Keep two years of cash at hand: When everybody runs for the doors, assets get sold in a panic and their prices plummet. Two years of the cash you need for expenses is now my rule. The Economist's Buttonwood explains liquidity:

The long and the short of it.
ILLIQUIDITY—the difficulty of selling assets at a reasonable price—is at the heart of all financial crises. The market turmoil of the past few weeks is proving that maxim, albeit in novel and interesting ways.

The financial system has been transformed over the past 25 years, with the emergence of new investors (hedge funds and private-equity groups) and new instruments (derivatives and structured products). But what look like incredibly sophisticated strategies on the surface can still be very simple at heart. Investors have been doing what banks have done over the centuries, borrowing short and lending long. Or, to put it another way, they have borrowed in liquid form and invested the proceeds in illiquid assets.

Most of the time this strategy works, because illiquid assets offer a premium return to compensate for the higher risk. It has been given an extra kicker over the last two decades by the “Great Moderation” in the global economy. Falling inflation and steady growth have meant that periods of economic turmoil have been shorter than expected, causing less pain to investors.

But the markets never rest. As more money flowed into risky assets, the excess yields on offer were reduced. Investors were tempted to use more and more borrowed money to enhance the returns. That left them very vulnerable to any abrupt change in sentiment.

The problems of structured investment vehicles (SIVs) are a case in point. These are specialist funds, kept separate from their parent company's balance sheet, that invest in illiquid assets, such as securities backed by subprime mortgages. They funded those long-term investments by borrowing short-term in the money markets, in the form of commercial paper. Other investors were happy to buy that commercial paper because it was “asset-backed”, in the form of the mortgage debt.

Now investors, worried about the value of the mortgage-backed debt, are boycotting the commercial paper. The amount of paper outstanding has fallen by $181 billion in two weeks, according to Société Générale, a French bank. This has driven the vehicles on an increasingly desperate hunt for funding. On August 28th Standard & Poor's, a rating agency, downgraded one SIV, Cheyne Finance, and gave warning that it may be forced to sell all of its assets.

The effect is rippling through the system. First, forced liquidations push down the price of assets, hitting confidence further. Second, some of these SIVs were either set up by, or have back-up lending facilities with, banks. So banks are ending up back on the hook. Third, these unwanted assets are putting additional strain on banks' balance sheets, which forces them to restrict their lending. It all adds up to a classic liquidity crisis. ...

This uncertainty may have been increased by the lack of transparency in the modern financial system. No one is sure who owns what, so investors are treating all counterparties with suspicion. And the much-touted advantage of the system — the way that risk has been dispersed — looks less convincing now that banks have been saddled with the cost of funding private-equity buy-outs and SIVs.

In the past, liquidity crises have been solved by the emergence of a confident buyer with deep pockets, such as John Pierpont Morgan in 1907. But who could it be this time? Pension funds and insurance companies no longer have the flexibility, while hedge funds are facing tighter funding and the prospect of redemptions. That leaves the sovereign wealth funds of China and the Middle East. But even if they want to buy in bulk, do Western governments want to let them?

Don't save everything in Outlook: Microsoft's Outlook has become the most popular business program, used by everyone for their email, for managing contacts and for organizing their lives in calendars. However, Outlook is a baby program, a poorly-designed afterthought by Microsoft to juice up an unchanged version of Office. No one at Microsoft foresaw how popular it would become, or, worse, how much of their lives users would store in Outlook.

Outlook stores everything in one humungous file -- typically called "Outlook.pst." That's the file you must back up regularly -- at least once a day. That's the file you must clean regularly. Delete crap. Delete junk mail. Permanently delete all your deleted files. Save large attachments outside Outlook and "compact" the file regularly.

After you've deleted crap and removed big files, you compact the file Outlook.pst: Right-click Personal Folders. Left-click Properties. Click Advanced. Click Compact Now.

22 Essential Mac utilities. from ComputerWorld magazine. click here.

I bought two TVs for the new house: I bought the Samsung 50" Model HLT5076s for my office. It's a heavy DLP that I won't hang on the wall. I believe DLPs deliver the best picture for all inputs, especially normal, non-HDTV. I bought the Panasonic TH-50PZ700U 50" plasma for mounting on the bedroom wall. Both sets will show 1080p -- the top standard in HDTV. At $1,300, the Samsung costs $1,000 less than the Panasonic. But all large-screen TVs are coming down in price. I bought both from Amazon. They were a lot cheaper than Best Buy, offered free shipping and didn't charge tax. We'll see if they arrive in one piece.

Zimbabwe hyperinflation is unreal: It's now running at 7,634.8 percent a year. One million Zimbabwean dollars is now worth only $US5.50, probably less by the time you read this. Sadly, you can't short the Zim dollar. No one wants to be on the other side of that bet.

No suitcase is safe: Thefts from checked luggage have risen dramatically since the Transportation Security Administration demanded all checked suitcases be unlocked. The New York Times has a piece on it today. To my brain, there are only solutions: Carry with you what you need. Or send your luggage ahead by UPS or FedEx.

U.S. Tennis Open. This is the "official" TV schedule. But it's not the way it comes down. Yesterday some CBS stations saw the Jerry Lewis Tel-A-Thon, not the tennis. Last night's Federer match got switched from USA network to CNBC. All this confuses my poor TiVo. My TiVo never got to record the Federer match. But my friend marveled at how my DirecTV was showing tennis while his was showing Jerry Lewis. I explained: Lie to DirecTV about where you are. If you tell them, you're in New York City, they'll give you New York City local TV channels. If you tell them where you really are -- upstate New York, they'll give you Albany channels, where they were playing Jerry Lewis, not tennis.

Marital strife, and a logical solution.
Husband (a doctor) and his wife are having a fight at the breakfast table.

Husband gets up in a rage and says, "And you are no good in bed either," and storms out of the house.

Later he realizes he was nasty and decides to make amends and rings her up.

She comes to the phone after many rings, and the irritated husband says, "What took you so long to answer to the phone?"

She says, "I was in bed."

"In bed this early, doing what?"

"Getting a second opinion."

Building the bridge to Hawaii.
A man was riding his Harley along a California beach when suddenly the sky clouded above his head and, in a booming voice, the Lord said, "Because you have tried to be faithful to me in all ways, I will grant you one wish."

The biker pulled over and said, "Build a bridge to Hawaii so I can ride over any time I want."

The Lord said, "Your request is materialistic. Think of the enormous challenges for that kind of undertaking; the supports required for reaching the bottom of the Pacific and the concrete and steel it would take! It will nearly exhaust several natural resources. I can do it, but it is hard for me to justify your desire for worldly things. Take a little more time and think of something that could possibly help mankind."

The biker thought about it for a long time. Finally, he said, "Lord, I wish that I and all men could understand women; I want to know how she feels inside, what she's thinking when she gives me the silent treatment, why she cries, what she means when she says nothing's wrong, and how I can make a Woman truly happy."

The Lord replied: "Two lanes or four?"

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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