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

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8:00 AM EST, Friday, October 3, 2008: The blood is running in the streets. Those of us who make the right investment decisions in coming weeks will come out of this wealthy beyond our wildest dreams. What will make you rich will be 100% different to what will make me or your neighbor rich. Let me start with the basic rules:

Number one rule. The price you pay now will determine the profit you make on the other side. You're not looking for bargains now. You're looking for steals. Today's Wall Street Journal talks of home builder D.R. Horton unloading land across California "at big discounts." Sample: They recently sold land at $7.8 million that cost them about $110+ million. That's a 93% discount. The last time I looked, they weren't making any new land in California and people are still moving there, despite the awful traffic.

Number two rule: You only search in areas you know something about and are close to. I don't live in California. Cheap land there has little appeal to me. Also I know there are zillions of people out there with cash who are pouncing on steals. I don't have a prayer.

Number three rule: Be wary of "stories" -- especially those from your "friends' who are trying to sell you something. In today's world, "stories" are wrong. There's usually a "gotcha." And everything today is backwards. A friend runs a catering business in New York's tony Hamptons. I figured she did lousy this past summer. Hell no. She did spectacularly. No one traveled. They couldn't afford to. Everyone stayed home and gave parties. Catering was cheaper than $1,000 a night hotels in Europe.

Number four rule: Don't ignore your day job. You still have customers. Love them more than usual. Send them a Reward Discount Certificate. Hold a Recession Sale. Call them on the phone. Find out how they're doing. Talking to your customers might actually give you some ideas on what they want and hence what you can sell them.

Number five rule: Stay well away from the stockmarket. It's going down the toilet for obvious economic, earnings and financial stock reasons. And there are new factors coming in. There will be huge hedge fund redemptions at the end of December. Most funds are selling to get the cash to pay their investors back. Call it a run on the hedge funds. It will break many hedge funds, just as it broke many banks in recent weeks, e.g. WaMu. Check out lousy hedge performance on today's Bloomberg.

Number six rule: Maximize your cash. That means cutting expenses and putting it somewhere totally safe.

Number seven rule: Spend time on your health. Get yourself a flu shot. Do more exercise. Eat less. The usual stuff.

Number eight rule: Spend more time with your family. You're doing all this for them. Give them soft love. It's all you can probably afford now.

Number nine rule: Get moving on your estate planning.

Number ten rule: Don't go overseas in search of "safe havens." Apparently the U.S., despite our ills, is now the world's "safe haven." The Australian dollar is now 79 U.S. cents. When I sent money there a couple of months ago, attracted by Australia's high bank yields, the Aussie dollar was 96 U.S. cents. What with WaMu and the Aussie dollar I've really demonstrated how stupid I am and (I guess) how difficult it is to make a miserable shekel chasing yield. (DON'T.) Good news: I bought one share of Berkshire Hathaway when Buffett announced his first bailout. And -- miracle of miracles -- it's up. Pray he lives until 120.

The economy sucks big time: Pray Congress passes the bailout bill. The bill is badly written, hastily conceived, poorly sold, loaded with pork and more horrible stuff. But it's what we got. We need the boost. We need the bill today. And that's a change in my opinion from only a week ago.

The problem started with housing. Then the financials. Then no one was lending. So no one could buy cars (see yesterday's column). Now no one is buying capital goods or commercial real estate because they can't finance their buys. And now apparently exports are dying -- Cramer was jabbering on last night about how BRIC has fallen off the map. I see plummeting commodity prices -- iron ore, nickel, zinc, etc. Bad news for miners.

How bad are things? Paul Krugman wrote this piece in today's New York Times. He's harsh on the present administration, which, justifiably, is floundering. Except during the Great Depression, no other administration has had to deal with the magnitude of today's economic ills.

Edge of the Abyss

As recently as three weeks ago it was still possible to argue that the state of the U.S. economy, while clearly not good, wasn't disastrous - that the financial system, while under stress, wasn't in full meltdown and that Wall Street's troubles weren't having that much impact on Main Street.
But that was then. The financial and economic news since the middle of last month has been really, really bad. And what's truly scary is that we're entering a period of severe crisis with weak, confused leadership.

The wave of bad news began on Sept. 14. Henry Paulson, the Treasury secretary, thought he could get away with letting Lehman Brothers, the investment bank, fail; he was wrong. The plight of investors trapped by Lehman's collapse - as an article in The Times put it, Lehman became "the Roach Motel of Wall Street: They checked in, but they can't check out" - created panic in the financial markets, which has only grown worse as the days go by. Indicators of financial stress have soared to the equivalent of a 107-degree fever, and large parts of the financial system have simply shut down.

There's growing evidence that the financial crunch is spreading to Main Street, with small businesses having trouble raising money and seeing their credit lines cut. And leading indicators for both employment and industrial production have turned sharply worse, suggesting that even before Lehman's fall, the economy, which has been sagging since last year, was falling off a cliff.

How bad is it? Normally sober people are sounding apocalyptic. On Thursday, the bond trader and blogger John Jansen declared that current conditions are "the financial equivalent of the Reign of Terror during the French Revolution," while Joel Prakken of Macroeconomic Advisers says that the economy seems to be on "the edge of the abyss."

And the people who should be steering us away from that abyss are out to lunch.

The House will probably vote on Friday (that's today) on the latest version of the $700 billion bailout plan - originally the Paulson plan, then the Paulson-Dodd-Frank plan, and now, I guess, the Paulson-Dodd-Frank-Pork plan (it's been larded up since the House rejected it on Monday). I hope that it passes, simply because we're in the middle of a financial panic, and another no vote would make the panic even worse. But that's just another way of saying that the economy is now hostage to the Treasury Department's blunders.

For the fact is that the plan on offer is a stinker - and inexcusably so. The financial system has been under severe stress for more than a year, and there should have been carefully thought-out contingency plans ready to roll out in case the markets melted down. Obviously, there weren't: the Paulson plan was clearly drawn up in haste and confusion. And Treasury officials have yet to offer any clear explanation of how the plan is supposed to work, probably because they themselves have no idea what they're doing.

Despite this, as I said, I hope the plan passes, because otherwise we'll probably see even worse panic in the markets. But at best, the plan will buy some time to seek a real solution to the crisis.

And that raises the question: Do we have that time?

A solution to our economic woes will have to start with a much better-conceived rescue of the financial system - one that will almost surely involve the U.S. government taking partial, temporary ownership of that system, the way Sweden's government did in the early 1990s. Yet it's hard to imagine the Bush administration taking that step.

We also desperately need an economic stimulus plan to push back against the slump in spending and employment. And this time it had better be a serious plan that doesn't rely on the magic of tax cuts, but instead spends money where it's needed. (Aid to cash-strapped state and local governments, which are slashing spending at precisely the worst moment, is also a priority.) Yet it's hard to imagine the Bush administration, in its final months, overseeing the creation of a new Works Progress Administration.

So we probably have to wait for the next administration, which should be much more inclined to do the right thing - although even that's by no means a sure thing, given the uncertainty of the election outcome. (I'm not a fan of Mr. Paulson's, but I'd rather have him at the Treasury than, say, Phil "nation of whiners" Gramm.)

And while the election is only 32 days away, it will be almost four months until the next administration takes office. A lot can - and probably will - go wrong in those four months.

One thing's for sure: The next administration's economic team had better be ready to hit the ground running, because from day one it will find itself dealing with the worst financial and economic crisis since the Great Depression.

Old stockmarket "jokes"
What is the difference between a pigeon and an investment banker?

A pigeon can still put a deposit on a Ferrari....

Just heard that there are two positions to be in today's market...

1. cash, or

2. fetal.

Please take care of your customers:
A woman went up to the bar in a quiet rural pub... She gestured alluringly to the bartender who approached her immediately. She seductively signaled that he should bring his face closer to hers. As he did, she gently caressed his full beard. "Are you the manager?" she asked, softly stroking his face with both hands "

Actually, no," he replied. "Can you get him for me?

I need to speak to him," she said, running her hands beyond his beard and into his hair.

"I'm afraid I can't," breathed the bartender. "Is there anything I can do?"

"Yes. I need for you to give him a message," she continued, running her forefinger across the bartender's lip and slyly popping a couple of her fingers into his mouth and allowing him to suck them gently.

"What should I tell him?" the bartender managed to say.

"Tell him," she whispered, "There's no toilet paper, hand soap, or paper towels in the ladies room.

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.