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Insightful analysis and commentary for the US and global equity investor
Contributors: Douglas McIntyre Jon C. Ogg

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Friday, November 17, 2006

Cramer Says DJ Orthopedics is a Good Crutch

Cramer was discussing the resurgence of knee braces on sports players. He noted that orthopedic companies are going after companies, which the journal also said this. He said linemen are wearing these even when they don't need to.

DJ Orthopedics (DJO) makes these and he has recommended this name before. He isn't talking about orthopedics in general, he is talking about bracing. the air brace followed by the knee brace will keep you out of knee surgery. He said DJO is a one-stop pure play on this and everyone wants to avoid surgery.

Cramer thinks this goes a lot higher. He thinks there is the potential for brand recognition and these could be mass sold now. They had to outsource from New Jersey to Mexico manufacturing, so earnings may rise and the estimates are all over. He thinks it will raise estimates all year. If you use $2.10 for 2007 earnings it is only 21 times 2007 earnings. He said the multiple is lower than BMET and others, but the growth rate is higher.

DJO closed down 0.6% at $44.43 in regular trading, but its shares rose over 3% after-hours to $45.89 after Cramer touted. The 52-week trading range for DJO is $26.69 to $44.84.

Jon C. Ogg
November 17, 2006

Cramer Says DJ Orthopedics is a Good Crutch

Cramer was discussing the resurgence of knee braces on sports players. He noted that orthopedic companies are going after companies, which the journal also said this. He said linemen are wearing these even when they don't need to.

DJ Orthopedics (DJO) makes these and he has recommended this name before. He isn't talking about orthopedics in general, he is talking about bracing. the air brace followed by the knee brace will keep you out of knee surgery. He said DJO is a one-stop pure play on this and everyone wants to avoid surgery.

Cramer thinks this goes a lot higher. He thinks there is the potential for brand recognition and these could be mass sold now. They had to outsource from New Jersey to Mexico manufacturing, so earnings may rise and the estimates are all over. He thinks it will raise estimates all year. If you use $2.10 for 2007 earnings it is only 21 times 2007 earnings. He said the multiple is lower than BMET and others, but the growth rate is higher.

DJO closed down 0.6% at $44.43 in regular trading, but its shares rose over 3% after-hours to $45.89 after Cramer touted. The 52-week trading range for DJO is $26.69 to $44.84.

Jon C. Ogg
November 17, 2006

Cramer Say's Disney Was No Mickey Mouse; He Likes It

On tonight's MAD MONEY show on CNBC, Cramer went over a stock gift because it went down for no reason.

First he noted the NYMEX (NMX) IPO. He said it isn't the ideal entry point, but you should only buy 1/4 of a position of whatever you want to buy now and add in as it drops down. But Cramer said the NYSE (NYX) should be the buy right here since the NMX is worth $12 billion and NYX is worth $14 Billion. NYX is bigger and better.

The stock that was down for no reason to Cramer is Disney (DIS). He said it is down $3 since earnings, but this is a buy. He thinks that DIS's first down move might not be able to be trusted. They didn't really do anything wrong. They didn't miss earnings or revenues, prime time did well, but the reason it fell was because the estimates were raised a lot ahead right before the company's quarter was announced. That created an artificial comparable confusion on the street, but it is firing on every cylinder and even them parks did wellfor DIS. He thinks movie costs are coming under control, although Pirates II was over $200 million and Pirates III will be expensive too. ABC and Disney channel ratings are going up. While the street thinks Disney can't grow like this forever he thinks that NASCAR will be a huge add for it in 2007.

DIS closed down 0.35% at $32.94 in normal trading today, but shares rose 1.3% to $33.38 in after-hours trading.

Jon C. Ogg
November 17, 2006

Market Wrap (Nov. 17, 2006)

DJIA 12,342.56; Up 36.74 (0.30%)
NASDAQ 2,445.86; Down 3.20 (0.13%)
S&P500 1,401.20; Up 1.44 (0.10%)
10YR-Bond 4.607%; Down 0.048
NYSE Volume 2,625,847,000
NASD Volume 1,708,761,000

This marked the 6th consecutive record close for the DJIA today. Hardly anyone bothered noting that today was options expiration date for stock options. Japan's Nikkei closed down 0.45%; FTSE 100 in U.K. closed down 1.01%; Germany's DAX index was down 0.48%; France's CAC-40 closed down 1.20%.

The big deal of the day was the NYMEX (NMX) IPO. Almost nothing else came close to it in coverage. It was such a ridiculous IPO pricing at $59.00, because it opened at $120 out of the chute and closed at $132.99.

The homebuilding numbers tracked by permits and housing starts were just too weak to ignore at first, but they mostly recovered throughout the day. Lennar (LEN) closed down only -0.2% at $49.30, DR Horton (DHI)rose 0.6% to $25.10, and KB Home (KBH) rose 0.5% to $49.07.

Lower oil prices yet again didn't phase many key oil stocks with Exxon Mobil (XOM) rose 0.55% to $73.08 and Oil Service HOLDRs (OIH) rose 0.8% to $136.85.

Conor Medsystems (CONR) rose 18% to $32.68 after J&J (JNJ) offered $33.50 to acquire the company. SurModics (SRDX) rapidly fell on the deal because they coat the J&J Cypher stent now, but they issued a release stating they would still be used and so the stock ran up to close up 7.75% to $34.49.

H-P (HPQ) shares slid 1.25% to $24.94 despite beating EPS targets, as guidance is in-line.

After yesterday's earnings, Starbucks (SBUX) fell 5.1% to $37.42 because guidance was essentially the same as in its recent analyst meeting. Its revenues were deemed a tad light, but it was really large profit taking after a huge run.

Under Armour (UARM) rose 0.65% to $46.55 after Cramer last night said that it offered upside from current levels along with Nike (NKE).

Marvell Tech (MRVL) fell 2.9% to $19.04 after posting a sequential revenue decline.

Google (GOOG) was reiterated a Buy with a $600 target at Citigroup, but it never was able to crack $500.00. Its high was $499.85, and it closed up 0.58% at $498.79.

First Solar (FSLR) priced its IPO at $20.00 and closed up at $24.74.

Sony (SNE) saw its ADR's in the US trade up 2.1% to $40.79 as its long-awaited PS3 hit stores today.

Altria (MO) rose 1.7% to $85.01 after raising guidance and as its "lights" case appears to have permenently gone in its favor.

Foot Locker (FL) fell 2.7% to $23.27 after reporting a 2 percent decline in its third-quarter profit, and after the chances of a buyout are nearly gone.

Advanced Magnetics (AMAG) rose a sharp 29.8% to $57.00 after it reported promising results from a late-stage clinical trial for an iron-replacement therapy for chronic kidney disease patients.

Have a great weekend!

Jon C. Ogg
November 17, 2006

China Car Market: What If Everyone's Market Share Goes Up 100%

Stocks: (GM)(F)(TM)(HMC)

Toyota says that its market share in China should rise 30% next year to about 400,000 cars. Ford says its share there should double next year. It has sold 118,000 cars through October. GM says it will increase it current share in Asia from 6.5% to 10% with most of the unit increase coming in China.

None of this includes the plans of companies like Nissan, VW, or DaimlerChrysler. Not to mentions the locals.

Perhaps China is growing so fast that all of the major car companies can reach a share of 100% in the huge Asian country. But, if that doesn't work, someone is going to be disappointed.

You can count on it.

Douglas A. McIntyre can be reached at douglasamcintyre@247wallst.com. He does not own securities in companies that he writes about.

Cramer Evaluates How To Trade The NYMEX IPO Today

On today's STOP TRADING segment on CNBC at 2:45 PM EST, Jim Cramer reviewed how to trade off the NYMEX (NMX) IPO today.

Cramer said the NYMEX (NMX) IPO is over-extended at +140%, but he says if it gets to $120 or $110 then you can buy some. He said something is wrong with this picture. He said there was a tremendous media sensation for the IPO and they did leave a lot of money on the table, but they got rich anyway.

He thinks NYSE (NYX) is far cheaper. He said it went a little nutty, but it is not a return to dot.com values.

Cramer also endorsed Sears Holdings (SHLD) again, just like last night. He thinks that Eddie lampert should be allowed to invest the funds because he is a great investor.

Cramer called Conor Medsystems (CONR) is a second rate company that J&J (JNJ bought after CONR missed its quarter. He wants to know why people aren't buying Boston Scientific (BSX). He thinks BSX is done going down and it could go to $18 ot $19 when he discussed it.

Jon C. Ogg
November 17, 2006

The Real Market for PS3: eBay, For More than $2,000

Stock Ticker: SNE

OK, we all have seen the media covering the swarms and swarms of young adults waiting in line at electronics stores around the country waiting to get their hands on the Sony Play Station 3. We had note dthat these were being listed for $2,000 and $3,000 for the voucher on eBay last month. Well, the consoles are going for north of $2,000 on eBay right now.

This is supposed to be THE big console with limited supply, but I can't get past reading about how many of the systems do not integrate well with most of the older games and how many defects or glitches there were in pre-reviews this week. It was also pretty shocking when I was in a GameStop store two weeks ago and asking about the console and the younger adult working there said to be sure to give this at least 3 large series of US shipments to the U.S. before buying it so that the first machines with all the glitches had been worked out and the returned systems were out of the system. I asked how long that would really be and the guy said "4 to 6 months." Now one thing that may trim that time down by a month or so is that these for now are being flown in by air freight, or at least so Sony claims. That was a stun to me what someone whose job is supposed to be to sell these systems.

Take a look at what these are selling for on real bids on eBay as of 2:22 PM EST Today after typing in "PS3" search on eBay items:

9919 items found for

PS3


List ViewPicture GallerySort by: Customize Display
compare itemsItem TitlePayPalBidsPrice*ShippingTime Left

SONY PS3 PLAYSTATION 3 60GB SYSTEM CONSOLE GUARANTEED!

This seller accepts PayPal 47$3,450.00
$40.00 1m

PLAYSTATION 3 SYSTEM - 60GB PREMIUM SONY PS3 CONSOLE

This seller accepts PayPal 37$2,650.00
$20.00 5m

PS3 Sony Playstation 3 NIB

This seller accepts PayPal 19$2,025.02
$50.00 5m

SONY PLAYSTATION 3 PS3 20GB CONSOLE SYSTEM SHIPS NOV 17

This seller accepts PayPal 54$2,425.00
$65.00 5m

Sony Playstation 3 PS3 60GB Premium System Console NR

This seller accepts PayPal 47$2,425.00
Not specified5m

PS3 Sony Playstation 3 60GB Console System -FREE EXTRAS

This seller accepts PayPal 14$2,401.00
$35.00 5m

Playstation3 60Gb Pre-order ships on 11/17 PS3

This seller accepts PayPal 59$4,361.00
Free5m

PS3 Sony PLAYSTATION 3 60GB Premium Console FREE SHIP!

This seller accepts PayPal 37$2,650.00
Free6m

~SONY PLAYSTATION 3 PS3 PS 3 Premium 60 GB System~

Gift Services
This seller accepts PayPal 43$2,477.69
Free7m

SONY PLAYSTATION 3 PS3 CONSOLE 60GB system Pre-Sale

This seller accepts PayPal 55$2,401.00
$40.00 11m

Sony PLAYSTATION 3 60GB Version - PS3 New in Box

This seller accepts PayPal 37$2,025.00
Free20m

*-* SONY PS3 PLAYSTATION 3 TOYS R US RECEIPT 60 GB ****

This seller accepts PayPal 34$2,225.00
$80.00 21m

Sony PS3 Playstation 3 Console LCD HDTV + BONUSES

This seller accepts PayPal 30$1,630.05
$52.6023m

Key Syndicate Deals for Thanksgiving Week

Stock Tickers: AER, SPR, TM, INFY, NMX

We have a couple deals to watch for next week, but since it is Thanksgiving week you can expected everything to come Monday night for Tuesday trading.

Most of the A-Team trading desks are vaceant either all of Wednesday ahead of thanksgiving or at least after the first hour. Friday is a joke of a trading day and to the best of my knowledge there has never been any syndicate deal "purposely" on that trading day in the US.

Two IPO's to watch are AerCap Holdings N.V. (AER) and Spirit Aerosystems (SPR).

Aercap (AER)is a Dutch holder of aircrafts it leases out, and it sells and leases parts, engines, and services. This is an awaited IPO for US investors for what looks to be 26.1 million shares (about 2/3 being sold by insdiders) at a $22.00 to $24.00 range. This offering is led by Goldman Sachs, Lehman, Merrill Lynch and Morgan Stanley.

Spirit erosystems (SPR) will also price Monday night. It has some 52 million shares coming at a range of $23.00 to $25.00. Spirit's IPO is being led by Goldman Sachs, Morgan Stanley, and Credit Suisse. Spirit AeroSystems was created in 2005 when Canadian investment group Onex bought Boeing's (BA) Wichita and Oklahoma assets in a $1.5 billion cash and debt transaction. Onex officials had said their plan was to take Spirit public within five years, but this is 1 year and some change as the market and economy accomodate now.

We also have two secondaries to watch, and these are also set for Monday night. Toyota MOtors (TM) has a potential offering next week, but there has actually been very little buzz ahead of the deal so that may or may not be the case. Details on that will have to wait until Monday. Infosys Tech (INFY) out of India is supposedly having a $1.5 Billion share sale in the secondary market, although this has been approved since the start of November for up to 30 million ADR shares to be sold, which is supposedly to increase ownership of Infosys in the U.S.

There are other deals on the books, but these are the important ones to watch. Stay tuned Monday and Tuesday.

After slamming the crummy pricing job from the underwriters on the NYMEX (NMX) IPO this morning, I did manage in my rant to forget to at least congratulate the NYMEX seat holders. They all had 90,000 shares per NYMEX seat, so they just got to add a substantial amount to their "soon-to-be" liquid net worth.

Jon C. Ogg
November 17, 2006

Anatomy of a Mispriced IPO: NYMEX (NMX)

Stock Tickers: NMX

$120.00 was the opening print for NYMEX (NMX). While there may be cheers here from the floor, this is ludicrous and obscene as far as a mispricing. I am not referring to the valuation or the stock price in and of itself, because the market is the mechanism that initially determines a fair and current price. But what is ludicrous is that the lead underwriters in charge of pricing are relied upon by a company coming public to determine a fair and equal pre-set pricing. NYMEX was told that the fair price on that was $59.00, above the raised ranges. For the first print out of the chute to be $120.00 you can rest assured that NYMEX was just boinked and a lot of IPO cash just got left on the table.

Investors that take the risk in getting IPO allocations do not deserve a 100% return instantly out of the chute for the first print after an IPO pricing. There was no history there, and there is very little risk. If you were allocated IPO shares at $59.00 on NYMEX, then you are allocated IPO shares to enough IPO's that even when you factor in pigs thatfall 20% in a day you make out like a bandit.

I am not a socialist and don't even call out for more and more never-ending market reform to protect Grandma Jones, but when you see this it is obscene. No doubt about it. If you were James Newsome, the CEO of NYMEX, you have to act happy on the floor like he just did on a quick CNBC interview, but you know he is going to go back to his office and call those investment bankers more four letter words than can be thought of. If not, then it is because of shell shock.

There have been lawsuits over this practice in the past where on dot.com IPO's in 1998 to 2000 where shares priced at $28.00 as "the max the market can bare" and then the first print is $100.00 or more. Imagine how much the dot.com bubble may have been better contained if the street actually priced deals at a fair market price. Milton Friedman is the man I recall saying the equivalent of "money is worth whatever people think it is worth," but I bet right now he would be asking the underwriters how $59.00 on a well known commodity is instantly worth $120.00 or more.

I won't even go into how this also destabilizes a market on a stock and the related companies. You never know where this IPO will close today. It could close at $175.00 or it could close at $90.00, although these are just theoretical numbers at this point. Since the open, there was even a $152.00 print, although it is back at $135.00 as I load the story and prints have been all over the place.

The Dutch Auction route for IPO's has been slammed in the past, but this makes a better and better case for it if you are an established name brand coming public. W.R.Hambrecht and its OpenIPO mechanism have often not been well received by the public and the deals are snubbed by the bulge bracket firms because it denounces how they operate, but it is probably assumed that the Hambrecht investment bankers are calling any large company out there on the IPO docket right now pointing out how much money was just left on the table by sticking with the "Good Ol' Boys."

Shares of InterContinental Exchange (ICE) have traded in a $93.90 to $98.45 range today and shares of Chicago Mercantile Exchange (CME) have traded in a $533.50 to $546.98 range today. If you wonder why researchers sometimes point out that a monkey throwing darts at a board or randomly picking names can outperform actual stock pickers sometimes, this may demonstrate part of the theory.

There is no reason to beat a dead horse (or a dead money) over and over here, but I think the point has been made.

Jon C. Ogg
November 17, 2006

It’s That Time of Year for Intuit

By William Trent, CFA of Stock Market Beat

Last month we pointed out that Intuit (INTU) tends to trade in a seasonal pattern, with the annual price peak occurring late in the calendar year. True to form, the stock was down after hours after Intuit reported earnings for their first fiscal quarter yesterday:

Intuit Inc. (Nasdaq:INTU - News) today announced its first-quarter 2007 revenue increased 19 percent over the year-ago quarter to $362.1 million. Growth was primarily driven by strong sales of its QuickBooks software and add-on solutions, payroll and payments. Approximately $20 million of first-quarter revenue was attributed to the September launch of QuickBooks 2007, which was about 30 days earlier than last year. Without this earlier launch, revenue growth would have been approximately 12 percent.

Forward-looking Guidance
Intuit reaffirmed its previously-given revenue and earnings per share guidance for the second quarter of fiscal 2007 and provided operating income guidance for the first time. Intuit expects:
* Revenue of $743 million to $760 million, or year-over-year growth of 0 percent to 2 percent.* GAAP operating income of $185 million to $204 million, and non-GAAP operating income of $211 million to $230 million.* GAAP diluted earnings per share, or EPS, of $0.34 to $0.37, and non-GAAP diluted EPS of $0.39 to $0.42.

Intuit also reaffirmed its previously given third quarter, fourth quarter, and full year fiscal 2007 guidance for revenue and earnings per share, details of which are available on Intuit’s Web site at www.intuit.com/about_intuit/investors/earnings/2006/.

The guidance was slightly below consensus expectations, but that’s what the consensus gets for making estimates outside the high end of management’s guidance range. We bought put options following our earlier article, and still own them. It’s another one of those things that worked the way we expected it to.

The author may hold a position in the securities discussed.

The author's current holdings are as follows: Long: Intuit (INTU) put options; Nasdaq 100 (QQQQ) put options; Bookham (BKHM; Ballard Power (BLDP); Syntax Brillian (BRLC); CMGI (CMGI); Genentech (DNA); Ion Media Networks (ION); Lion's Gate (LGF); Three Five Systems (TFS); Adobe Systems (ADBE) call options; Ceradyne (CRDN); IShares Japan (EWJ); StreetTracks Gold (GLD); Starbucks (SBUX); U.S. Oil Fund (USO); Plantronics (PLT) call options; Short: Lion's Gate (LGF) call options; Dell (DELL) put options; Ceradyne (CRDN) call options; Plantronics (PLT) put options.

http://stockmarketbeat.com/blog1/

Hewlett Packard (HPQ)

By William Trent, CFA of Stock Market Beat

Hewlett Packard (HPQ) shares were off slightly after reporting that earnings beat consensus estimates - if you are willing to view their recurrent restructuring charges as non-recurring. While they have had their share of troubles this quarter, you have to hand it to them for reporting at all, the way things are going in tech-land (with everyone either delaying their report or giving partial data while being investigated by the SEC.)

Revenues grew 7% year/year. That is not an exciting number, but at least it is better than some others we have seen.

Inventories grew faster than sales, which management explained on the conference call thusly:
Next, the balance sheet. HP’s inventory came in at $7.8 billion, up $873 million year over year and up $286 million sequentially. Inventory days of supply stands at 38 days, up from 35 days last year and down from 41 days sequentially. The year-over-year increase in inventory reflects volume growth, strategic buys and supply chain changes designed to optimize our cost structure. The sequential increase is in line with normal seasonality.

We’re still a little skeptical, but the explanation is within the bounds of reason. Again, while not a major concern it was nothing to brag about.
Overall, we agree with the after-market response to the report. This was a decent but unspectacular quarter for Hewlett Packard.

The author may hold a position in the securities discussed.

The author's current holdings are as follows: Long: Intuit (INTU) put options; Nasdaq 100 (QQQQ) put options; Bookham (BKHM; Ballard Power (BLDP); Syntax Brillian (BRLC); CMGI (CMGI); Genentech (DNA); Ion Media Networks (ION); Lion's Gate (LGF); Three Five Systems (TFS); Adobe Systems (ADBE) call options; Ceradyne (CRDN); IShares Japan (EWJ); StreetTracks Gold (GLD); Starbucks (SBUX); U.S. Oil Fund (USO); Plantronics (PLT) call options; Short: Lion's Gate (LGF) call options; Dell (DELL) put options; Ceradyne (CRDN) call options; Plantronics (PLT) put options.

http://stockmarketbeat.com/blog1/

Oil Revisited

By William Trent, CFA of Stock Market Beat

When we last visited the oil patch, we found the arguments against higher oil prices lacking. It remains our view that demand for oil is rising at a faster pace than supplies of oil, and that the imbalance will be solved through the price mechanism. We don’t think the correction is even close to done.

However, an article we found in Oil & Gas Journal titled CERA study challenges ‘peak oil’ theory suggested it was time to update our analysis.

The article states:
The “peak oil” theory, stipulating that world oil production will soon peak and sharply decline, is flawed, according to an analysis by Cambridge Energy Research Associates (CERA).

Instead of a peak, CERA says, production is more likely to trace an “undulating plateau” that will last for a decade or more beyond 2030.

It seems of little consequence to us, as we believe demand will continue to rise without further drastic discouragement through higher prices. Whether supply is declining or flat, it will not keep pace with demand. The article continues:
The CERA report contends that the often-cited Hubbert model, which patterns production as a bell curve, fails to recognize that recoverable reserve estimates evolve with time and are subject to significant change. The model also underplays the impact of technological advances.
Although M. King Hubbert accurately predicted timing of the peak in US Lower 48 oil production in 1970, the CERA study says, he underestimated the peak rate by 20% and total cumulative Lower 48 production during 1970-2005 by 15 billion bbl.

Again, not exactly right is likely to be close enough for our theory to play out.

With the recent drop in prices, days of inventory made a run at breaking out of the long-term downtrend. However, the breakout failed and stocks remain low compared to long-term averages.

We’ll stick to our long position in the oil ETF (USO).

The author may hold a position in the securities discussed.

The author's current holdings are as follows: Long: Intuit (INTU) put options; Nasdaq 100 (QQQQ) put options; Bookham (BKHM; Ballard Power (BLDP); Syntax Brillian (BRLC); CMGI (CMGI); Genentech (DNA); Ion Media Networks (ION); Lion's Gate (LGF); Three Five Systems (TFS); Adobe Systems (ADBE) call options; Ceradyne (CRDN); IShares Japan (EWJ); StreetTracks Gold (GLD); Starbucks (SBUX); U.S. Oil Fund (USO); Plantronics (PLT) call options; Short: Lion's Gate (LGF) call options; Dell (DELL) put options; Ceradyne (CRDN) call options; Plantronics (PLT) put options.

http://stockmarketbeat.com/blog1/

NYMEX Debuts, Watch Other Exchanges Too

NYMEX (NMX) did price its long-awaited and well above average demand IPO. It priced 6.5 million shares at $59.00. The original terms were 6 million shares at $48.00 to $52.00, and then was bumped to 6.5 million shares with a higher $54.00 to $57.00 range. The deal was definitely set to price higher because of all the exchange hype, but it would seem that there is some money being left on the table here.

It is definitely discussed as having a premium to its above the already raised range, but the question remains as to how much higher. Some are thinking $5.00 higher, some $10.00 higher, and Jim Cramer even said he thinks it is a buy at $20.00 higher (from the $57 area anyway). The opening print will be one to watch regardless. The first indications were for $78 to $80, but who knows if that is right or real.

Sorry for the lack of a background on the NYMEX, but it has been covered so much that it would seem like it is from the Department of Redundancy Department.

InterContinental Exchange (ICE) is trading up 0.6% at $95.20 pre-market, and it is up from under $85.00 just last Friday. NYSE (NYX) is trading up 0.25% at $94.01 pre-market, although that is only about $1.00 than last Friday. The Chicago Mercantile Exchange (CME) is up 0.55% at $543.00 pre-market, and that stock was actually under $500.00 last Friday. NASDAQ (NDAQ) stock is flat pre-market at $36.45 and is actually in-line to under where it was last Friday. Some of these other exchanges have enjoyed some serious runs in the last week, so it makes you wonder what will happen to them after the NYMEX IPO prices.

Other potentially related shares that could get secondary or tertiary actions if this just gets ridiculous are the following: Investment Technology Group (ITG), eSpeed (ESPD), and International Securities Exchange (ISE), OptionsXpress (OXPS), MarketAccess (MKTX) and others.

Get ready for a wild day in exchange stocks trading.

Jon C. Ogg
November 17, 2006

GM Boasts About Asia (GM)(HMC)(F)(TM)(DX)

US car executives cannot keep bragging about how well they will do in Asia. GM is now saying it believes it can raise its share in the region from 6.5% to 10% by 2010.

Those looking for a reason for the optimism won't find any. GM makes the statment but has nothing to back it up.

What GM wants Wall St. to believe that cars and small trucks that are bested by vehicles from Toyota and Honda in the US market will do better overseas. Toyota, Honda, VW, Nissan, Ford, Daimler and a pack of other companies want the share as much as GM does.

In 1995, GM's US share was nearly 33%. By 2005, it had fallen to just above 26%. And, Toyota is still gaining share in GM's home market.

Asia, of course, will be different. There GM's models will level Toyota, Honda, and local car company offerings.

When pigs fly.

Douglas A. McIntyre can be reached at douglasamcintyre@247wallst.com. He does not own securities in companies that he writes about.

Pre-Market Stock News (Nov. 17, 2006)

(ADSK) Autodesk revenues $457M vs $457.25M(e); guides inline; subscription revenues up 50%; stock rose 5%.
(AME) Ametek gets positive radiation detection article from Business Week.
(AMED) Amedisys 3M share secondary priced at $41.50.
(ANN) Ann Taylor $0.54 EPS vs $0.52e.
(AW) Allied Waste 33M share secondary priced at $12.75.
(CHFN) Charter Financial announced self tender of 1M shares at $43 low and $52 high.
(CONR) Conor Medsystems trading up 19%as J&J gives it a $33.50 buyout.
(CPWM) Cost Plus -$0.53 EPS vs -$0.45e; sees Q4 $0.84-1.03 vs $1.09e.
(CTRN) Citi Trends $0.20 EPS vs $0.16e.
(DNA) Genetech wins additional breast cancer expanded use from FDA.
(EGLT) Eagle Test Systems $0.44 EPS vs $0.36e.
(EXEL) Exelixis billary tract tumor phase III study halted.
(FSLR) First Solar 20M share IPO priced at $20.00.
(GPS) Gap Stores $0.23 EPS vs $0.22e;
(HAL) Halliburton noted positively in Barron's Online.
(HIBB) Hibbett Sporting Goods $0.31 EPS vs $0.28e.
(HPQ) Hewlett-Packard $0.68 EPS vs $0.64e; SEC formally investigates board over pre-texting scandal.
(INTU) Intuit -$0.12 EPS vs -$0.12e.
(ISIS) Isis Pharma gets positive drug article in Business Week.
(MRVL) Marvell trading down 5% after results and guidance; still delaying quarterly filings.
(NMX) NYMEX 6.5M share IPO priced at $59.00, above the alreadty raised $54 to $57 range.
(NRF) Northstar Realty 16M share secondary priced at $14.95.
(NWACQ) Northwest Airlines positive article as buyout candidate in Business Week.
(ORH) Odyssey Re filed to sell 9M shares.
(PLSB) Placer Sierra Banc losing #1 mortgage depositor by June of 2007; 12.6% of total deposits and 30.2% of non-interest bearing deposits.
(RDY) Dr. Reddy's 12.5M share secondary priced at $16.00, yesterday's close was $16.45.
(SBUX) Starbucks trading down 7% as revenues were a hair light and guidance was same as before.
(SJM) J.M.Smucker $0.83 EPS vs $0.85e.
(SVM) Service master holder reportedly asking company to seek a buyer.
(VITA) Orthovita 7.7M share secondary priced at $3.25.
(VQ) Venoco IPO priced 12.5M shares at $17.00, under the $19 to $21 range.
(VTAL) Vital Images 3M share secondary priced at $31.00.
(XIDE) Exide filed to sell 28M shares.
(YHOO) Yahoo! buys BIX.COM (private) to allow users and advertisers to judge contests.

Select Analyst Calls (Nov. 17, 2006)

AAP raised to Buy at Oppenheimer.
ADBE cut to Neutral at Oppenheimer.
ADSK reitr Buy at Jeffeires.
ALOG started as Hold at Jefferies.
APSG started as Hold at Jefferies.
AQR started as Buy at ThinkEquity.
BOBJ cut to Hold at Deutsche Bank.
CBF started as Mkt Perform at Wachovia.
CCI raised to Outperform at RBC.
CCRT started as Outperform at KBW.
CFC started as Sell at Goldman Sachs.
CFR raised to Outperform at Piper Jaffray.
CNQR started as Buy at Deutsche Bank.
COLM raised to Buy at B of A.
CPWM cut to Underperform at Raymond James.
DVAX raised to Outperform at Bear Stearns.
FNM & FRE started as Neutral at Goldman Sachs.
FORM started as Buy at Merrill Lynch.
FUL raised to Overweight at JPMorgan.
GOOG reitr Buy/$600 tgt at Citigroup.
INFY started as Outperform at Wachovia.
INTU cut to Mkt Perform at William Blair, cut to Accumulate at ThinkEquity.
INWK cut to Equal Weight at Morgan Stanley.
ITG raised to Overweight at JPMorgan.
LPNT started as Hold at Citigroup.
MEL raised to Overweight at Prudential.
MDTH started as Buy at Deutsche Bank, started as Outperform at Wachovia.
MNST cut to Hold at Citigroup.
MRVL cut to Underweight at Prudential.
NCC cut to Underweight at Prudential.
NGG cut to Sell at Citigroup.
NIHD started as Buy at Citigroup.
REP cut to Reduce at UBS.
SHMR cut to Sector Perform at CIBC.
SYNT started as Outperform at Wachovia.
THC started as Sell at Citigroup.
TIN cut to Hold at Deutsche Bank.
TLEO started as Buy at Deutsche Bank.
UHS started as Buy at Citigroup.
UNS started as Overweight at JPMorgan.
WIT started as Mkt Perform at Wachovia.
WSM cut to Hold at BB&T.
WY cut to Hold at Deutsche Bank.
WYNN cut to Hold at Citigroup.
XLNX cut to Peer Perform at Bear Stearns.
XOM cut to Mkt Perform at Bernstein.
YHOO raised to Buy at Oppenheimer.

VoIP Comes Of Age (VG)(CMCSA)(TMS)(TWX)(EBAY)

The ViOP bandwagon is getting fairly full. After early service like Ebay's Skype and Vonage signed on millions of customers, the cable companies (especially Comcast and Time Warner) found the ViOP was a good way to steal customers from their telecom competitors. It has worked so well that 5.1 million of the US VoIP subscribers as measured at the end of September took their service from cable providers. The total number of US customers rose to 8.2 million, up from 3.5 million a year ago.

One of the complaints about VoIP, especially early versions, is the customers needed a PC or special adapters to make the service work. The experience was different from simply picking up a telephone and dialing. Other knocks against VoIP is the it had no 911 service. That is changing. Of course, if electricity is off, VoIP doesn't work either. They are still working on that one.

Thomson, the big French electronics firm, is beginning to offer a new VoIP handset, made by GE. (One has to wonder why GE does not market the product on its own.)

Thomson's product will be sold to subsribers of SunRocket, a US VoIP service with 170,000 subscribers. The new device can simply plug into a high-speed internet line and it works as a normal phone would. If you have SunRocket service. Companies like Uniden already have similar products.

Why Thomson would market a phone exclusively with one of the smaller VoIP companies is puzzling. The firm is locking itself out of over 95% of the US market.

Thomson may be dumb, but VoIP is gaining ground like a house on fire, and that will continue.

Douglas A. McIntyre can be reached at douglasamcintyre@247wallst.com. He does not own securities in companies that he writes about.

VoIP Comes Of Age (VG)(CMCSA)(TMS)(TWX)(EBAY)

The ViOP bandwagon is getting fairly full. After early service like Ebay's Skype and Vonage signed on millions of customers, the cable companies (especially Comcast and Time Warner) found the ViOP was a good way to steal customers from their telecom competitors. It has worked so well that 5.1 million of the US VoIP subscribers as measured at the end of September took their service from cable providers. The total number of US customers rose to 8.2 million, up from 3.5 million a year ago.

One of the complaints about VoIP, especially early versions, is the customers needed a PC or special adapters to make the service work. The experience was different from simply picking up a telephone and dialing. Other knocks against VoIP is the it had no 911 service. That is changing. Of course, if electricity is off, VoIP doesn't work either. They are still working on that one.

Thomson, the big French electronics firm, is beginning to offer a new VoIP handset, made by GE. (One has to wonder why GE does not market the product on its own.)

Thomson's product will be sold to subsribers of SunRocket, a US VoIP service with 170,000 subscribers. The new device can simply plug into a high-speed internet line and it works as a normal phone would. If you have SunRocket service. Companies like Uniden already have similar products.

Why Thomson would market a phone exclusively with one of the smaller VoIP companies is puzzling. The firm is locking itself out of over 95% of the US market.

Thomson may be dumb, but VoIP is gaining ground like a house on fire, and that will continue.

Douglas A. McIntyre can be reached at douglasamcintyre@247wallst.com. He does not own securities in companies that he writes about.

Ghosn And Nissan Get Blackballed (DCX)(F)(GM)

Carlos Ghosn, the sell-proclaimed greatest car executive in history, is finding that linking up with a US partner for his Nissan/Renault combine has proved more difficult than he thought. Of course, Nissan is not in first place in Japan and Renault is not a major player in Europe, so perhaps Detroit is wary.

Ghosn now says that he is "not ready" to find a partner in the US. What he is not mentioning is that no one is taking. GM has turned him down. Ford seems prepared to go it alone, even if that plan leads to its demise. DaimlerChrysler does not need him. With large operations in the US and Europe, DCX is an unlikely partner.

Perhaps if Ghosn would stop watching the pot, it would eventually boil. He may have retired before that day comes.

Douglas A. McIntyre can be reached at douglasamcintyre@247wallst.com. He does not own securities in companies that he writes about.

While Ford's Sales Double In China, Will It Be Around To Enjoy It

Stocks: (F)(GM)(TM)(HMC)

Ford is boasting that it will double sales in China, over and over again. But, the No. 2 car company in the US only sells about 100,000 cars in the big Asian nation. Rival GM will sell over 850,000 cars there this year.

Ford is still being bloodied in it home market, so the talk of China gains is whistling past the graveyard. Over the last decade, Ford's US share has dropped from 25.8% to 18.3%. During the same timeframe, Toyota's market share has rise from 13.3% from 7.4%. Honda's has risen from 5.4% to 8.6%.

Ford has actually predicted its US share will drop as low as 14%. Its $5 billion in annual cost cuts may bring North American operations to the point where they are cashflow positive, but that is a long way off. And, there is no guarantee that the company's forecast of a 14% bottom is accurate. Ford could hardly have predicted its current sales when it had almost 26% of its home market.

Ford management needs to shut-up about China. The company not be around to enjoy it progress there.

Douglas A. McIntyre can be reached at douglasamcintyre@247wallst.com. He does not own securities in companies that he writes about.

Investors Get Ticked At Starbucks (SBUX)(MCD)

Wall St. took shares in Starbucks down by over 5% after hours as the company announced a 21% improvement in quarterly revenue to $2 billion. The company forecast that it would open 2,400 stores in the next twelve months. It also said that investors could expect another 20% increase in revenue.

Profits dropped 5.6% to $117 million, but this was due to changes in the company's accounting policies.

The key to the numbers was simple. Starbucks is still growin 20%. It grew 20% in fiscal 2005. It grew 21% in the recent quarter. It forecast 20% growth for next year. Off of an annual revenue run rate of $8 billion, the figure is extraordinary.

Starbucks has the stated and ambitious goal of eventually having 40,000 stores worldwide. At the end of this fiscal year, the figure was about 14,000, and, if the company's projections are right, that will be nearing 17,000 twelve months from now. Starbucks still has a reasonable chance of hitting its number within the next ten years.

McDonald's has over 30,000 stores, so why shouldn't Starbucks.

Why not, indeed.

Douglas A. McIntyre can be reached at douglasamcintyre@247wallst.com. He does not own securities in companies that he writes about.

Hewlett-Packard (HPQ) Earnings: Red Flag On Slowing Tech

The market was not unhappy about HP's earnings, but the applause was muted.

HP's revenue rose 7% in its fiscal Q4 to $24.6 billion. The company forecast that annual sales for its 2007 fiscal year would rise about the same amount to $97 billion.

HP's stock fell about 2% after hours to $39.60. The shares have been trading near their 62-week high.

Revenue at HP's big personal systems group, which sells PCs, rose 10% to $7.8 billion, and revenue was up 7% at HP's imaging and printing group, hitting $7.3 billion. But, therein lies the problem. These two units are almost $15 billion of the quarter's $24 billion plus in revenue. And, the growth at the operations are unimpressive.

In fiscal 2004, HP grew 9%. In fiscal 2005, revenue was up 9% again. Even with the share that the company is taking from Dell in the large PC market, HP's rapid growth is behind it, at least for now.

At $40, the stock is now rich. Morningstar carries a "fair market" value of $30 on the stock and suggests that investors consider selling when the stock is above $37.60. For a company that has lost much of its top-line growth potential, that is not unfair.

Douglas A. McIntyre can be reached at douglasamcintyre@247wallst.com. He does not own securities in companies that he writes about.

Hewlett-Packard (HPQ) Earnings: Red Flag On Slowing Tech

The market was not unhappy about HP's earnings, but the applause was muted.

HP's revenue rose 7% in its fiscal Q4 to $24.6 billion. The company forecast that annual sales for its 2007 fiscal year would rise about the same amount to $97 billion.

HP's stock fell about 2% after hours to $39.60. The shares have been trading near their 62-week high.

Revenue at HP's big personal systems group, which sells PCs, rose 10% to $7.8 billion, and revenue was up 7% at HP's imaging and printing group, hitting $7.3 billion. But, therein lies the problem. These two units are almost $15 billion of the quarter's $24 billion plus in revenue. And, the growth at the operations are unimpressive.

In fiscal 2004, HP grew 9%. In fiscal 2005, revenue was up 9% again. Even with the share that the company is taking from Dell in the large PC market, HP's rapid growth is behind it, at least for now.

At $40, the stock is now rich. Morningstar carries a "fair market" value of $30 on the stock and suggests that investors consider selling when the stock is above $37.60. For a company that has lost much of its top-line growth potential, that is not unfair.

Douglas A. McIntyre can be reached at douglasamcintyre@247wallst.com. He does not own securities in companies that he writes about.

Media Digest 11/17/2006 Reuters, Wall Street Journal, New York Times

Stocks: (QCOM)(DCX)(HPQ)(SBX)(SHLD)

According to Reuters, Delta is seeking the help of its creditors to fight off a bid by Delta Airlines to acquire the bankrupt carrier.

Reuters writes that the CEO of Qualcomm stated that investors in the company support its intellectual property legal fight although it has depressed the price of the company's stock.

Reuters, writes that DaimlerChrysler is still in talks with Chinese car manufacturer Cherry about building a subcompact car.

Reuters writes that HP profits went up four-fold due to year ago charges. Revenues rose 7% and beat estimates.

The Wall Street Journal reports that Sear Holding's profits tripled due to investments. Sales at its Sears and K Mart units were weak.

The Wall Street Journal also writes that a study by Harvard and Cornell indicates that 850 CEOs of public companies received incorrectly dated options which increased their pay an average of over 10%.

The New York Times reports that oil hit its lowest price in a year as the markets doubted the impact of OPEC production cuts.

The New York Times also writes that the profit as Starbuck's fell 5% due to new accounting methods. Revenue rose 20% to $2 billion.

Douglas A. McIntyre

Asia Markets 11/17/2006 PCCW, Fuji Film Up, Softbank, Yahoo Japan Down

Stocks: (CAJ)(FUJ)(NIPNY)(HMC)(NTT)(TM)(CHL)(CH)(PCW)(HNC)

Markets in Asia were narrowly mixed.

The Nikkei was down .5% to 16,092. Bridgestone was up 1.4% to 2515. Canon was up 1% to 6310. Daiwa Securities was down 1.4% to 1263. Fuji Film was up 2.7% to 4590. Hitachi was up .6% to 707. Honda was up .2% to 4210. Japan Air was off 1.4% to 217. NEC was up 1% to 604. NTT was up 1.2% to 573000. Sharp was down .5% to 2030. Softbank was down 2.6% to 2245. Sony was up 1.3% to 4770. Toshiba was down .3% to 731. Toyota was up .3% to 7260. Yahoo Japan was down 3.6% to 40200.

The Hang Seng was up .2% to 19,183. Cathay Pacific was up 1.7% to 18.98. China Mobile was down 1.1% to 68.65. China Unicom was down 1% to 8.24. HSBC was up .4% to 147.2. PCCW was up 1.9% to 5.23.

The KOSPI was up .1% to 1,412.

The Straits Times was up .5% to 2,813.

The Shanghai Composite was up 1.6% to 1,972.

Data from Reuters.

Douglas A. McIntyre

Sears Holdings Drops 5% After Earnings

By Chad Brand of Peridot Capitalist

It's the same old story with Sears Holdings (SHLD). In fact, I feel like I'm just repeating myself a lot. However, I have long been positive on the stock, and it is one of Peridot's top five holdings, so rather than ignoring it just for the sake of not sounding repetitive, I will likely continue to share my views on the company and the stock's investment merit.

In case you missed it, Sears reported Q3 earnings of $1.27 per share and sales of $11.94 billion. The revenue number was at the high end of estimates, and the earnings number included investment income of 42 cents per share. Excluding one-time charges and investment income, earnings did miss consensus estimates, which caused the sell-off in the stock.

Comments on the quarter across Wall Street were very predictable. Same store sales were down, which is bad and must be turned around at some point. Earnings were up on cost cutting, but such moves can't be maintained forever. Most analysts are ignoring the investment income when looking at the quarterly results, because they are unrelated to operating activities of the main retailing business.

It is my view, however, that ignoring the investment income is a mistake for investors. If an investment in Sears stock was merely a bet on the retail operations, then I can understand not caring about profits derived from investing excess cash. However, a large piece of the investment thesis behind SHLD has been, and will continue to be, Eddie Lampert's ability to allocate excess capital in order to earn returns that far exceed those of the retail business. There is a reason he changed the name of the firm to Sears Holdings. It's a holding company. There is more than just retail here.

Investors who are in Sears merely for the retail operations should probably move on to something else. SHLD will continue to report declines in same store sales and grow profits via cost cutting, share repurchases, and investment income. This will ultimately lead to a tremendous increase in shareholder value.

If, however, you are like me and are investing in this stock for the entirety of the operation, then you should stay with it despite today's decline. Sears is a holding company and will continue to boost shareholder value via multiple ways. In fact, as the company finds new avenues for allocating capital, they will become less and less reliant on Sears and Kmart than they already are. While this will draw criticism from many, especially retailing analysts, the end result will be a rising share price, which is really all that matters to me.

Full Disclosure: I own shares of Sears Holdings personally, and my clients do as well.

http://www.peridotcapitalist.com/

Interview With Steven Drobny- President, Drobny Global Advisors & Author of 'Inside The House of Money'

By Yaser Anwar, CFA of Stock Market Beat

An in-depth discussion pertaining to; Hedge Fund Industry- Implications of M&A boom on Hedge Funds, HFs as Asset Managers, Industry's Marketing Gimmicks, Risk/Reward Trade-offs, Regulation and Correlation to market. Investment banks taking positions in China, Emerging markets and more.

Steven Drobny is the engine behind Drobny Global Advisors. Steven has pushed the firm to new business areas, countries and clients bases. If you want to know who's who or what's what in global macro, ask Steven. To learn more about global macro hedge funds, read his book Inside the House of Money.

Before partnering with his namesake in 2000 (his name was already on the door!), Steven worked for Deutsche Bank in various roles, most recently in the Hedge Fund Group in London. While at DB, Steven also worked in the derivatives and trading groups in London, Zurich and Singapore. Prior to Deutsche, Steve was with AIG Trading in their Metals & Energy Trading Groups.

Steven Drobny also holds a Masters degree from the London School of Economics and a Bachelors degree from Bucknell University.



Wall Street Talk with Yaser Anwar

Guest: Steven Drobny, Author (ITHOM) & President, Drobny Global Advisors



_________________________________________________________



Y: Steven, thank you for joining us

1) Y: A recent trend in the industry has been- Hedge Funds as Asset Management Complexes [Note: DE Shaw's push into traditional asset management. Fortress & MAN Group already are asset management complexes]. If you're running a $5 billion fund, a 2% management fee brings in $100 million without any hassles. Say you're up another 10%, so that's another $100 million. Managers are disincentived to make money. What do you think needs to be done?


S: Nothing. The marketplace will define where investments are made and the fees charged for asset management. Investors are allowed to choose what they want and if they don’t like something they can vote with their feet. Remember, by definition, investors in hedge funds are required to be qualified investors. We are not talking about unsuspecting retail investors getting cold calls from their local stock broker. If performance does not stack up over time, there will likely be adjustments.


2) Y: In 2006, the hedge funds as a group have underperformed mutual funds and market indexes. With over 9K hedge funds seeking to generate alpha, a majority of which utilize the common strategies such as; Convertible Arbitrage & Long/Short Equity, don't you think the market is getting a little too overcrowded?


S: No I don’t. Again, investors that choose to invest with hedge funds are making a conscious decision. As long as that decision is educated, the marketplace should dictate the flow of capital. Whether the number is 900 or 9,000 or 90,000, the marketplace will ultimately decide.

The same thing applies to the different hedge fund strategies. Investors will choose based on performance. In the global macro space, hedge fund managers are at an advantage because of the breadth of their mandate. They are permitted to trade any asset class around the world.

As far as this year, hedge funds as a group are underperforming mutual funds and market indexes. And, this is a market environment in which you would expect that to occur because volatility across markets has collapsed. Long risk assets has been the trade of the year. So, investor portfolios, which are overwhelmingly long assets, have done well.

Hedge funds are meant to occupy a slice of a portfolio because they are traditionally uncorrelated and provide downside protection in volatile markets. The key is producing consistent positive absolute returns uncorrelated with other markets, and if hedge funds can do that, there will be a place for them in investor’s portfolios.


Follow-up question: Where do you see the hedge fund industry going?


S: The industry is going to be constantly evolving. Every six months the industry looks different from the prior six months. The hedge fund business is here to stay because it provides needed portfolio diversification and because it is very attractive from an employment standpoint due to it’s attractive compensation structure.

As long as that doesn’t change, hedge funds will continue to attract the smartest, most talented money managers, and at the end of the day investors are going to want access to that talent. So there always will be a hedge fund business, whether it grows, stabilizes, contracts or even converts into a total asset management business, remains to be seen.

The best comparison is with professional sports. If you are the best basketball player in the world, are you going to play in Italy? No. You’re going to play in the NBA for the highest bidder.


3) Y: When Alfred Jones started his hedge fund back in 1940, his purpose was to generate alpha by a long/short strategy, with returns uncorrelated to the markets. In the 80s and 90s, hedge funds did just that. Of late, HF returns seem increasingly correlated to the broad market indexes. Why do you think so?


S: It really depends on which market indices and which hedge fund strategies you are comparing. There are certainly managers and strategies that will look as if they are correlated to the broader equity markets at certain points. The key is whether they are correlated over time. Again, if managers or strategies fail to deliver, investors will adjust their portfolios.


4) Y: China has seen a large inflow of capital, especially into the financial sector. The major banks; Citigroup, BoA, Goldman, have all taken sizeable stakes in the Chinese financial sector. In other words, the herd seems to be too bullish. What do you make of this trend?


S: It is dangerous to assume the herd is always wrong. The truth is that the inflows into China are being limited by government restrictions. Perhaps the inflows would be much larger if the restrictions were limited.

The key is to ask, “Why are all of these institutions dedicating the time and energy into this market?” Then evaluate whether the opportunity is worth the attention. It seems to be a reflection of a booming, growing emerging market that has attracted capital for the long term.


5) Y: As hedge fund returns have come down over the years, their appetite for risk has rapidly increased. Your partner Andres Drobny (no relation) once said, "To make money and have value you have to have risk/reward parameters dominating what you do in markets."

With the recent debacles such as Amaranth & Archeus Capital (the most famous ones), do you think hedge funds are erring from the risk/reward scenarios, caused by narrowing of spreads (due to an overcrowded industry) and/or chartering in unseen territory?


S: First of all- the one thing the press gets wrong, is that Amaranth or Archeus are symptomatic of the HF industry. As you mentioned earlier there are about 9K hedge funds. We are talking about two funds.

Out of 9K hedge funds, there are going to be some good ones and some bad. The same applies to mutual funds and private equity funds. The key for investors is choosing the talented managers that have a good risk/reward framework and aren’t taking excessive leverage or risk in illiquid markets. At the end of the day, the onus is on the investors to choose and decide which hedge funds are the best out there.

Right now, we’re going through a pretty significant period of low volatility, low interest rates, and tight market spreads. There have been periods of time like this in the past and it typically unwinds back to a more volatile, riskier markets. The question is when and how do we get there and what the path looks like.


7) Y: In your book, Inside The House of Money, you interviewed some of the best traders in the world. Could you tell us one characteristic they all shared?


S: Humility. The popular image of big successful traders pounding their chest and always being right is really the guy that ends up out of the market after a couple of years when a secular or cyclical trend reverses. The best traders that have longevity, who have been through multiple market cycles and have consistently made money are very humble. They know that they are not smarter than the markets and to be in this game for the long term one has to be flexible.


8) Y: M&A activity has been steadily increasing in double-digits since 2002. It seems that 2006 will be the record year, beating the $3.327 trillion in global volume and $1.525 trillion in U.S. volume posted in 2000. With so much buying power, do you foresee another hedge fund strategy, dedicated to say such as LBO and/or PE financing, on the horizon other than Event driven strategies?


S: Perhaps. There will always be innovation in financial markets. Hedge funds are part of that process. Whether there is a different title to the strategy, who knows. Hedge fund strategy titles are mainly for marketing purposes. At the end of the day, what a hedge fund is supposed to do is- make money in any market environment regardless of their strategy.

That is what global macro is all about and has always been about. In terms of slicing and dicing the hedge fund business into smaller more finite, specific strategies, this has typically been a good way to raise money, especially in a world full of liquidity. If liquidity contracts, things may be very different.


9) Lately there has been a lot of chatter about regulating the hedge fund industry. What are your views on regulating the industry- Stricter oversight by the SEC and/or a self-regulating body?


S: The most successful hedge funds are running their business in such a way that is over and above what any regulatory government body would require. If regulation keeps out some of the frauds and scams, then that’s a good thing for the industry. Generally, regulation tends to increase costs with questionable benefit.

But, if regulation can be proven to boost investor confidence, then I am all for it. Again, the key is allowing investors to make educated decisions about their investments. Let the market work. If investors are not comfortable with the way their manager runs the firm, then they should not allocate the capital, regardless of what any government body does.


10) Y: In May, when the US markets were hit by a correction, most emerging markets followed it downwards and when the US markets regained their footing in August so did EM. I have a hard time imagining EM markets up if US markets are down 10% or so. What are your views on emerging markets?


S: EM presents tremendous opportunities just as any new market presents great opportunities. In terms of the US being down 10% and EM being up, it depends. I don’t think you can classify EM as one thing. China is very different from Russia, which is very different from India, which is very different from Brazil, so it depends on which market, what the different economies are doing, and the prospects.

For example: If the US market is down 10% but the US currency is down 50%, perhaps EM will be up, especially if you’re a US based investor. A large part of it depends on what your home currency is.


11) Y: Drobny Global Advisors is known for its unorthodox style of research advisory & investment conferences [Providing actual tradable ideas in a casual atmosphere with the audience concentrated among what’s considered “very smart money”]. You recently wrapped up a conference in Iceland, could you tell us a little about what was discussed?


S: Sure. The overall mood was mixed so the overall general feeling I took away from it was that we are at a major inflection point. Often at turning points, confusion reigns until the new trend is established.


Y: Steven, thank you very much for taking time out for this interview. Best of luck with DGA and look forward to the second edition of Inside The House of Money.


S: Thank you and good luck to you too.

http://www.equityinvestmentideas.blogspot.com/

Cramer Goes Back for Sears Holdings, Again

Last night on CNBC's MAD MONEY Cramer also went over one of his long-standing favorite retail plays: Sears Holdings (SHLD).

He implied that SHLD stock is no different than investing in a company with a hedge fund manager trying to make his stocks go up. After today's drop of almost $10.00 after earnings, Cramer said the stock is going back up. He says this is a gift. He did tell on himself that you have heard him back this stock again and again. He said the bears are harping on same store sales and on inventory build-ups. He said it isn't a screaming buy because of it being a great retail play and not because it is a turnaround story. He says this is an investment ultimately in Eddie Lampert.

He has been there for the last $140 of upside, but he thinks it is going much higher and it may be a baby Berkshire Hathaway. Even though it is expensive on multiples, it will get more expensive and Eddie Lampert is a winner. The company allows Eddie Lampert to invest the profits from Sears and K-Mart elsewhere where he sees fit. The company made $101 million off of outside investments. The street doesn't like that they can't evaluate Sears as a retailer, but Cramer does.

Jon C. Ogg

Cramer Backs Nike and Under Armour

Last night on CNBC's MAD MONEY, Jim Cramer reviewed two stocks in the same sector that are both buys. He said which one you should own depends on your preference.

He said if a company has good management, that means they just aren't screwing up. Nike (NKE) and Under Armour (UARM) got lucky because Reebok screwed up by cutting marketing. Reebok's ad budget was only $7 million after Adidas bought them, and these two won as a result.

Cramer says that even though NKE and UARM are competing, they are different stocks for different investors. He says both are buys.

He says Nike (NKE) is the best for longer-lived investors that look for more stability and more predictability. He noted Under Armour (UARM) is the younger investor's stock that has a lot of room for growth down the road.

NKE trades cheaper, and is more defensive in nature trying toi preserve market share it has. UARM is a high-multiple stock that would crumble if the company messes up. Cramer said UARM's 31% market share could pass NKE's 36%, but UARM could take market share and NKE stock could still keep rising because they are different stories. He thinks UARM will take market share from Reebok since they aren't defending the brand. UARM is one that will get hurt bad if they ever miss an estimate by a penny, and NKE is the stable lion in the group.

UARM closed down 1.28% at $46.25 in regular trading, but shares are up almost 3% from teh close at $47.50 in after-hours trading. NKE closed down 0.25% at $95.23 in regular trading, but shares are up 0.9% at $95.92 in after-hours trading.

Jon C. Ogg

Genetech Wins FDA Approval For Herceptin For Breast Cancer

Genentech (DNA) announced that the FDA approved its Herceptin cancer treatment for an expanded use for adjuvant treatment of HER2-positive node-positive breast cancer. The studies showed a 52% reduction in the recurrence of breast cancer of some 3,500 patients in two Phase III studies and is the only targeted biologic therapy approved for use in adjuvant and metastatic HER2-positive breast cancer.

Adjuvant therapy is given to women with early-stage (localized) breast cancer who have had initial treatment - surgery with or without radiation therapy - with the goal of reducing the risk of cancer recurrence and/or the occurrence of metastatic disease. After three-and-a-half years in the study, 87 percent of women treated with Herceptin plus chemotherapy were disease free, compared to 71 percent of women treated with chemotherapy alone. A survival analysis conducted after patients had been followed for a median of 24 months showed a 33 percent reduction in the risk of death (based on a hazard ratio of 0.67), which is equivalent to a 49 percent improvement in overall survival.

DNA shares closed up 0.35% at $80.72 in regulartrading, but shares are up 0.9% at $81.45 in after-hours trading. DNA has a 52-week trading range of $75.58 to $100.20.

Jon C. Ogg

Autodesk Up and On Auto Pilot

Autodesk (ADSK) just reported record quarter revenues of $457 million, just under the $457.25 million consensus estimate. It is not providing EPS because of the ongoing options review. ADSK closed up 1% at $27.00 in normal trading, but shares are up 6.4% to $39.35 in after-hours trading. The subscription revenues seem to be the game winner as the guidance seems in-line (although guidance may be conservative because of legal ramifications). ADSK 52-week trading range is $29.56 to $47.25.

There was a huge bright spot in what may be considered a slight beat with in-line guidance. Its subscription (recurring) revenues have now grown to $111 million, about 24% of revenues, and up 50% from last year. That is an impressive feat and has been one of the growth drivers to the company.

Total backlog was $352 million as of October 31, 2006, including $333 million of deferred revenues. Deferred subscription revenues increased $12 million sequentially to $275 million and there was $19 million of unshipped product orders at quarter end. Its DSO (days sales outstanding, or days to get paid!) also fell 1 day to 51 days.

There is also guidance (compared to street estimates) where available. Next quarter guidance: Net revenues for the fourth quarter of fiscal 2007 are expected to be between $490 million and $500 million ($495M estimate); following quarter guidance: Net revenues for the first quarter of fiscal 2008 are expected to be approximately flat with the fourth quarter of fiscal 2007. Fiscal 2007 guidance: For fiscal year 2007, net revenues are expected to be between $1.832 billion and $1.842 billion ($1.84B estimate). Fiscal 2008 guidance: For fiscal year 2008, net revenues are expected to be between $2.075 billion and $2.125 billion ($2.10 Billion estimates).

Jon C. Ogg
November 16, 2006

Starbuck's Decaf (SBUX)

Starbuck's missed Wall St.'s revenue target and had poor earnings to boot. Some was due to changes in the company's accounting practices. Investors wanted revenue of $2.02 billion and the coffee retailer did $2 billion.

While the company's long range goal of hitting a total of 30,000 stores worldwide may not be in jeapordy, it may be set back a few days.

Starbuck's shares are off about 6% after hours to just above $37..

Douglas A. McIntyre can be reached at douglasamcintrye@247wallst.com. He does not own securities in companies that he writes about.

HP Earnings: Revenue Growth Light (HPQ)

HP announced earnings after the close. Revenue rose only 7% to $24.6 billion. Non-GAAP operating income rose from $1.5 billion in the quater a year ago to $1.9 billion. Desktop sales were flat while notebook unit sales rose 24%. Revenue at the imaging and printing unit rose 7%.

Enterprise storage and server revenue rose 4% to $4.7 billion. And, services revenue rose 5%.

Looking at the results, Paul Meeks, a hardware analyst interviews on CNBC, believes that the results only merit a share price of $40 to $41, which is where the stock trades now.

The forecast for the next quarter is for revenue to be in the $24.1 to $24.3 billion range and for the next fiscal $97 billion.

While revenue and EPS were slightly ahead of Wall St. estimates, the figures hardly constitute a blow out quarter. After rising 40% this year, the shares may be taking a pause.

Douglas A. McIntyre can be reached at douglasamcintyre@247wallst.com. He does not own securities in companies that he writes about.
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