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

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8:00 AM EST, Tuesday, October 7, 2008: September was hedge funds' worst month ever. Losses have been staggering. Many hedge fund investors are panicking and bailing. As a result, hedge funds are dumping more and more stocks -- irrespective. Hence stock prices are likely to stay under pressure until at least the end of the year. Which means resist trying to catch a falling knife -- a "cheap" great company.

Remember The Theory of Unintended Consequences? Well, you couldn't ask for a better example of it than what our wonderful Federal Government did to the stockmarket in September. The following came from a monthly hedge fund report:

This was the BCM Discovery Fund’s worst month since inception. In times of severe crisis and exogenous events, correlations across virtually all asset classes converges, and in extreme cases, it is possible to reach perfect correlation (perfect correlation = 1). September was as close to pure correlation as any of us have seen. No matter what the strategy or what market our funds focuses on, no matter how diversified or concentrated a fund strategy may be, the negative returns among managers were staggering. The hit list is wide and deep –- lists have hit email inboxes within the investment community asking “can these numbers be true?” The following factors are playing the most significant role in what we see as atrocious performance across the board:

+ The SEC’s ill conceived short ban which has been proven to be useless and has distorted market dynamics.
+ The daily volatility and mood swings based upon the government’s Economic Stabilization Plan.
+ A complete and utter freeze in the credit markets.
+ Fear in every market regardless of geography.
+ A rapid increase in the frequency of deleveraging related events. The time span between major market shocks (such as bank failures) have compressed to a matter of days, not weeks or months.

The muni bond market has appeal. Municipal bonds have appeal for people in high-tax states because muni bonds are triple-tax free. No local, no state and no federal tax. Presently muni bonds are out of favor. Their prices are low and their yields are high. Chasing yield is a mug's game (see below). But for investors who are prepared to hold the bonds until maturity, they represent solid income. You have to be prepared to intone Todd's Mantra: "I don't care if my muni bonds go up or down in price, so long as they pays me income consistently."

There are two muni bond rumors floating around:

1. The rating agencies will cut muni bond ratings because of a lousy economy. That will drop their prices and increase their yields dramatically

2. The rating agencies will selectively change muni bond ratings, upgrading well-managed issuers and downgrading lousy ones. Moodys and S&P are talking about "Global Rating," which will upgrade munis versus corporate bonds. Previously the rating agencies thought they corporates and munis were the same and rated them according to the same criteria. Go figure that idiocy.

Fact is that muni bonds fail much much less than corporate bonds.

As the year ends, some investors, faced with substantial profits elsewhere, are doing what's called muni bond swaps. They sell their present muni bonds for a a loss, and buy back virtually the same collection. It has to be "virtually" -- not the same -- otherwise Uncle Sam smells a rat.

The spread between treasuries and munis has widened dramatically. A five year muni bond is paying 136% more than a five year Treasury. You can earn 5% on 20-year maturity muni bonds. But you'd better plan on holding them for that long.

The major problem with muni bonds at present is it's hard to sell them. Like most financial markets, there's a "Buyers' Strike." No one is buying anything.

The ban on short selling got you down? Try these ultra-short funds:

One year performance
Basic Materials
+ 62%
Emerging Markets
Dow 30
Russell 2000

* Up 15.4% in the past week alone.

Australia cuts its interest rates.

Says today's Wall Street Journal, "Undoubtedly, the Aussies were moved only by domestic pressures to shore up their faltering but still relatively healthy economy and banking system."

Super. So Australia is doing brilliantly and we're doing awfully. So? When I sent money there a few months ago, the Aussie dollar was 96 U.S. cents. It's now 72 cents. Go figure.

Moral: Never chase yield.

WiFi on the iPhone and IPod Touch. The iPhone or the cheaper iTouch are genuinely useful because of all the wonderful things they can do when connected to the Internet, especially on a fast WiFi connection.

I'll talk more about these things in another column. For now, the iPhone/ iTouch can be hugely irritating. It will connect to a WiFi network (you'll see the blue antenna connect signal), but Safari (the browser) will come back with an error message, "Safari cannot open the page because it cannot find the server." The solution is to:

* Go to Settings.
* Select WiFi.
* Chose a network.
* Select the blue arrow next to the network you are connected to.
* Select DNS.
* Change the address to

Don't say you never learned anything useful from this column.

Budget cuts:
Due to the credit crunch and the failure of the Federal Government to bail out the candle manufacturers, the light at the end of the tunnel has been blown out. As expected, commentators on CNBC on this new disaster will wax eloquently.

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.