, like Ms. Palin, who has run for office in part on her appeal as an outdoors enthusiast and former small-town mayor who scorns pretensions.

“It looks like nobody with a political antenna was working on this,” said Ed Rollins, a Republican political consultant who ran President Ronald Reagan’s re-election campaign in 1984. “It just undercuts Palin’s whole image as a hockey mom, a ‘one-of-us’ kind of candidate.”

Traveling to Australia? I was born there. Here is some useful tourist information:

+ Australia is the land where the men are men and the sheep are very scared.

+ What do you call an Australian with 100 girlfriends? A shepherd.

+ What is the most useless thing on a woman's body? An Australian.

+ What do they call an Australian in a suit? The defendant.

+ What is the difference between an Australian and a canoe? The canoe tips.

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.