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

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9:00 AM EST, Halloween, Friday, October 31, 2008: And the end of the worst month in the stockmarket ever.

What makes investing so difficult today is that so few things seem to be working and so many seem to become total disasters in the flash of an eyelid -- especially those investment strategies designed to be ultra-conservative -- e.g. gold, oil, commodities and "safe" foreign currencies, like the Australian dollar. And last night -- I read that my distress real estate fund -- actually lost money in the September quarter. How can that be? That thing is meant to do well when everything else is doing awfully. That distress fund is my BIG real estate hedge. (Good thinking, Harry.)

Today I counsel you (yet again): Please resist the temptation to put your money to work. Cash remains king. Putting your money to work is one of Wall Street's totally stupid (but erstwhile effective) expressions designed to part us from our heard-earned money.

Remember the great philosopher Todd and his famous aphorism: Better to right and out, than wrong and in.

I start today with my belief that the U.S.'s economy is super-resilient and that we will get out of this mess and eventually return to "business as usual," though borrowing will be harder, asset values will be constrained and taxes will be higher.

The biggest bear of them all is Professor Nouriel Roubini. His dire predictions would be less irritating if they hadn't been so right. Here are the main elements of Nouriel’s present outlook:

Tsunami of corporate defaults; 2-year U-shaped U.S. recession that threatens to turn into an L-shaped one if policymakers do not regain control of the financial system; global re-coupling to the U.S. will advance from non-U.S. markets to non-U.S. real economies – not even the strongest emerging markets such as Brazil and China will escape global re-coupling; vicious cycle of deflation in goods markets, labor markets, commodity markets, financial markets, corporate and household earnings, and aggregate demand; de-leveraging to reduce excess debt in municipalities, households and some firms; U.S. stock markets declining another 20-30%, bottoming fall 2009 at the earliest, then moving sideways for years post-recession if growth remains anemic as it did in Japan after its 1990s real estate and equities bust; U.S. unemployment rise to reach 8-9%; the demise of the shadow banking system.

USD assets, commodities, U.S. and international equities, housing, and the USD are quite risky right now. Seek safety in cash or cash-like instruments such as T-bills and bonds of safe, large governments. Though he believes the U.S. dollar will retain its reserve currency status for decades, its status will gradually erode.

My Danish friend emails me:

I have owned 1,8 kg of gold since Denmark was near bankruptcy in 1980 when gold was $800/ounce. It remains one of my worst investments ever, but it serves the double purpose of reminding me hereof, and being an insurance policy should the Hal Turners be shown to have been right.

Hal Turner? Mr. Turner is a white supremacist, anti-semite who has concocted a theory that the American government is about to replace the U.S. dollar with something called the Amera, and in the process wipe out all the U.S. government obligations (i.e. its treasuries) and make the U.S. dollar worthless. To view his conspiracy theory, click here.

Lucky Harry: I dumped my commodities fund at the end of September. I read today's Bloomberg:

Oct. 31 (Bloomberg) -- Commodities headed for their worst month since at least 1956 on concern that a slump in global economic growth will sap demand for raw materials.

The Reuters/Jefferies CRB Index of 19 raw materials has plunged 23 percent this month, the steepest decline in at least a half-century. Crude oil is set for a record monthly drop, copper its biggest retreat in two decades and gold its worst performance in 25 years.

"October is at last ending -- the worst month in commodity history,'' said Eugen Weinberg, an analyst at Commerzbank AG in Frankfurt. "Investors are expecting lower growth for the longer term and that is putting prices under pressure.''

So how bad is global trade? Item: Britannia Bulk Holdings went IPO in June at $15. Last night it closed at one penny. -- one of the great IPO collapses of all time.

Britannia is a real company with real assets -- ships. It schleps stuff like coal and does a perfectly admirable job. Except that nobody wants its schleping services any longer. Britannia no longer rules the waves. Try this morning's story from Business Spectator:

The end of deflationary trade

Yesterday the Baltic Dry freight rate index fell below 1000 for the first time in six years and last night it fell another 40 points to 885. In June the index was 11,900, so it has fallen 93 per cent in a few months – a crash far worse than anything ever seen in the stockmarket.

The spot daily rental for a Capesize ship is now $6,365, down from $234,000 per day over the space of a few weeks. Maybe that previous price was absurdly inflated, but at $6,365 it is just $365 above the average daily cost of crews and fuel.

As a result the world’s ports are filling with empty ships because shipowners can’t afford to run them, as well as some full ships because the owners of the cargo won’t unload without a bank letter of credit, which banks are refusing to supply.

Shipping companies are starting to file for bankruptcy in increasing numbers as they breach loan covenants, and a shipping researcher, Andreas Vergottis of Tufton Oceanic has told Bloomberg that a fifth of the world’s dry bulk companies may soon have negative net worth because the market for secondhand ships has collapsed and the value of their fleets is below outstanding debt.

Like property-based loan agreements, shipping companies’ debt covenants have loan to value ratios that are typically 70 per cent. As the value of their fleets decline, banks are making margin calls.

Meanwhile, as expected, US GDP fell in the September quarter – by 0.3 per cent. The only reason it wasn’t worse was government spending, which added 1.1 per cent to the rate of GDP change. There was another 0.6 per cent from private inventories – that is, unsold goods.

In any case, US economic data is always rushed out quickly, based on guesswork, and then revised later. Most of the guesses in this morning’s figure look optimistic, so it is very likely to be revised downwards.

Even on this morning’s optimistic estimate, it is the first year-on-year decline in GDP since 1991, so this recession is already worse than 2001 and clearly has a long way to go.

And remember that in 1990-91 – and 1980 and 1973 and 1961 for that matter – the monetary and fiscal authorities were more or less in control. Or rather – they started it.

Those recessions were caused by central bank and government efforts to control inflation. This time it’s all about a spontaneous collapse in private sector credit and governments around the world are desperately trying to counteract its effects with interest rate cuts, liquidity injections and fiscal stimulus.

That is…all except the IMF. It is imposing the most horrendous conditions on bailout loans to bankrupt countries.

As the rest of the world’s official interest rates come down, Iceland’s this week went up 6 per cent, from 12 to 18 per cent, as a condition of its $US2 billion rescue package.

Hungary, Serbia, Belarus, Pakistan and Ukraine are now facing the most excruciating choice: default on their debts or ask the IMF for money at the expense of crushing their economies under the weight of a massive increase in interest rates.

As Ambrose Evans-Pritchard writes in last night's London Telegraph: “A deflationary strategy of this kind could prove counterproductive – or worse – if applied in enough countries simultaneously. It would defeat a key purpose of the rescues, which is to stabilise the global financial system.” ...

The emerging world in general has “recoupled” (if it was ever decoupled) and the removal of hedge fund investments in their currencies, government debt and sharemarkets will, in many cases, result in deeper recessions in those countries that in the US – where it all started.

Which is why global shipping has collapsed: it is the harbinger of the end of the era of trade, in which third-world labour costs kept first world inflation down and allowed interest rates to fall and stay low and debt to be increased to an historic degree.

That process of importing deflation (or, more precisely, disinflation) from developing nations – especially China and India – relied on trade: raw materials in; finished goods out.

The fall in freight rates for both dry bulk carriers and container ships is telling us that it’s over.

I think the conclusion is too harsh. But then, "too harsh" has proven too accurate in recent months.

Cheap Lenovo laptops. I love Lenovo's tiny, powerful X61 laptop. My son carries it to school. I carry it to the tennis court. Lenovo has discontinued the X61 in favor of new ones that don't sport my favorite laptop accessory -- a pointing stick. You can pick up some neat X61 bargains at Lenovo's Outlet Store.

My best investment of 2008: Auction rate preferreds. Yesterday I got the last of them redeemed at par. I got all my money back with interest. Some days they were paying me over 10% -- triple tax-free. Heh, that's better than a slap in the belly with a cold fish. And the best news? My money was locked up from mid-February to yesterday. So I couldn't be tempted to do anything stupid with it. Right now it's sitting in cash.

Are you selling something? Do it fast. Item:

Miami Dolphins owner Wayne Huizenga is looking to run a hurry-up offense and unload a 45% share of his NFL franchise before 2008. Huizenga is eager to finish a deal as quickly as possible to sell 45% or more of his stake in the Dolphins to co-owner Stephen Ross because he anticipates a Barack Obama win in the presidential election could result in a doubling of his capital gains tax bill, according to the Sun-Sentinel.

"If you do it this year or you do it next year, the difference is humongous because of the taxes," Huizenga told the Sun-Sentinel.

Huizenga claims that his capital gains tax from the sale would double under Obama. But the Obama camp disagreed, telling the Sun-Sentinal that the Democratic candidate's plans are to raise the capital gains tax maximum from 15% to 20%, an increase of 33%, not the doubling that Huizenga fears. The top rate would be for families earning more than $250,000 or individuals earning more than $200,000.

More bad jokes for our times:

+ How do you define optimism?
A banker who irons five shirts on a Sunday.

+ What do you call 12 investment bankers at the bottom of the ocean?
A good beginning.

+ Resolving to surprise her husband, an investment banker's wife pops by his office. She finds him with his secretary sitting in his lap. Without hesitation, he starts dictating, "...and in conclusion, gentlemen, credit crunch or no credit crunch, I cannot continue to operate this office with just one chair."

+ What's the difference between investment bankers and London Pigeons?
The pigeons are still capable of making deposits on new BMW's

+ What's the difference between an investment banker and a large pizza?
A large pizza can feed a family of four.

Q: Why are all MBAs going back to school?
A: To ask for their money back.

+ I had a check returned marked "Insufficient Funds"
Mine or the bank's?

+ What have Icelandic banks and an Icelandic streaker got in common?
They both have frozen assets

+ Money talks. Trouble is, mine only knows one word - Goodbye.

+ "This is worse than a divorce. I've lost half my net worth and I still have my wife."

+ How do you successfully freeze your financial assets?
Invest in an Icelandic bank.

+ I bought a toaster at WalMart.
They gave me a bank.

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.