We’re up to our ears in earnings reports, with a lot more coming next week. Throughout this earnings season, so far, the common themes seem to be:

• The S&P 500 companies will double expectations for 3.8% growth, but that’s still a slowish growth rate of 7% to 8%.
• Technology is growing faster, meeting or beating expectations, and guiding at or above the consensus for the December quarter.
• Even so, tech stocks are subject to downturns if there is anything to point at (i.e.: Amazon margins, Harmonic stock filing, Intel — well, nothing, but they clipped it anyway).
• All this is happening or causing a jittery market, yet my 1497 line in the sand has held up for the S&P 500, and there are some very positive attributes of the recent pattern.

Since we are in the heart of earnings season, in addition to covering all of our stocks that announced earnings this week in today’s Radar Report, I’ll continue on the same path of the past two weeks — giving you my outlook on next week’s reporting companies compared with the consensus. Including firm and projected dates, here is the list of our companies that are reporting next week:

Week of October 29
10/29	Geron (projected)
10/30	Rochester Medical (projected)
	SiRF Technologies
	ViroPharma (new date confirmed)
10/31	Alvarion
	American Science & Engineering (projected)
	eResearch (projected)
11/1	Gasco Energy (conference call 11/02)
	Millennium Pharmaceuticals (new date confirmed)
	Silicon Image

I covered my expectations for Geron (GERN), Rochester Medical (ROCM), eResearch (ERES), Millennium Pharmaceuticals (MLNM) and ViroPharma (VPHM) in the October 11 Radar Report, which is available on the website here. Now let’s go through the rest of the list, plus the actual reports from this week. On balance, I expect that you’ll be pleased with the results so far.

Biotech MegaShift

Affymetrix (AFFX) was one of the four stocks that I mentioned last week as a special candidate for good news. And yesterday we got two good pieces of news out of three for AFFX. Unfortunately, the third hit the stock for $2.02 today. Before we get into why the stock took a hit, though, let’s focus first on the good news.

The first piece of good news was results for the third quarter: $95.0 million in sales and 12 cents a share before the restructuring charge. That trounced the consensus outlook for $92.4 million and five cents. I was looking for $97 million and seven cents, so I was still happy with the report. AFFX saw strength across the board, especially with the new products selling into academic institutions.

The second piece of good news was that they sued Illumina again under five additional patents, in both the U.S. and Europe (UK and Germany). AFFX almost always wins these suits, and they will be taking a big chunk of Illumina’s profits at some point soon. Illumina probably could have licensed these patents for a 5% royalty, but now Affymetrix will make them pay 10% to 15% in order to send a message to their other 20+ patent licensees that those companies did the right thing.

The third piece of news was a conservative outlook for the December quarter. Affymetrix said that they will do $365 million to $375 million in sales, implying $101.3 million to $111.3 million in the December quarter. I was looking for upward-revised guidance to around $115 million and 20 cents a share in the December period, while the consensus was at $111.5 million and 16 cents. To some extent, management is setting the bar low, but it is true that the academic buying schedule is less sensitive to the calendar yearend than the industrial schedule. Affymetrix normally has a good December quarter as industrial orders come through, and they said that they are expecting that to happen again. So, I think we’ll be OK here, and I want you to buy AFFX on this dip back under my $27 buy limit for the $40 target.

Amgen (AMGN) beat the consensus for September, as I predicted in the October 11 Radar Report. I doubted that the fall-off in Aranesp usage would be dramatic, because doctors are in an uproar about what they see as Medicare ordering crummy medicine that will deplete the nation’s blood banks, and the private payers like Blue Cross are not going along with the new Medicare guidelines. Amgen reported sales of $3.61 billion, flat with last year and above the $3.54 billion consensus.

I also mentioned in that October 11 issue that Amgen’s quick response to cut costs would show up in lower operating expenses right away, and they did $1.08 a share pro forma, a nickel better than the $1.03 consensus. However, I also thought that they would raise guidance for the December quarter, but they just reaffirmed guidance for $4.13 to $4.23 a share, bracketing the $4.19 consensus. I think they’ll earn about $4.40 in 2008 as they work through the Aranesp hit, so the stock is selling for just over 13X earnings. Genentech sells for over 21X 2008 earnings, and these are comparable companies. Continue to buy the Amgen January 2009 $70 LEAP call (VAMAN) all the way up to $12.50 for my $25 target price when AMGN stock hits $95, on or before the LEAPs expire in January 2009.

Dendreon (DNDN) drew a question from Calvin: “Subject: Dendreon, `08 interim results, and politics. I came across this link to a recent article on the IV boards. Most of it isn’t new to anyone who has been following Dendreon for some time, other parts raised an eyebrow. Like many others earlier this year, I rallied behind the science but failed to see the politics. My question is this: Come time for the `08 interim results peek (and assuming the science is positive), do you think that the political powers that be will be forced to stand aside for Provenge or will they simply stall it until 2010?”

Calvin, the great thing about Special Protocol Assessments is that if the drug hits statistical significance, it gets approved. The political types have had their day. Now, that’s not to say this is a done deal — Dendreon has said that the peek is “powered for approval,” but they have given precious few details. Some think that the patients will be sicker this time, so the drug won’t work as well. I believe that is backwards thinking for a slow-growing cancer like prostate, where it becomes easier to show a benefit quickly if the patients are sicker. So, I’m not worried about the politics, but I’m still worried about the clinical results. Bottom line, though, I’m still bullish on Provenge. Buy DNDN while it is under $8 for my $40 target when Provenge is approved.

QLT (QLTI) reported this morning before the market opened. They only did $28.7 million in sales, below the $32.6 million consensus, as Visudyne sales in Europe continue to fall sharply due to competition with Lucentis. Visudyne sales in the U.S. stabilized, but we have not yet seen the growth that I am still expecting to come from combination therapies. Instead of beating the September consensus earnings estimate of five cents a share, as I had expected, they broke even. They have cut costs substantially, but not enough to overcome a revenue shortfall of this magnitude.

They raised guidance for Eligard sales, but lowered the outlook for Visudyne and for earnings, the latter due in part to the strong Canadian dollar. The stock dropped on the news, and then struggled back to close down only six cents on the day. I still think Visudyne will be used in combination therapy, so I want to continue to follow and own the stock. But I am cutting my QLTI buy limit to $6 and my 2008 target price to $12 to reflect the delayed turnaround in Visudyne sales.

Content on Demand MegaShift

Akamai Technologies (AKAM) reported just above the consensus, with sales up 44.6% to $161.2 million (consensus was $161.1 million) and 34 cents a share pro forma, three cents better than the 31-cent consensus. They saw a 22% year-over-year increase in the number of customers under long-term service contracts to a record 2,616. Management said that business strengthened after Labor Day across the board, and they raised December-quarter guidance to 36 cents to 37 cents a share. That would bring in the year at $1.28 to $1.29 a share; the consensus was at $1.27. In 2008, I think they will do $1.75 to $1.80 a share, compared with the consensus for $1.70.

I said last week that it might be wise to buy a half a position before the earnings call and hope to get the other half under $30 after the call if they disappoint, because there might not be another chance to get on board under $30. Well, with such good results the stock shot up $4.16 today, sending it well over my buy limit. So if you followed my strategy from last week, I am raising the AKAM buy limit to $34 so you can complete your position if the stock retests its breakout level. My target price remains $60.

Comcast (CMCSA) reported this morning before the opening, and the stock had a bad day, down $2.57 at the close. I expected them to match the consensus estimates for $7.76 billion in sales and 18 cents a share. They did $7.78 billion and 18 cents, but additions to the digital subscriber base slowed, and the company said that both a softening economy and more competition from the telcos like AT&T and Verizon are impacting growth. The trouble is that economic slowdowns rarely touch at-home entertainment, so I think the main problem is competition.

Without strong growth in VVD broadband subscribers, there’s no reason to own the stock. I made a mistake on this one, because I was impressed with how rapidly they were adopting the new technologies and didn’t pay enough attention to the brutal pricing environment that was building as the telcos buy their way into the cable TV business. Wait for the bounce, and then sell CMCSA over $22.

Harmonic (HLIT) was the second good-news candidate that I listed last week, and the financial report was nothing but good news. But along with the earnings report, the company announced a 14.8 million share offering, and the stock was knocked down 75 cents a share Wednesday morning. Then it roared back to set a new 12-month high over $12! That was super, because when a company is well-managed in a fast-growing business and doing intelligent acquisitions, there is nothing wrong with them raising more money to accelerate their progress. That is exactly what is happening at HLIT. The deal is underwritten by Merrill Lynch, Lehman, Jefferies and Merriman Curhan Ford, so there should be some good research coverage going forward.

Revenues and profit margins were the best in three years, with sales up 31% to $82.3 million, well ahead of the $79.6 million consensus. Comcast and EchoStar (Dish Network) each accounted for more than 10% of sales, indicating that Harmonic has reclaimed its place as the video equipment supplier to satellite companies. Pro forma earnings per share hit 15 cents, compared with the 13-cent estimate.

On the conference call, the Chief Financial Officer said that Harmonic’s backlog is up sharply, from the mid-$70 million area to around $90 million or, about 20%. The consensus for 2007 is $288.8 million in sales and 41 cents a share. I don’t know what they are thinking. The company will easily beat $305 million this year, and report 50 cents a share or more. Harmonic has gone over my recently-raised $11 buy limit, so I’m taking it off the Top Buy list. But if you see any market-related weakness, buy it under $11 for my $18 target.

Motorola (MOT) was my fourth pick for good news, and we got an improved outlook for the December quarter. September-quarter sales fell to $8.8 billion from $10.6 billion last year, and the company reported two cents a share. Analysts were looking for $8.8 billion and four cents, and I said last week that I thought strong sales of the Razr2 would push them to $9.1 billion and five or six cents a share. I was right about Razr2 sales, but premature on the financial impact.

They beat expectations for handset shipments, getting 37.2 million out the door, including 900,000 Razr2s. The outlook for the December quarter improved, and I said last week that I expected them to guide for over $10 billion in sales and 12 cents to 14 cents a share in the current quarter. The consensus for the usually-strong December quarter was actually $9.7 billion and 10 cents. Management said that they will do 12 cents to 14 cents, so Wall Street got more positive on the 2008 outlook for market share gains, and the stock closed up 84 cents today. Our LEAP options added 60 cents or 17.6%. The Motorola January 2009 $17.50 LEAP calls (VMAAW) closed right at my $4 buy limit. So take advantage of any market-related dips back under $4 to buy more for a $10.50 target ($28 minus $17.50) in January 2009 — or sooner. Don’t miss this one.

QuickLogic (QUIK) was my third pick for especially good news, and they also came through. With only one analyst forecasting $8.5 million in sales and a pro forma loss of nine cents a share, I said last week that I would not be surprised if QUIK hit as high as $9 million and lost only five cents a share. They did $9.0 million and lost four cents. As expected, the reason for QUIK’s great results is that the company’s Customer Specific Standard Part (CSSP) strategy puts them in a sweet spot for component orders for consumer electronics now being built for holiday sales.

For the December quarter, management guided for $10.2 million to $10.8 million in sales, well above the one published estimate of $9.2 million. However, the loss will be a bit bigger than the September period, probably around eight cents a share. The reasons that they will report a bigger loss even though sales will be higher are:

1. The company paid a premium to build inventory earlier this year, so while they will have product to ship, the gross profit margin will fall to the 42% area. Management said that they will be through this inventory and back to 50% margins in the March quarter, and reiterated that their long-term model is 60% to 62% margins once shipments hit about $25 million a quarter. They will have operating profit margins of 20% to 26% at that time, up from the September quarter’s operating loss.
2. QUIK has a real opportunity for rapid growth directly ahead, so they are adding to sales and R&D expenses. Selling, general and administrative expenses will be up $500,000 in the December quarter, and R&D will be up $800,000. Given their opportunity, these are sensible investments to make right now, even if they hurt near-term earnings. I expect the payoff to hit next year, with pro forma profitability in the June or September quarter. The company can fund these expenses with its current resources, and management said that they see no need for a stock offering in the near term.

QUIK remains a Top Buy under $4 for my $8 target.

Telkonet (TKO) drew a reasonable question from Todd: “You have been very quiet on the so-called major announcement related to TKO. The stock is at $1.50 but there is hardly any volume trading. Do your sources still confirm an announcement and are there any interesting developments you know of on the horizon. Bigger question: Is this dead money?”

Todd, I don’t have any inside sources that would confirm something as delicate as a change in CEOs. That is my read on the situation, based on parsing their language in press releases and what I know of the situation. I don’t think TKO will be dead money in any event, but if and when the current CEO resigns, it is certainly going to be a major announcement with a major impact on the stock. TKO remains a buy up to $5 for my $15 target.

Zhone Technologies (ZHNE) had just reported when last week’s Radar Report was posted, hitting $41.6 million in sales, below the $43.2 million consensus, and a three-cent per share pro forma loss, worse than the one-cent loss consensus. Management blamed the revenue shortfall on the divestiture of one of their legacy product lines and the seasonally slow international market. On the conference call, CEO Mory Ejabat said that new customer wins and introductions of new products will drive strong sequential growth in the fourth quarter to between $44 million and $45 million in sales. That should produce the long-awaited pro forma positive EBITDA (earnings before interest, taxes, depreciation and amortization).

My read on the call was that Mory bought himself time to show that the new products can garner enough sales to get the company into positive territory and stay there this time. In the new multi-service access platforms for voice, video and data (VVD, or the “triple play”) over copper lines, Zhone is #1 in the U.S. by a 2-to-1 margin over its next competitor. They can deliver 3 megabits to 45 megabits over existing copper lines, and they are deploying some big systems, including a recent win in Saudi Arabia, to do just that.

Looking at this stock with a fresh eye, I am moving ZHNE back to a buy with a very tight $1.50 limit and a modest $4 target. This may be a case of fool me once, shame on you; fool me twice, shame on me, but I think Mory is determined to pull this off, and he has the backing of the biggest venture capital firm in the world.

New Economy MegaShift

Cnet Networks (CNET) just reported as this issue is ready to go out the door. They did $99.5 million in sales and four cents a share pro forma, compared with the consensus for $99.4 million in sales and two cents. I expected them to do three or four cents a share, so I am happy. Even better, they sold Webshots to American Greetings for $45 million in cash.

They guided for $119 million to $125 million in the December quarter, below the consensus for $129.5 million. I’ll be on the conference call shortly, and if there is any dramatic news that changes my recommendation, I will send you a Flash Alert tomorrow. Last week I raised the buy limit on CNET to $9 while keeping the target price at $17 for now.

New Energy Technology MegaShift

Oil futures jumped to a new record at $90.10 a barrel this morning on news that OPEC won’t announce new output quotas when it meets next month. In September, OPEC bowed to Saudi pressure and announced a production increase of 500,000 barrels a day, effective November 1. But this week’s rumors about a second 500,000 barrel increase were squelched by OPEC’s Secretary General in a Wall Street Journal Asia interview. In addition, Lebanese troops fired on Israeli warplanes and the Turks are still threatening to send armed forces into Iraq in search of Kurdish rebels. That would cut oil supplies coming from northern Iraq. And yesterday crude oil prices jumped sharply after the Energy Information Administration said that oil inventories fell by 5.3 million barrels last week, much more than analysts expected. In other words, it’s business as usual in the world of oil. What will we have to worry about after we run out of the stuff?

I still think oil will fall back to retest its breakout levels around $72, but that will just be a normal consolidation in an ongoing bull market. Oil should trade between $70 and $80 until the spring, disappointing both the $100-oil bulls and the $40-oil bears. But if I’m wrong, I think you’ll see the $100 level before you see the $40 level.

Infinity Energy Resources (IFNY) still has not held the conference call that they told me they would, to explain their situation with the bank. I suppose they will wait for the November 20 (projected date) conference call. It’s a public relations mistake, but PR obviously is not their strong suit. Jessica asked: “I was just wondering what you think the leftist policies of the Nicaraguan government will mean for IFNY?”

I’ve talked about this before, and the answer is not much. The government needs the royalty income from actual production, so they will be very cooperative in getting wells into production. If you are worried about expropriation, that happens after the fields are developed with oil company money; i.e., in 20 or 50 years. IFNY remains a buy up to $3 for my $10 target as they resolve the current bank situation, and even though they have no idea how to handle the publicity and shareholder relations issues surrounding this event.

Lighting Science Group (LSGP) drew a question from Marcello: “Could you please comment on LSGP and LED Holdings?”

Sure, although there won’t be a lot more to say until they report earnings, as they didn’t do a conference call about the merger. I’ve read the documents, and the bottom line is that we are better off with a smaller share of the combined company. The deal was initiated by Pegasus Capital, which is trying to build a big light-emitting diode company. They previously had LED Holdings acquire LED Effects, and now with the reverse merger into LSGP they have everything public. They put in the two companies plus $15 million in cash in return for 70% of the stock.

The management team looks great. LED Holdings brought in Govi Rao as Chief Executive Officer. He was the Vice President and General Manager of the Philips Solid State Lighting business in North America. Ken Honeycutt will stay as President and Chief Operating Officer, and Ron Lusk, the former CEO of Lighting Science will become Vice Chairman of the Board. Both technology mavens will stay. Kevin Furry founded LED Effects and will be the Chief Technology Officer. Fred Maxik, the founder of Lighting Science will be the Chief Scientific Officer. If those two can work well together, we have a scientific powerhouse in our portfolio.

Lighting Science Group now has the potential to be a much larger company than I’d thought, and after we give the situation a little time to shake out, I will probably raise the target price. This is still only suitable for your most speculative money, but it’s virtually unknown on Wall Street and with Rao running it, that is going to change. For now, I don’t see any reason to change my current recommendation to buy LSGP under 50 cents a share for an initial $1 target.

US Geothermal (UGTH) drew a thoughtful question from Jack: “We’re with you in loving the technology and the excitement over ‘flipping the switch’ this month. Reading the 10-K, however, it’s clear the current plant and assets will minimally contribute to funding the major expansion you envision to ‘power all of Idaho.’ So, why invest now when the probable maximum revenues and net income from the current plant are already forecast, but looming over the stock are the great unknowns of major debt and/or stock issuance and their effects on reported net income? Thank you for your efforts!”

Jack, the point is to build a company with cash flow, which can mean using a steady stream of revenues and earnings to raise debt (or equity at attractive prices) to expand or acquire. As long as the company is selling stock above book value, the book value of your shares is increasing. This is an asset story as much as an income story, in part because the point is to amass a lot of geothermal assets under one roof, and in part because a likely exit strategy is to sell to a utility that is regulated based on return on assets. I think my target price is realistic for the current operations, and I’ll raise it as the company develops. UGTH is still trading just under my raised $4 buy limit for a $6 target price.

Plug Power (PLUG) reported $4.5 million in sales, up 158% from last year and well above the $3.3 million consensus. They lost 17 cents a share, compared with the consensus for 15 cents, with about a third of that due to the operating results of acquired companies.

They shipped 25 GenCore systems in quarter compared with 15 in last year’s third quarter, and also shipped 23 GenDrive units. They’ve shipped 157 GenCore systems year-to-date and have another 110 systems shipped and waiting for installation, after which they can recognize the revenues. However, they had to take 213 systems out of the backlog when their Kuwait distributor decided to drop fuel cell products, so the backlog is down to 294 systems. That’s still above last year’s level of 202 systems, but it means that they will not meet their 2007 goal to install at least 400 GenCore systems. That, in turn, means that they will not reach their goal to reduce manufacturing costs by 25% over the year.

One of the big drivers for the next few years will be a new FCC requirement that wireless carriers maintain emergency backup power for a minimum of 24 hours for central offices and eight hours for cell sites, remote switches, and digital loop carrier system remote terminals that are normally powered from local AC commercial power. The company just finished a test for a major wireless carrier showing that GenCore meets the FCC requirements by providing backup power to nearly a dozen sites for a full seven-day grid outage, simulating the potential need arising from natural disasters like hurricanes or ice storms.

Plug Power used $10.4 million in cash during the quarter and had $180 million left at the end of September. With the new FCC regulations, it is a question of when their business explodes, not if. I now rank PLUG equally attractive with FuelCell Energy (FCEL), and I want you to buy PLUG up to $5 for my $10 target.

Robotics MegaShift

iRobot (IRBT) reported this morning before the opening. I was just looking for the consensus $63.5 million in sales and breakeven, as they transition to new models of the Roomba and Scooba for the holiday selling season. They actually did $63.8 million and lost a couple of hundred thousand dollars. The stock shot up $2.46 today after they raised revenue guidance for this year to $240 million to $250 million while keeping their pre-tax profit outlook at $3 million to $5 million. There are several large military contracts hanging, including one they might get after protesting an award to Robotic FX, a company formed by an ex-employee that iRobot is suing. Buy IRBT while it is under $20 for my $30 target.

Security MegaShift

Packeteer (PKTR) reported September-quarter results after the close last Thursday, and I got the raw numbers into that Radar Report. They trounced the $33.9 million consensus for revenues, posting $36.4 million. That was well above the highest estimate on the Street for $35.1 million. They made two cents a share pro forma, again above the highest estimate for breakeven and much better than the average expectation for a five-cent loss. The stock moved up about 10% last Friday, and is holding most of the gain.

On the conference call, management said that Asia set an all-time sales record, 25% above the next largest quarter. This was just about a year after they made some important management changes. The new iShaper product is in trials or under evaluation with 60 customers. The company will continue to invest in sales and marketing to get back on their 25% to 30% growth track. I am more confident this is going to work out without having the company sold. PKTR is just below my $9 buy limit, and can be bought for the $20 target.

Market Outlook

Last week was a hard test down, with the Dow Jones Industrial Average and the S&P 500 dropping about 4% by the time Friday’s plunge was over. But the Fear & Greed Index, the CBOE Market Volatility Index (VIX), soared 29.5% to 22.96.

This week the market stabilized, with the S&P rejecting attempts to break the 1497 level, including another drop today. I identified 1497 again last week as a crucial energy point for this market. In the last upswing, 1520 was important as resistance to be overcome, and then important again as support failed to hold after some back-and-forth tussling by bulls and bears at that level. So 1520 should be important again as we watch to see if the negativity has built up to the point that this move up will be the one that breaks out to new highs around 1605. Certainly, with the VIX closing at 21.29 today, there is plenty of power to drive the S&P hundreds of points higher before the VIX gets back down near single digits and shows extreme complacency again. As I said last week: If the VIX stays high all the way to 1605, we could see nothing more than a little pause at that level before the S&P moves up to the next big target at 1690. So far, I see nothing to change my forecast that we are still in a bull market.

It’s important to note that yesterday’s reversal off 1497 looked very much like September’s reversal off 1440, when the market suddenly realized that the Fed was going to cut rates. I have been saying for a while that I expect another 50-basis-point cut after next week’s meeting, and I think the market is just catching on. Chairman Bernanke wrote several academic papers showing that big rate cuts early on are better than numerous small rate cuts drawn out over time, and it must have driven him nuts to watch “1/4%” Alan Greenspan completely ignore his work.

Bernanke now has a chance to put his theories into practice, and that’s why I have been ahead of the Street in realizing another big cut is coming. It will be the last one for a while if it unlocks the housing credit market, and that could happen if Congress raises Fannie Mae’s loan limit to something around $600,000 and also raises the agency’s total loan capacity. If this isn’t enough to unlock the credit markets, he’ll do it again.

Dollar Death Watch

Every big drop in interest rates right now is bad news for the dollar and good news for the prices of oil and other commodities, especially gold. Gold is poised to blast over $800 and head to its all-time highs around $850 an ounce. You can count on a real firefight at $850 and a very volatile market at that level before gold moves higher still. During that time, the dollar should stabilize for a while. But until the Fed stops creating money at such an insane clip, now well over 13% a year, the dollar has nowhere to go but down.

As I’ve been recommending for the past couple weeks, take some time to learn about the EverBank foreign currency CDs, Philadelphia Exchange World Currency Options or an Exchange Traded Fund of currencies. Think about how they could protect your assets, income or business if this keeps up — as I expect it will.

Intel Earnings! As I said in last week’s Radar Report, I expect earnings overall to be stronger than Wall Street’s 3.3% forecast, with 6% to 8% year-over-year growth in the broad market and much better numbers for most of our profitable companies. The Intel (INTC) and Yahoo earnings releases after the close Tuesday certainly fit that bill. Market researchers IDC reported that personal computer sales grew 15.5% in the September quarter, while Gartner Group calculated 14.4%. Either way, business is a lot stronger than the 8% to 10% expected, and PCs still account for about 25% of all semiconductor consumption. Cell phones have grown to account for another 25%, and business is strong in that sector, too. All of this bodes well for us, because as you know, beating the consensus and raising guidance is a prescription for a bull market.

In today’s Radar Report, we’re going to continue our look at consensus projections and my expectations for third-quarter earnings reports out of our holdings. For next week, the updated earnings calendar, including firm and projected dates, shows:

Week of October 22
10/23	Harmonic
10/24	Affymetrix
	Akamai Technologies
	Plug Power
	QuickLogic
10/25	Amgen
	Comcast
	Cnet Networks
	iRobot
	Motorola (new projected)
	QLT
10/26	Millennium Pharmaceuticals (projected)

I covered my expectations for Affymetrix (AFFX), Amgen (AMGN), Millennium Pharmaceuticals (MLNM) and QLT (QLTI) in last week’s Radar Report. And there’s a lot of good news coming from next week’s list, especially from Harmonic (HLIT), Affymetrix, QuickLogic (QUIK) and Motorola (MOT). But let’s start with this week’s winner, Intel.

Content on Demand MegaShift

Intel (INTC) reported sales up 15.6% from last year to $10.1 billion, well ahead of the $9.6 billion consensus. They did 31 cents a share, beating the 30-cent consensus. They also got their gross profit margins back on track, not by raising prices, but by cutting costs. The gross margin hit 52.4%, and the company said that business “accelerated” during the quarter, so they forecast 57% gross margins in the current December quarter. Intel raised guidance for the December quarter to a range of $10.5 billion to $11.1 billion in sales, compared with the $10.4 billion consensus

This was the next best thing to a real blow-out quarter. The stock moved up over a dollar on Wednesday, pushing our LEAP calls above my buy limit. Intel is the largest semiconductor company in the world, yet they are growing 50% faster than the industry average. That’s remarkable. In the quarter, the company cut its inventory levels dramatically, even more than I expected in a strong market for PCs. That will help the balance sheet, and it also allows the company to be very price-competitive during the holiday PC building season. The company will press its advantage in 45-nanometer processing in 2008, and then introduce 32-nanometer processing in 2009. If this little market retest gives you another chance, buy the Intel January 2009 LEAP calls with a $22.50 strike price (VNLAX) under $6 for a $12.50 target price on or before expiration.

Akamai Technologies (AKAM) is down due to low expectations, pricing pressure and a recent sale recommendation by another newsletter. But AKAM gets paid according to how many bytes of data they move, and the Internet video explosion means a lot of video bytes are being moved. They do have competition trying to buy some entry business at low prices, but I never expected AKAM to be a monopoly.

The consensus for the September quarter is $161.1 million in sales and 31 cents a share. I think that’s about right, but these “disappointing” numbers will show 44.5% revenue growth and 33.3% earnings growth from last year. May they all “disappoint” like that! And we are buying the stock at only 20X 2008 earnings of $1.70 — wow.

Guidance may be a bit above the December-quarter consensus of $172.5 million and 36 cents a share, which would move the stock some more. Note that the consensus represents 37.3% revenue growth and 33.3% earnings growth from last year. At some point, portfolio managers are going to look at the 2008 estimates, all of which have been trimmed for the potential price competition, and say: “Explain to me again why I shouldn’t own this stock?”

Buy AKAM on any dip under $30 for my $60 target. If you don’t already own it, you could buy a half a position before the earnings call and maybe get the other half under $30 after the call if they disappoint. Otherwise, I’m not sure there will be another chance to get on board under $30.

Comcast (CMCSA) will about match the consensus estimates for $7.76 billion in sales and 18 cents a share. But the key to the stock actually pushing to higher levels will be how they got there. Strong growth in sales of the Voice-Video-Data (VVD) broadband package without too much deterioration in their basic cable subscriber metrics should get the stock moving. If the VVD numbers look OK, they may give guidance for the December quarter above the consensus for $8.09 billion and 20 cents a share.

Interestingly, at the big Consumer Electronics Show in Las Vegas in early January, one of the keynote speakers will be the CEO of Comcast. I expect him to lay out exactly how the cable industry intends to compete with telecom and satellite in the VVD wars. Buy CMCSA under $28 for my $62 target.

Harmonic (HLIT) should report $76 million in sales and 13 cents a share next Monday, above the consensus estimate for $75.2 million and 12 cents. Even if they only hit the consensus, guidance for the fourth quarter should be good. But as we’ve seen, Wall Street tends to be unforgiving with HLIT due to disappointments with the prior management, so it is possible that only hitting consensus numbers for earnings and guidance could actually knock the stock down briefly.

Harmonic has announced numerous contracts to help them make their earnings and raise guidance, and capital spending by Comcast and the satellite companies has been strong. The Comcast CEO’s keynote at the Consumer Electronics Show will make it very clear that the cable industry is depending on the equipment that HLIT manufactures to execute its plan. I’m not going to raise the HLIT buy limit from $11, but I am keeping it as a Top Buy on any transient dip under that level if Wall Street perceives a disappointment. The target price remains at $18.

Motorola (MOT) is now expected to report on October 25, but the date is still not firm. As I said last week, strong sales of the Razr2 should lead them to beat Wall Street’s expectations of $8.8 billion in sales and four cents a share. I think that they will do $9.1 billion and five or six cents, and then guide for over $10 billion and 12 cents to 14 cents a share in the December quarter. The current consensus for the usually-strong December quarter is $9.7 billion and 10 cents.

Carl Icahn, who now owns 70 million shares and missed winning a board seat earlier this year — but not by all that much — said: “There is value there, and if that value doesn’t manifest itself I, as an activist, would think very seriously about coming back.” Music to my ears.

If my numbers come through at next Thursday’s call, the stock will jump. The Motorola January 2009 $17.50 LEAP calls (VMAAW) are just under my $4 buy limit for a $10.50 target ($28 minus $17.50) in January 2009 — or sooner. Don’t miss this one.

QuickLogic (QUIK) is in a sweet spot for component orders for consumer electronics that are destined for holiday sales, and I expect them to beat the Street consensus for $8.5 million in revenues and a loss of nine cents a share. I would not be surprised if they hit as high as $9 million and lost only five cents, which would set the stock on fire. But anything above the consensus will be a win, and QUIK remains a Top Buy under $4 for my $8 target. Be sure you get a full position in this one at current prices.

Zhone Technologies (ZHNE) reported after the close today and hit $41.6 million in sales, compared with the $43.2 million consensus, and a three-cent per share pro forma loss, worse than the one-cent loss consensus. They did report a one-cent loss using GAAP, but that included the one-time sale of patents. Management blamed the revenue shortfall on the divestiture of one of their legacy product lines and the seasonally slow international market. However, CEO Mory Ejabat said: “Despite this decline, we are encouraged by the long-term prospects of our business as evidenced by significant new customer wins and continued interest in our next generation technologies.”

I’ll be on the conference call shortly, and if he has the ammunition to back up that sentence, the stock might go up instead of down tomorrow. Most likely, little will happen. If I hear anything dramatic, I’ll put out a Flash Alert on Friday, but I don’t really expect that. ZHNE remains a hold for higher prices, probably in an acquisition.

New Economy MegaShift

Cnet Networks (CNET) should come in a penny or two above or below the consensus estimate for $99.4 million in sales and two cents a share. The real surprises could come in their outlook for advertising revenue in the December quarter, which is rumored to be very strong for everyone, and a plan for monetizing Webshots, their photo-sharing website service.

Everybody is down on Cnet right now; that’s why we can buy it so cheaply. But the stock refuses to go back under my buy limit, which is an excellent sign that it is completely sold out. I am raising the buy limit on CNET to $9 while keeping the target price at $17 for now. However, I would not be surprised to see this develop into a multi-year holding for higher prices if they can come up with a creative solution to Webshots, which could be as simple as selling it.

New Energy Technology MegaShift

Oil hit $88.47 this morning as natural gas futures rose to $7.553 per 1,000 cubic feet after the Energy Department reported that inventories rose by 39 billion cubic feet last week, less than analysts had expected. Turkey’s problems with Kurdish terrorism started this move, and the plunging dollar has brought a lot of speculative money into this market. While it’s hard to pick a top in runaway bull markets like oil and gold (or bottoms in runaway bear markets like the dollar), there’s no doubt that oil should fall back to retest its breakout levels around $72. Don’t be surprised when it happens, but don’t believe it is anything more than a normal consolidation in an ongoing bull market. Until the Fed stops debasing our currency, or a major recession starts, oil is going to trend higher. My best guesstimate remains that oil trades between $70 and $80 until the spring, disappointing both the $100-oil bulls and the $40-oil bears. But if I’m wrong, I think you’ll see the $100 level before you see the $40 level.

Plug Power (PLUG) could report earnings above or below the consensus for $3.3 million and a loss of 15 cents a share in the September quarter, because it is almost impossible to predict when customers will accept their installations, which is when PLUG books the sale. So, the more important metric is how many systems were shipped and installed, where revenue might be recognized in this quarter or later. They only did $1.8 million in last year’s September quarter, and $1.0 million in the very disappointing December period, so the revenue comparisons will be easy. PLUG remains a buy up to $5 for my $10 target and is my second-favorite fuel cell stock, behind FuelCell Energy (FCEL).

US Geothermal (UGTH) is getting close to turning on the Raft River plant, so I am raising the buy limit to $4 while keeping the target price at $6.

Robotics MegaShift

iRobot (IRBT) won’t have much info yet on sales of their new products, but analysts will be focused on how well they liquidated their inventory of old model Roombas and Scoobas. They did a great job. If the company can give some solid guidance for the holiday selling season, the stock should be on its way up.

I couldn’t get my Looj in time to beat the start of the rainy season in California, so I wound up on a 24-foot ladder cleaning out gutters by hand. Santa, I want a Looj for Christmas!

The consensus estimates are modest: $63.5 million in sales and breakeven, with guidance for $87.4 million and 46 cents. I don’t have any quarrel with those numbers, although I think that they will beat December-quarter guidance by quite a bit. But there’s no reason for them to set the bar higher in next Wednesday’s conference call. Buy IRBT while it is under $20 for my $30 target.

Security MegaShift

Packeteer (PKTR) reported September-quarter results after the close today, and I’ll be on the conference call shortly. They hit $36.4 million in sales, well above the consensus for $33.9 million, which was the center of a range from $32.4 million to $35.1 million. I said last week that I thought they could do a little better than the consensus, maybe $34.2 million, just because capital spending is holding up in their area. But they even beat the high end. They made a pro forma profit of two cents a share, compared with the consensus estimate for a five-cent loss, which was the center of a range from a nine-cent loss to breakeven. I had said that I hoped to see a three-cent loss to indicate Dave Cote has the situation under control, and they did much, much better than that. Accounts receivable dropped from 67 days outstanding to 55 days, an excellent performance.

The consensus outlook for the December quarter is wide, centered on $36.8 million and a two-cent loss. In the press release, Dave said: “Although our product transition programs are not yet complete, we have high expectations regarding the continuing rollout of our very competitive acceleration product family and ongoing development of important future products. We are also very excited about the recently announced new leadership in our sales and marketing organizations. We believe that these factors, among others, will allow us to accelerate our business early next year. To position ourselves for 2008, we are planning on increased investments during the next quarter, particularly in our sales and marketing initiatives, as well as our existing new product development programs. This may delay our return to profitability in the near term. However, until we return to our historical rate of revenue growth, we will continue to monitor and limit lower priority expenses.”

So how the stock does tomorrow probably depends on what he says on the call about orders and revenue growth versus expense growth to get sales and marketing up to speed with the new products. He has probably bought himself another quarter of grace to show this one wasn’t a fluke.

I had said that if Dave can’t guide for (pro forma) profitability in the December quarter, I thought the board will give in to Elliott Associates and put the company up for sale, and the stock will go up. If Dave can point the way to a penny or two of profit, the stock will go up, and then it will go up more in January if he delivers. The second scenario is more likely now. If I hear anything on the conference call that would change my recommendation, I will send you a Flash Alert tomorrow, but right now PKTR remains a buy up to $9 for my $20 target, which could come in a takeover.

SiRF Technology (SIRF) won’t report earnings until October 30, but two interesting rumors are floating around. The first is that Intel is going to buy them, which I doubt. But that one popped the stock up almost $2 on Monday. The other, more substantive rumor is that SiRF has beaten Samsung in the GPS processor market thanks to incorporating the Centrality acquisition, and they have won a very important design at one of the major GPS producers — probably Garmin. I’m taking SIRF off the Top Buy list because the stock surged over my $23 buy limit, but it remains an excellent buy on dips under that price for my $40 target.

WiMAX MegaShift

Today’s USAToday had a story on “WiMAX rides wave of surfing technology” that featured a TowerStream (TWER) customer, the fashion designer Nanette Lepore. While I had not previously heard of Ms. Lepore, probably because I have not worn “saucy minis and sky-high platform shoes” since the ’60s, she is using TowerStream to connect her 100-person company to the world. The IT manager said that his Internet and phone bills are 50% to 75% cheaper than what he used to pay Verizon. He is paying TowerStream for a 3-megabit connection in both directions, but he says speeds have hit 10 megabits.

The article quoted Ed Zander, the embattled CEO of Motorola, predicting that WiMAX will take off like a shot when WiMAX-enabled laptops, handhelds and smart phones powered by Intel chips hit the market next year. He said: “WiMAX could be even bigger and more dramatic than the original Internet. We’re doubling down and betting the farm.”

Well, maybe Ed can survive Carl Icahn if he’s really that flexible and opportunistic. I still think that all these stocks are cheap. TWER is the cheapest and a Top Buy all the way up to $6 for my $16 target.

Airspan Networks (AIRN) is the next cheapest and is a buy up to $5 for my $10 target, while Proxim Wireless (PRXM) is very speculative due to its size, but from today’s close of $1.24 it’s a very tempting buy. I’m cutting the buy limit to $3 and leaving the target price at $7. Our final WiMAX stock, Alvarion (ALVR) remains an excellent hold for my $18 target.

Market Outlook

I said last week that it would take a sustained drop under 1550 to make me think the short-term outlook has changed, and we are starting to see that. In spite of the high level of the VIX Fear & Greed Index a week ago, the quick, scary decline got underway and sliced right through the 1552 to1555 breakout area. I expect this downturn to stop around 1520 or, if there is some bad news, 1497. So, the move to 1605 is postponed, but the negative sentiment now building should be enough to springboard the S&P 500 all the way to 1605 on the next upleg. If the VIX stays high, we could see nothing more than a little pause at that level before the S&P moves up to the next big target at 1690. So far, I see nothing to change my forecast that we are still in a bull market.

It is interesting that Fed Chairman Bernanke can say housing will depress the economy next year, and the market goes down. He might as well have said: “We will keep cutting rates to avoid a recession.” I now think another 50-basis-point cut at the October 31 announcement is a lock, and it will shoot the market higher.

Dollar Death Watch

Last week I said: “We may be on the verge of another plunge in the dollar — I think that’s what the gold market is telling us…With ‘official’ inflation nowhere in sight, the only other factor I can think of that is driving gold is the terminally ill dollar’s next leg down.”

This morning, the dollar fell to a new all-time low against the euro when the European currency broke through the $1.43 level. The excuse was the high jobless claims report, yet these weekly reports are notoriously inaccurate. The truth is that (a) anything that suggests economic weakness means the Fed will cut rates, which hurts the dollar, and (b) the Fed is printing money like it is — well — toilet paper.

Foreign governments have taken trillions of paper dollars in return for real goods and raw materials, and Bernanke has them where he wants them. If he prints lots of dollars, it makes their dollars worth less and eventually worthless, while keeping the real economy going. So, the Weekly Leading Index from the Economic Cycle Research Institute has stabilized since the first rate cut, and the Baltic Exchange Dry Index that measures the worldwide demand for shipping space continues to soar in a parabolic upturn. There is no recession in sight, and probably not even the slowdown that most economists are predicting.

Governments and individuals outside the U.S. need to convert their rapidly-devaluing dollars into real, tangible assets like commodities, stocks and (believe it or not) real estate. We are on the verge of huge boom in the prices of anything that dollars can buy, which is also known as real inflation.

Consequently, Japan, China and Taiwan are dumping U.S. Treasuries as quickly as they can without killing the markets. In August, China cut its holdings by 2.2%, Taiwan by 8.9% and Japan by 4.0%. Yet, just these three countries together still own over $1.0 trillion in Treasuries, so today’s dollar weakness alone cost them just under $5 billion. Not a good day.

On October 1, China started the China Investment Corporation to invest $200 billion of China’s foreign exchange reserves in assets like stocks. China now has $20 billion a month coming in from net export sales, and they’ve learned what Bernanke will do to them if they hold it for too long.

As a result, when everyone was worried about a sub-prime mortgage implosion and a U.S. recession at the August 16 lows, 30-year Treasury bond yields dipped as low as 4.65%. But in the big dip in mid-2005, they got to 4.20%, and in the similar drop in mid-2003, they got to 4.18%. So, when something happens to cause investors to want to buy Treasury bonds as a safe haven, there’s a lot more supply coming from somewhere that keeps prices a little lower and yields a little higher than before. I think it is the Asian and European central banks.

The Bottom Line: Do not hold dollars long-term. There should be an interim bottom and a bounce at some point, but you need to protect yourself with EverBank foreign currency CDs, Philadelphia Exchange World Currency Options or an Exchange Traded Fund of currencies.

Earnings! Alcoa’s report after the close on Tuesday marked the unofficial kickoff of third-quarter earnings season. In spite of Alcoa’s mild earnings disappointment after beating the revenue consensus, I still expect overall third-quarter earnings to be stronger than Wall Street’s forecast, with 6% to 8% year-over-year growth instead of the 3.3% consensus. That will be good for the broad market, but what will really make the difference is better guidance for the December fourth quarter than the Street now expects.

You see for the fourth quarter, the Street has been very bearish. With all the problems emanating from the sub-prime mortgage mess, high energy prices and the falling dollar, Wall Street has been assuming that the consumer will retrench for the holidays, business capital spending will flatten or fall, and corporate earnings will be poor in the December period. I’m sure consumers will open their wallets later than ever, as they have been doing for years. But spend they will. Business capital spending surveys show a moderation in growth, not a decline, and that was before the recent Fed rate cut.

And as far as high energy prices go, they are already elevated and will go higher in a cold winter, but just as the hurricane season was a bust, I suspect fears of a colder winter are overblown. In the near-40 years that I have lived in California, I have noticed that a very rainy winter here means a milder winter on the East Coast, and vice-versa. Last year was quite dry here and quite cold in the Northeast. This year, it looks like we are going to get slammed. That puts upward pressure on natural gas prices to heat the West, but downward pressure on fuel oil prices to heat the Northeast. My best guesstimate right now is that oil will trade between $70 and $80 until the spring, disappointing both the $100-oil bulls and the $40-oil bears.

As for the sub-prime mess, it won’t straighten out until Fannie Mae lifts their loan cap from $417,000 to something much higher. With both political parties jockeying to take credit for passage or place blame on the failure to get this done, there’s a good chance it won’t happen. But we will stumble through, just as we can muddle through a weakening trend in the dollar.

So this week, I wanted to lay out the earnings calendar for our stocks, what Wall Street expects for each report and guidance, what I expect, and what the other critical factors will be that move these stocks prices either higher or lower. On balance, though, I think you will be very pleased with the performance of our portfolio by the time earnings season winds down in mid-November.

Some reporting dates are firm and others are still projected based on past reporting patterns. Here’s the calendar:

Earnings Dates for October

Earnings Dates for November

Week of October 15 10/16 Intel 10/18 Motorola (projected)   Packeteer   Zhone Week of October 22 10/23 Harmonic 10/24 Affymetrix   Akamai Technologies   Plug Power   QuickLogic 10/25 Amgen   Comcast   Cnet Networks   iRobot   QLT Inc. 10/26 Millennium Pharmaceuticals (projected) Week of October 29 10/29 Geron 10/30 Rochester Medical (projected)   SiRF Technologies 10/31 Alvarion   American Science & Engineering (projected)   eResearch (projected) 11/1 Gasco Energy   Silicon Image   ViroPharma (projected)

Week of November 5 11/5 Isolagen (projected) 11/6 Sequenom (projected) 11/7 Airspan (projected)   BioCryst 11/8 Dendreon (projected)   Lighting Science Group (projected)   SXC Health Solutions (projected)   UTStarcom (projected) 11/9 Telkonet (projected 10Q filing — no call)   Connacher Oil & Gas (projected)   Energy Conversion Devices (projected) Week of November 12 11/12 Proxim (projected) 11/13 CombinatoRx (projected)   Crucell (projected) 11/14 Energy Focus (projected)   TowerStream (projected) 11/15 Integral Technologies (projected 10Q filing — no call) Week of November 19 and later 11/20 Infinity Energy Resources (projected) 11/29 US Geothermal (projected) 12/13 Rentech (projected) 12/18 FuelCell Energy   Ocean Power Technologies

I’ve laid out my expectations for all the biotech stocks below, plus every company expected to report by the end of next week. In next week’s Radar Report, I’ll be updating you on the Intel results, have a quick take on Motorola, Packeteer and Zhone, and lay out my forecasts for the rest of our companies in this earnings reporting season.

Avian Flu MegaShift

BioCryst (BCRX) will report about $10.5 million in sales and a 30-cent per share loss in both the September and December periods, which is in line with the consensus. The important topics on the call will be how their 40-person intramuscular (IM) trial of using a longer needle to inject peramivir for seasonal flu is going, and what the plan is for the intravenous (IV) peramivir Phase II clinical trial for avian flu. BCRX is a buy up to $13 for my $30 target after successful Phase II intravenous results are announced.

Crucell (CRXL) will show a sharp acceleration in sales and earnings over the next two quarters as the vaccine season accelerates. The Street (one analyst) is looking for $109.4 million and a loss of 10 cents a share in the September quarter. I expect that they will do closer to $115 million and breakeven. For December, the lone estimate is for $97.4 million and a loss of 17 cents. I think the company will guide for $105 million and a loss of around five cents. CRXL can be bought up to $28 for my $50 target.

Biotech MegaShift

Affymetrix (AFFX) should beat the consensus estimate, coming in at $97 million and seven cents a share for the September quarter versus Wall Street’s $92.4 million and five cents. I’m also looking for upward-revised guidance to around $115 million and 20 cents a share in the December period. That consensus is at $107.2 million and 16 cents.

Patti wrote: “You have been banging the gavel on AFFX for a year. Your target was $40 at the end of ‘07 at that point, when AFFX was about $22. At some point I believe you even compared AFFX to ILMN. At the same point in time ILMN was about $32 and today it bounced over $55. I have owned ILMN since 5/04 when it was $7.85 and I have never felt that AFFX could compete in this technology. What makes you feel AFFX has a chance of reaching $40 and when?”

Although Affymetrix’ new Single Nucleotide Polymorphism (SNP) product to compete with Illumina was delayed, it is now shipping and is one of the reasons that I am estimating that earnings will come in above consensus. The other thing to remember is that Illumina already lost their major patent litigation to Affymetrix, and I expect AFFX to get a double-digit royalty that will impair Illumina’s profitability and add to Affymetrix’ bottom line.

If AFFX has the good earnings call on October 24 that I am expecting, I still think the stock can hit $40 by yearend, and certainly by my expected market peak next April. Buy AFFX on dips under $27 for my $40 target.

Amgen (AMGN) is expected to report $3.58 billion in sales and $1.03 on the bottom line, and then show a sequential decline in the December quarter to $3.54 billion and 97 cents. I expect them to beat the September numbers and guide higher than the December consensus for two reasons. First, I doubt the fall-off in Aranesp usage will be so dramatic, and doctors are in an uproar about what they see as Medicare ordering crummy medicine that will deplete the nation’s blood banks. The private payers like Blue Cross are not going along. Second, Amgen’s quick response to cut costs will show up in operating expenses right away, as they will either show or verbally give the restructuring costs for the quarter as a line item, and analysts will adjust them out because they are non-recurring. So, the stock is set to move upward, which will be followed by analysts raising recommendations for 2008 on what is obviously the best buy in the major biotech/pharma universe. Continue to buy the Amgen January 2009 $70 LEAP call (VAMAN) all the way up to $12.50 for my $25 target price when AMGN stock hits $95, on or before the LEAPs expire in January 2009.

CombinatoRx (CRXX) is still a development–stage company, and they should report right around the consensus estimates for $3.3 million in sales and a 46-cent loss this quarter, followed by $3.4 million and a 49-cent loss in the December period. That doesn’t matter. What counts is the status of their numerous Phase II clinical trials, either underway or on the schedule. They will take good Phase II results and find partners to fund the Phase III trials. It’s a great business model if you have a steady stream of new drug candidates, which their technology gives them. Buy CRXX up to $7.50 for my $16 target.

Dendreon (DNDN) will report less than $100,000 in revenues and lose about 25 cents a share in the September and December quarters, which are also the consensus estimates. Again, the numbers don’t matter. They might be able to say something positive about the rate of patient accrual or when they think that they’ll be able to do the interim peek for Provenge. Otherwise, there isn’t much they can do to move the stock, short of announcing the European partner, and I don’t have any insight as to when they will do that. It could be any day. DNDN can be bought under $8 for my $40 target after Provenge is approved.

eResearch’s (ERES) numbers do matter. The consensus is cautious at $26.6 million in sales and eight cents a share. I think they will do at least that, and perhaps as much as $28 million and 10 cents. Orders will be an important number during the quarter, and I’d like to see them top $30 million, with less than $5 million in cancellations. December-quarter guidance should be a bit higher than the Street’s $28.1 million and nine cents a share, but this is a cautious management that likes to set the bar low. ERES is a Top Buy up to $16 for my $30 target.

Geron (GERN) is a development–stage company, so you know the story: Financials don’t count for much, other than how much cash they have versus the burn rate. The consensus is at $1.0 million and a 20-cent loss, followed in December by $1.1 million and a 21-cents loss. As always with Geron, the stock will follow clinical trial news, plus any new medical society presentations or publications. Buy GERN up to $9 for an $18 trading target, and much higher levels in following years.

Isolagen (ILE) is another development-stage company, and I expect them to report less than $300,000 in revenues and lose 18 cents a share in both the September and December quarters. That’s pretty much the consensus. The big issue here is now that the clinical trial of the Isolagen Process has restarted, how fast are they enrolling patients and when will we see the data. Buy ILE under $4.50 for my $9 target.

Millennium Pharmaceuticals (MLNM) is expected to report $118.4 million and a profit of one cent a share, with the December quarter targeted at $122.8 million and two cents a share. They do have to hit and guide for these numbers to support the stock, but like the development-stage companies, the real movers will come out of a discussion about their drug pipeline and many ongoing trials. They are feeling pretty well about the latest results, so it should be an upbeat call. Buy MLNM up to $12 for my $23 target, possibly in a takeover.

QLT Inc. (QLTI) announced the acquisition of ForSight Newco, bringing them new ocular drug delivery technology that can replace eye drops, especially for glaucoma. Patient compliance is a real issue with eye drops — many older patients can’t or won’t bend their heads back far enough to get the drops in their eye, sometimes for fear of falling. Half of all eye drops patients don’t refill their prescriptions after the first six months supply is used up (or not used). If glaucoma is treated, it can be controlled; if not, it often results in blindness. Replacing eye drops is a big deal.

QLTI will pay $42 million upfront and then $5 million on initiation of the first Phase III clinical trial, $20 million on first commercialization of the first two products, and $15 million on first commercialization of each subsequent product, plus unrevealed royalties. They’ll start Phase I/II trials in the first half of 2008.

The company should beat the September consensus earnings estimate of five cents a share, even if they only match the revenue estimate for $32.6 million. They’ve reduced expenses more than Wall Street thinks. I expect them to guide above the consensus, which is looking for a sequential decline to $31.9 million and three cents a share in the December quarter. They should be able to report a flat quarter, because macular degeneration does not take holidays. Buy QLTI up to $8 for my $16 target.

Rochester Medical (ROCM) has a chance to really shine this quarter, with a full quarter of sales through Premiere. The one analyst following the stock is very cautious, looking for $8.4 million in sales in the September fourth quarter and seven cents a share, followed by $8.7 million and another seven cents in the December period. That would have ROCM coming in at $32.6 million and 23 cents for the September 2007 fiscal year, and the lone analyst is looking for only $38.9 million and 34 cents for fiscal 2008. I think they can beat $40 million and do 40 cents. ROCM is a Top Buy up to $23 for my $40 target.

Sequenom (SQNM) should hit the consensus for $9.7 million in sales and a 13-cent per share loss in the September quarter, and then guide for $11.4 million and a smaller loss of 11 cents in December, as they march towards profitability. As long as they have expenses under control and keep growing revenues, Wall Street will cut them some slack. The company usually has some interesting announcements about new partners or new applications for their gene sequencing equipment, and that can move the stock more than the numbers. SQNM remains a hold for my $10 target, which I may raise a bit after this call.

SXC Health Solutions (SXCI) has a bad quarter baked into the current stock price, with a consensus estimate for $22.6 million and eight cents a share. They are expected to bounce back to 13 cents a share on slight sequential revenue growth to $23.2 million in the December quarter. The key to the stock is when or if they will sign the delayed deals, as just one good contract could make the December revenue number too low. The stock tumbled under my $13 buy limit and found support in the low $12s. I’m raising the buy limit to $14 to give you a chance to buy it before the early November conference call. The target price stays at $30.

ViroPharma (VPHM) is expected to report $52.6 million in sales and 28 cents a share in the September quarter, and that’s probably right. But the consensus for the December quarter is $51.9 million and 24 cents, and that’s too low. I think the company will guide for an up December quarter and will also say that the whole issue of generic Vancocin is now a non-issue, because at this point no one could get a product into the marketplace earlier than ViroPharma management has expected all along. They won’t tell us what everyone really wants to hear, which is how close they are to an acquisition or in-licensing deal. But they will remind everyone that it could happen any day, and the stock will go up on the news.

How do I know that? Because this management is very smart, they won’t overpay, and they will have strategic plans in place for anything that they buy that they can talk about right from the first conference call that announces the deal. Buy VPHM up to $12 for my $25 target.

China MegaShift

Only two weeks after my forecast that the Chinese stock bubble will pop, a major crack appeared at LDK Solar. LDK makes solar wafers — a hot stock in a hot industry. The crack started when the company’s financial controller left, complaining of poor financial controls and an inventory discrepancy. When an economy is growing as fast as China’s is, based on the government printing money at an 18% annual growth rate, bad accounting and inventory problems can be papered over for quite a while. Look at the Chinese banks — every one has been bankrupt for years under honest accounting for loan losses, but they hang in there year after year because no one calls them on their manipulations or shuts them down.

In LDK’s case, the chief financial officer said that the company had conducted an investigation of the alleged inventory problem and found no evidence of it. They added that they fired the financial controller for cause when he didn’t show up for work. That was on October 3.

Five days later, on October 8, Barron’s published a piece quoting an LDK whistle-blower saying the company has severe manufacturing problems, with silicon ingots so contaminated that the quality control folks couldn’t even analyze them. The company responded by saying that they would file a report with the SEC “soon” that will “reconcile” data from the management assessment of inventory levels and an independent audit by KPMG. My experience is that the way you reconcile data with your auditing firm is that you accept their data, period.

It isn’t surprising that the red-hot solar industry is where this crack appeared — isn’t that always the way? The number of billionaires in China leapt to 108 at the end of 2006, up from 15 in 2005. China has more billionaires than any other country than the U.S. Mousey Tongue must be turning over in his urn. (Mousey Tongue was the best-named Siamese cat that I ever met.)

Historically, emerging market stocks sell at a discount to developed-market stocks because of the risks of bad accounting, weak corporate governance, unpredictable government edicts, currency risk and so on. The price-to-book value ratio of emerging markets has averaged a 40% discount to the price-to-book value ratio of developed markets over the last 10 years. But the China excitement started narrowing that discount at the beginning of 2003, and by the beginning of 2005, it was down to a 20% discount. By the beginning of 2007, it was down to a 5% discount, and today emerging markets trade at a premium to developed markets for the first time in at least 10 years, since the Asian currency crisis and Russian market collapse. Investors are paying a premium to put their funds into riskier stocks. That’s a bubble, and it could keep inflating for another year, all the way to the Beijing Olympics. Or LDK Solar could be the first “tell” that the game is over. It will be interesting to watch this play out.

UTStarcom (UTSI) put a little of their accounting travails behind them yesterday, finally announcing September and December 2006 quarterly and annual results. September’s report showed $601 million in sales, and they lost 36 cents a share. Analysts had expected a loss of 32 cents on $587.6 million in sales. December results showed $704 million in sales and a 35-cent loss. Analysts were looking for only $606.9 million and a 34-cent loss. These are old news, even though we finally have real numbers that are better on the top line and a tad worse on the bottom than expectations. They also completed the China sales recognition investigation, which caused revenue to shift to more recent periods.

More importantly, they’ll lay off 11% of their workforce, 700 people, taking a $10 million charge in the December quarter. This should save them $21 million a year. Analysts were looking for $2.27 billion and a loss of $1.28 a share for fiscal 2007, and these results won’t change that much.

On the conference call, management said that they will report the first and second quarters of 2007 in the next few weeks, and the September quarter in early November, finally bringing them up to date. They were able to transfer $150 million in cash out of China, and they should show us a balance sheet for September with tight but positive liquidity. It’s hard to predict what the hard book value will be, but it could be substantial in relation to the current price of the stock. UTSI remains a hold for a $10 recovery target. However, if the Chinese bubble market pops, we will sell.

Content on Demand MegaShift

Intel (INTC) will report next week, and Wall Street is looking for $9.6 billion and 30 cents a share, followed by $10.4 billion and 37 cents in the fourth quarter. PC sales have been strong, up 12% in the September quarter, so I suspect inventory levels of microprocessors are a little low going into the holiday build season. Intel may guide a bit higher for the December quarter.

It’s interesting that Intel had a good quarter due to strong sales of personal computers, digital cameras (+20% in the September quarter), cellphones (+18%) and other consumer electronics. Yet flash memory suppliers like SanDisk (SNDK) and DRAM suppliers like Micron (MU) are having a tough time. How can that be? There is serious weakness in spot prices for memory chips, and it is now impacting contract prices. Most memory chipmakers have seen October contract prices for DRAM drop about 20%, while flash memory fell 15%. They were looking for flat prices, based on good demand for end products. Instead, the Tier 2 suppliers are running at losses and the Tier 1 suppliers are getting squeezed. Flash memory prices are down 40% from August, when they were expected to be strengthening about right now due to a projected shortage. Because Samsung and Toshiba are still profitable, I expect further price pressure.

The problem is overcapacity, as the existing suppliers convert to 65-nanometer and even 45-nanometer processes, while DRAM suppliers accelerate their flash memory production in the vain hope that those products will be more profitable than DRAM. It’s turning into a real mess for SanDisk, which has been quite weak during this most recent upturn, and I expect some very unpleasant guidance from them when they report on October 18. We will continue to avoid these stocks, which I refer to as “trading sardines” that are good only for play money.

Motorola (MOT) is getting a little more respect due to rumors of strong sales of the Razr2, so they are another company that has a chance to make a big difference with a decent September quarter. Wall Street’s expectations are modest: $8.8 billion in sales and only four cents a share on the bottom line. I think they will do $9.1 billion and five or six cents. Even better, the consensus for the usually-strong December quarter is also reasonable at $9.7 billion and 10 cents. I think the company will guide for over $10 billion and 12 cents to 14 cents a share.

Obviously, if those numbers come through at next Thursday’s call, the stock will move. You can still buy the Motorola January 2009 $17.50 LEAP calls (VMAAW) just under my $4 buy limit for a $10.50 target ($28 minus $17.50) in January 2009 — or sooner.

Zhone Technologies (ZHNE) is expected to continue their pattern of small losses, with a loss of one cent a share in each of the September and December quarters. Revenues are forecasted at $43.2 million in the September quarter and $45.7 million in December. I see no reason to think that they will do better. They could have a good conference call if growth in their new DSL products accelerates, even if legacy products decline more than expected. The mix of business is important to this stock, but it’s very unpredictable quarter to quarter. Hold ZHNE for higher prices, probably in an acquisition.

New Economy MegaShift

Cnet Networks (CNET) was “favored” by advice from Henry Blodgett, the poster boy for dot.com analysts who did not know what they were doing in the Internet bubble. Although barred for life from the securities business, Blodgett has a blog and gives free advice to selected targets, most recently Cnet. His advice is to take it private, rehire the CEO that left due to stock options backdating, primp it up, and then sell it for big bucks. Great advice, Henry, except that would mean public investors don’t get the gain. Why he thinks private equity guys deserve to make all this money and we don’t is beyond me, but the obvious problems that he cites can all be fixed with the company public.

I wrote about these problems when we bought the stock, as they were what dragged it down under $8 in the first place. Cnet needs to focus on their very popular web sites and do a better job of monetizing them with ads. They need to do something with Webshots, the very good photo-sharing site that is hard to monetize and not as much fun as Flickr, but has a huge amount of content — 400 million photos — and loyal users. Maybe they need to split in two. These are not decisions that need to be made in private.

When Cnet reports on October 25, the consensus is looking for $99.4 million in sales, up 6.5% from last year, and two cents a share. Those numbers are about right. Guidance should be for $130 million in sales and $1.32 on the bottom line, which would be about in line for revenues, but a couple of pennies light. That might push the stock back under my buy limit. I say “might” because we will also get more details on the turnaround plan, and that will support the stock. So, buy CNET on any dip under my $8 buy limit, especially right after the earnings report, for my $17 target. If it doesn’t dip after the report, I will raise the buy limit a bit for those who are not yet in.

New Energy Technology MegaShift

Rentech (RTK) drew a question from subscriber Fred, who wrote: “Just read an ad for International Energy (IENI), which is supposed to be able to create 5,000 to 7,000 gallons of petroleum from an acre of a crop. The process takes only a few days, due to algae discoveries. Is this legit and competition for Rentech?”

It is possible to get 5,000 gallons of petroleum from an acre of algae, but at a great expense. There is a lot of research going on around the world, with actual production in Israel. My former partner, Lissa Morgenthaler, is now CEO of LiveFuels, which is funding several algae development projects at Sandia Labs, a Department of Energy research organization. She would be the first to say that they need to find the most efficient kinds of algae and slash production costs to make this economically feasible. So the big difference is that the Rentech process is competitive at $45 a barrel oil, and today algae might be competitive at $200 a barrel oil. That will come down over time, but Rentech’s window is right now.

Rentech should hit the consensus estimates of $23.3 million in sales and a loss of six cents a share in the September quarter, followed by $30.3 million and a loss of five cents in December. But what really matters is how their various coal-to-liquid projects are progressing, and I think the news will be good, especially about the collaborations with coal companies. RTK is a Top Buy all the way up to $5 for my $11 target.

Security MegaShift

Packeteer (PKTR) has a lot to prove this quarter. The consensus outlook for $33.9 million in sales covers a range from $32.4 million to $35.1 million. I think that they can do a little better than the consensus, maybe $34.2 million, just because capital spending is holding up in their area. Earnings estimates range from a nine-cent loss to breakeven, with a loss of five cents a share in the center. I’d like to see a three-cent loss to indicate Dave Cote has the situation under control. A lot will depend on what he reports and then on what he says about it — whether there are deeper competitive or product problems, or we were just looking at transient market conditions.

The outlook for the December quarter is even wider, centered on $36.8 million and a two-cent loss. If Dave can’t guide for profitability in the quarter, I think the board will give in to Elliott Associates and put the company up for sale, and the stock will go up. If Dave can point the way to a penny or two of profit, the stock will go up, and then it will go up more in January if he delivers. I still like the technology, and recommend buying PKTR up to $9 for my $20 target, which may be in a takeover.

Market Outlook

This market has been very strong, first consolidating with little weakness and then breaking out to new highs. The S&P 500 handled the 1552 to1555 area that I spoke about very well, and it is now headed for 1605. It is remarkable that the VIX Fear & Greed Index is still well over 15, as the last time that we were near these levels it was down to 10. There are still too many bears, and if sentiment stays this cautious all the way up to 1605, we’ll consolidate there for a bit and then break on up to the next big target at 1690.

If sentiment does finally turn very bullish, we can expect a quick, scary drop back to 1552 to1555 to rebuild negative sentiment and set up the move to 1690. It would take a sustained drop under 1550 to make me think that the short-term outlook has changed. Either way, our stocks should do very well in the December quarter. Oil prices look likely to hang around under $80, consumer spending will be OK, and the slowdown (but not downturn) in capital spending will not affect any of our positions directly.

We also may be on the verge of another plunge in the dollar — I think that’s what the gold market is telling us. Gold has been through a long, high-level consolidation just above $728, and it looks to me like breaking $751 will start the next leg up — one that could stretch all the way to $800. With “official” inflation nowhere in sight, the only other factor that I can think of that is driving gold is the terminally ill dollar’s next leg down.

Over the past month, we’ve talked a lot about the profitable opportunities in each of our holdings, pointing out the core reason why I’m recommending them. I even spent the past two weeks focusing specifically on two of our MegaShifts –Avian Flu and Biotech — and provided in-depth updates on these as a whole and their individual companies as well. This week, I want to switch gears slightly, and look at each of our holdings from a different angle — which MegaShift stocks might you never have to sell. The reasoning behind this is that I received an excellent question from a subscriber recently that really piqued my interest and got me thinking about my recommendations.

Charlie asked: “Warren Buffet says that stocks you never have to sell are the best investments. Which of your stocks might I never have to sell? I don’t think they are the Top Buys, or am I wrong?”

No, Charlie, you are not wrong. My general time frame when making a new recommendation is a stock that can double in a year and a day, so it will qualify for long-term capital gains treatment. I know when picking companies to recommend there are some that have the potential to double again over the following one or two years, and then maybe do it again after that. The Top Buys list includes some of these stocks, but it also has others that have become so extraordinarily depressed as to create a short-term buying opportunity, and some others that have a particular event coming up that I think will move the stock dramatically.

But your question is excellent because my checklist has a bunch of big picture questions related to the size of the market that the company is operating in, their market share and opportunity to increase it, their unique selling proposition, and the moat that they have built around their business (often based on technology, but also distribution channels, customer lists, reputation and so on). The “never sell” stocks usually have to rank high on all of these characteristics.

Before I give you the names and the reasons, there are three important qualifications that you should consider before using this “never sell” list:

• Stocks not on this list might offer higher returns over the shorter one- or two-year time period, but the ones that actually made the list have more predictable long-term prospects.
• Stocks on this list might get acquired before they realize their full potential, because corporations are looking for acquisitions that fit the same profile — in general, they really will hold them forever.
• Stocks on this list can fall off due to the unfolding of events, and stocks not on the list can graduate to it if they execute well.

The Potentially “Never Sell” Stocks — And Why

This is a different-looking Radar Report because I wanted to answer Charlie’s question for its own sake, and also to suggest where we might wind up when this market ultimately tops out, probably next March or April. (We’ll return to our usual format in next week’s issue.) I’ve been bullish most of the time since mid-2002, and until I see the signs of a broad market that has come to the end of its upcycle, I’m not going to worry about having our MegaShift stocks dragged down by general market weakness. Sure, there will be corrections along the way that drop the value of all stocks, but I’m trying to get you into stocks and MegaShifts that will have higher highs, higher lows and high returns over the full market cycle.

But what will we do when the market finally does top out, which could come as soon as December if the S&P 500 builds on the surge in negative sentiment and its own recent strength to go parabolic from here? The answer is that I will advise you to cut back your portfolio allocation of stocks to your minimum, even if that is zero. I will also advise you to sell every stock that seems fully valued, or not executing, or unable to resist the pull of a down market. In many cases, we will sell them through tight stop losses that are set according to each stock’s support and resistance levels. In other cases, we may sell ahead of potentially negative news or just based on valuation.

But I won’t recommend selling them all. For those whose minimum equity position means always holding some stocks, we will cut back the buy list to the best-positioned “never sell” stocks and use them to ride out the storm. I’ll continue to look for new companies that are breaking out in new MegaShifts, but we’ll be very, very selective about adding new positions in a down market. We can do that by using on-stop buy orders, the intellectual opposite of stop loss orders. If a stock is strong enough to break out over a resistance level that I have identified, we buy it. If not, we wait.

So think of this first list as the pool from which we will pick the strongest stocks to ride out a bear market. As you’ll see in the second list, there are a few of our stocks that almost made the “never sell” list or could graduate to it in the future, if things continue to go right. It’s important to remember that lists like this are always a work in progress. Now, let’s take a look at which of our companies made the grade.

Affymetrix (AFFX) is the leader in DNA analysis. Whenever Moore’s Law finally runs out of gas and semiconductor price/performance stops improving 30% a year, the driver for the Technology Economy will shift from semiconductors to DNA for the rest of the 21st century. Grab AFFX while it is under $27 for my initial $40 target.

Amgen (AMGN) is so big and creative that it is hard to imagine them not being a biotech leader for the next 30 years. As you know, they already have a well-established portfolio of drugs, and they’re always striving to add to this pipeline. Double up on the AMGN January 2009 $70 LEAP call (VAMAN). The position remains a buy with limit all the way up at $12.50, and a $25 target price when AMGN stock hits $95, on or before the LEAPs expire in January 2009.

eResearch (ERES) has more than half of the rapidly-growing outsourced cardiac safety testing business for new drugs. I think that more and more parts of the clinical trial process will be outsourced, and ERES will be able to repurpose their business template to additional areas for years to come. ERES is a buy up to $16 for a $30 target.

Geron (GERN) is the only small biotech company on this list, because it is hard to predict the lifetime of even the best small biotechs, even assuming that their drugs work. Most of them get acquired, as the transition to a multi-product biotech or specialty pharmaceutical company is very difficult. But Geron owns such important basic technology in two very large markets — stem cells and cancer — that it has a high probability of becoming a “never sell” stock. GERN should be bought under $9, and it can trade quickly to my $18 interim target when positive news stories hit.

Akamai Technologies (AKAM) is focused on a problem that will not go away for many, many years: Providing Internet content at instant speeds to any device anywhere in the world. Unless Google buys them, which is a real possibility, AKAM is the leader in a decades-long opportunity. Buy AKAM on any dip under $30 for my $60 target. I expect to raise the buy limit after their September-quarter earnings conference call. Last Friday, they announced the call for October 24 after the close, with no negative preannouncement, and the stock moved up more than $2 this week.

Comcast (CMCSA) is locked in competition with Verizon and AT&T, and so it might surprise you to see it on this list. But many “never sell” companies have competition. The question is whether the underlying market is growing fast enough to provide opportunities for all of them, which the Content on Demand MegaShift is doing. Buy CMCSA up to $28 for my $62 target over time.

Harmonic (HLIT) is so small that it might also be a bit of a surprise to see it here. But video will drive the expansion of the Internet for many years, and Harmonic is the best video equipment company in the world right now. Small companies can lose their edge, for sure, but if they don’t fall into that trap, we easily could own HLIT for years.

Last week, I wrote up Arris’ acquisition of C-Cor for the Radar Report, but then I killed it in the editing process, because it wasn’t really relevant. Arris, you may recall, lost out to Ericsson on buying Tandberg TV, a direct Harmonic competitor. So now they are buying C-Cor, which only has a couple of competitive products, and actually joint ventures a product with Harmonic. Subscriber Elie asked: “You wrote that in the current Comcast trials, Harmonic is the only supplier of Switched Digital Video (SDV) gear. I read somewhere that a company called C-Cor (CCBL) also makes SDV and they (CCBL) have key trails of their SDV with Comcast. Is CCBL a competitor to HLIT or do they have a partnership with HLIT with respect to the SVD? Should one worry about CCBL making a better product and taking HLITs market?”

The short answers are that CCBL is both a competitor and a partner, and they have not been very effective so far, but I always worry about new products eating into Harmonic’s market share. About 80% of C-Cor’s business is in video access and transport, not switching, and in general they are not the #1 or #2 supplier in their markets. C-Cor bought nCUBE in 2005 to get a position in video-on-demand, and announced an SDV system a year later, based on nCUBE technology. They have not gotten much market share, but they are in the Comcast trial in Denver. Previously, they announced a joint marketing alliance with Comcast for the video-on-demand product.

Arris already has a successful edge device that can be used for SDV, and in July they said that they won part of an edge device contract with Comcast. The other supplier is Harmonic. It is not unusual for a big company to use two suppliers on a mission-critical project, especially when both are small companies working in a new technology area.

At the Cable-Tec Expo 2007 in June, C-Cor and Harmonic showed a joint offering that uses Harmonic’s hardware and operating system, with a C-Cor software application for session and resource management. I don’t think that they’ve sold any of them, and I expect Harmonic to develop their own software rather than try to continue the partnership with Arris.

In sum, C-Cor has been a weak competitor to and sometimes a partner with Harmonic, and as it disappears into Arris, I don’t think the real dynamics of this niche change very much. C-Cor and Arris have virtually identical customer lists, and I really don’t see why the deal makes business sense for Arris. But it should not hurt Harmonic, and HLIT remains a Top Buy while it is under $11 for my $18 target.

Intel (INTC) will be at the center of the semiconductor revolution as long as it runs, because of their world-class manufacturing. Only IBM and maybe Taiwan Semiconductor are in the same class at this point. The stock hit a 52-week high of $27.71 last Friday but came down sharply yesterday when a Morgan Stanley analyst warned of a possible price war because: “Microprocessor unit shipments recently have outpaced PC shipments, raising the risk of double ordering and an inventory correction.”

Yeah, right. July and August are not noted as strong months for computer sales, so no surprise there. August and September are big months for microprocessor shipments into the channel, to get ready for the holiday build-out. So every year, microprocessor unit shipments outpace PC shipments in August and September. But thank goodness for Wall Street, because his comments brought the LEAP options back below my buy limit for one last time, giving you a chance to get on board if you haven’t already. Buy the INTC January 2009 LEAP calls with a $22.50 strike price (VNLAX) under $6. The target price is $12.50 at expiration, a clean double.

Connacher Oil & Gas (CLL.TO) is the first of a string of New Energy Technology stocks on the “never sell” list. Absent a major production breakthrough, oil is going to be expensive and hard to come by for decades as peak oil plays out. Canada is the next Saudi Arabia with its massive oil sands fields, and Connacher is very well positioned with steam-assisted gravity drainage technology and oil sand leases in the Great Divide project in Alberta. CLL.TO is a Top Buy up to $4.50 for my $9 first target.

Energy Conversion Devices (ENER) could not be on this list if you were looking back into their past, because their execution has been painfully slow. But their technologies are extraordinary, and with the retirement of founder Stan Ovshinsky and the new management team, I am making an early call that the company will be an important participant in solar, battery and semiconductor memory technologies, with other areas to come from their trimmed-down R&D.

Monday, the company added Hynix Semiconductor in Korea to the list of licensees of the Ovonyx Phase Change Memory technology. Hynix will develop replacements for DRAM and flash memory products.

The Merriman Curham Ford brokerage firm just estimated ENER’s fair value at $50 a share. They said that Unisolar is experiencing its strongest growth in the company’s history, with photovoltaic sales up 25% in the September quarter. They think that the Cobasys hybrid battery joint venture with ChevronTexaco is only worth around $2 per share — I think that is way low.

Stocks rarely go down sharply after they announce restructuring plans to save large amounts of money, but that’s what happened here. So, this is a real opportunity. Buy ENER under $30 for my $55 target.

FuelCell Energy (FCEL) is doing well on the experience curve for the Hydrogen Economy, a decades-long trend if there ever was one. Their recent domination of the Connecticut initiatives should be at least a showcase for their technology, and more likely will be viewed from the future as the defining moment that they broke out of the alternative niche to become a mainstream energy supplier. FCEL is a buy up to $11 for a $22 target.

Gasco Energy (GSX), like Connacher, benefits from peak oil as higher prices force natural gas prices up for years to come. The current, transient weakness in Rocky Mountain natural gas prices gives you an extraordinary entry point for this stock. Buy GSX up to $4.50 (my buy limit is a double from current prices) for a $9 target as gas prices rise this winter.

Infinity Energy Resources (IFNY) is also like Connacher, with the additional kicker of the huge Nicaragua concession. I finally spoke to the CEO about the Amegy Bank fiasco. Basically, the bank saw the company getting ready to sell assets and trim down, and said: “Wait, how does that affect our loan?” There is no real pressure on management to do anything that they weren’t going to do anyway.

I have no doubt that the company did not do a good job of managing their banking relationship, and while they have some excuses (their lending officer went on paternity leave), they simply have to work their way out of it. I told them that they really need to do a conference call, and they said that they would. But they haven’t done it yet. Even so, I am moving IFNY back to a buy, with a buy limit of $3 and an unchanged $10 target price. I will make it a Top Buy as soon as they hold the promised conference call.

Ocean Power Technologies (OPTT) is a leader in the next great alternative energy technology. Off the Mendocino, California, coast, Chevron popped up a few months ago and filed to install a test wave energy project. Then PG&E piled on two weeks ago with a series of information meetings, and it seems like much of the California coast will be allocated over the next few months. I haven’t seen much about this in other than local media, but I will be attending meetings with the commercial fisherman and other stakeholders to watch the process. Wave power is a 50-year technology cycle at its very beginning. Don’t miss it. OPTT is a very strong buy up to $20 for my $40 target.

Plug Power (PLUG) is in the Hydrogen Economy, too, with deep pockets behind them. They have further to go than FuelCell Energy in getting to a great business model, but hydrogen is a long, long trend to be working in. You can buy PLUG all the way up to $5 for my $10 target.

Rentech (RTK) is, of course, the leader in another 50-year technology cycle, the conversion of coal to petroleum liquids. Yesterday, the company got county approval to buy 450 acres in Adams County, Mississippi, for its Natchez Strategic Fuels and Chemicals Center. They will use multiple feedstocks (pet coke, coal and biomass) to produce petroleum liquids and chemicals at this plant. They can also feed excess carbon dioxide into a pipeline that services enhanced oil recovery in the region.

The Department of Energy’s National Energy Technology Laboratory says that the Fischer-Tropsch process, with biomass co-feed and carbon capture and sequestration, reduces carbon dioxide emissions by 20% compared with petroleum-derived diesel. And it’s all domestic production.

This month, Rentech will be telling their story on October 9 at both the Natixis Bleichroeder Hidden Gems Conference and the Chadbourne Coal-to-Liquids Conference in New York. They’ll tell it again on October 17 at the Gasification Technologies Conference in San Francisco, and finally October 31 at Gas to Liquids 2007 in London. RTK is a Top Buy up to $5 for my $11 target.

US Geothermal (UGTH) is a leader in a 100-year technology cycle to tap geothermal power. There is simply no reason that much of the West can’t run on geothermal power at zero emissions, especially since it’s already been reported that the U.S. has about 5.6 million exajoules of recoverable geothermal energy. The company will flip the switch on at Raft River this month. UGTH is a Top Buy while it is under $3 for my $6 target.

iRobot (IRBT) is the leader in consumer robots. This week, they introduced the Looj gutter-cleaning robot that I tipped you off about in the August, 30 Radar Report. While the $149 device drew snickers from many, I know they’ll sell at least one to me. In a moment of weakness, this morning I bought a former B&B built in 1912 that has so many additions and gutters that it would be hard to see them, if it wasn’t for all the leaves in them from the heritage oaks surrounding the place. I can’t wait to turn my new Looj loose on it.

The other robot that they introduced was also very cool. The ConnectR Virtual Visiting Robot doesn’t do a specific job; it is a communications robot that can run around your home providing two-way audio and one-way video. Here’s the pitch courtesy of iRobot:

* * * * *

Stay close to those you love — no matter where you are!

Don’t miss out on special moments at home even when you are away. The iRobot ConnectR is a fun new way to see, talk to and interact with your loved ones, friends and pets — when you can’t be there in person. Combining the latest in Internet communications and robot technology, ConnectR lets you virtually visit with loved ones, relatives and pets anytime you wish — seeing, hearing and interacting with them in their home as if you were there in person.

• Participate in family moments even though you’re working late
• On a business trip? Read your kids a story and see their faces light up
• Join the fun from near or far
• Throw a party from a thousand miles away
• Tell Fido he’s a “good boy” even while you’re on vacation

Think you can’t be in two places at once? Think again. The iRobot ConnectR is a cool way to stay connected to your family and friends even when you’re apart.

* * * * *

I’m sure Jay Leno will think of numerous situations where an unexpected visit from the robot could be interesting. I also expect the hacker/tinker community to embrace the ConnectR and come up with many nifty uses for it. It’s $199 for the next few weeks if you are willing to fill out usage surveys, and then it will sell for just under $500 at list price. With the holiday season fast approaching, I’m increasing the buy limit on IRBT by $1 to $20, while keeping the target price at $30.

American Science & Engineering (ASEI) has to be on this list because, sadly, increased security will be a multi-decades reality after 9/11. Maybe the radical Islamists will finally forget about the Crusades — they won, didn’t they? — and we’ll have less need for ASEI’s cargo container X-ray systems, Z Backscatter vans for bomb detection, and smart airport screening devices. But that’s just not the way to bet right now. Buy ASEI on any dip back down under my $59 limit for the $93 target.

SiRF Technologies (SIRF) is nimbly managing the transition from dedicated Global Positioning System (GPS) devices to GPS as a feature of cellphones, cars, laptops and every mobile device. This leads to location-based services, including highly targeted advertising that ties what you need to where you are right now. Just this week, Nokia agreed to buy Navteq for $8.1 billion. Navteq provides the maps for many GPS device suppliers, and this huge commitment to GPS by Nokia sent SIRF’s stock up $2.

I am confident that SiRF will continue to lead this technology. We all had a chance to buy SIRF on the Labor Day blowout sale under $22, but if you missed it, I am nudging the buy limit up $1 to $23 in case SIRF dips again, while keeping the $40 target price.

Cnet Networks (CNET) is all about content, and the Internet is all about content. The Internet won’t go away over the next many decades, and content providers like CNET will continue to be in great demand. That’s about the whole story, except for the many ways that they will monetize it. CNET is an excellent buy while it is under my $8 limit for the $17 first target.

Alvarion (ALVR) was a wireless broadband equipment company before WiMAX. They will ride the WiMAX MegaShift for 10 years until the whole world is “wirelessed” and then they will ride whatever wireless wave comes after that. The stock is unlikely to come back down to my $9 buy limit, so I am moving ALVR to a Hold for my $18 target. But I will probably raise the target or continue to hold the stock if it hits there in the next several weeks, as there will be more to come in 2008.

TowerStream (TWER) was a wireless broadband service provider before WiMAX as well, and they too will ride the WiMAX MegaShift as long as it lasts, and then repeat with whatever replaces WiMAX. One characteristic of a “never sell” company is that the management will keep making you money even as the industry matures and changes, the products go obsolete and are replaced by a new technology, or the whole basis of their business shifts. It’s the opposite of what happened to Kodak, which should have owned the digital camera and digital flash card business. I can hardly believe TWER is this cheap — what an amazing gift. TWER is a Top Buy up to $6 for my $16 target.

Why The Other Stocks Probably Are Not “Never Sell”

BioCryst (BCRX) will have the next big avian flu antiviral drug, in my opinion, and go on to build a nice company using the cash flow from government stockpiling. But as I said, it is very difficult to label most small biotechs as “never sells.” Not that we can’t make a ton of money in the stock over the next year or two. Buy BCRX up to $13 for my $30 target. It is arguably the most undervalued stock on the whole list, or #2 behind TWER.

Crucell (CRXL) almost made the “never sell” list due to the 70+ licensees for their vaccine production technology. But I think that their pediatric vaccine business is susceptible to new competition, and I will watch that vulnerability closely. CRXL can be bought all the way up to $28 for a $50 target.

CombinatoRx (CRXX) could turn into a “never sell” in the future if their Phase II program starts turning out hits. Their technology of combining already-approved drugs looks pretty open-ended for perpetual growth if it turns out effective drugs. We’ll know a lot more by the end of 2008. CRXX is a buy up to $7.50 for my $16 target.

Dendreon (DNDN) also could turn into a “never sell” because their personalized therapeutic vaccine technology can be applied to one solid cancer after another. But first, we need to see the Provenge trial work… preferably at next year’s interim peek at the data. Buy DNDN under $8 for the $40 target after Provenge is approved.

Isolagen (ILE) can build quite a company in cosmetic dermatology, but as with other small biotechs, it’s hard to point to what protects their position for decades to come. Buy ILE up to $4.50 for a $9 target after their clinical trial results are announced.

Millennium Pharmaceuticals (MLNM) is in a better position than most small biotechs, but they are still a long way from being Amgen, and they don’t have the killer technology base of Geron. MLNM is a buy up to $12 for my $23 target, which may come in a buyout bid.

QLT (QLTI) has a decent future, and the stock is priced as if they have none. That difference explains why we are hanging in there, but a decent future is a long way from a “never sell.” Buy QLTI under $8 for a $16 target as combination therapy becomes the standard way to treat macular degeneration.

Rochester Medical (ROCM) is my favorite medical device stock by a mile, but it is too small and specialized to call it a “never sell” with a straight face. It could get there, though, depending on what area it goes into next and how it executes. ROCM is a Top Buy while it is under $23 for my $40 target.

Sequenom (SQNM) is a neat opportunity in DNA analysis, but a long way from being an Affymetrix. SQNM actually just hit my $8 target this week, an 80% gain in four months, so I am moving it to a Hold and raising the target price to $10.

SXC Health Solutions (SXCI) will cut the cost of pharmacy benefits for years to come (think the United Auto Workers might suddenly be interested?), and could turn into a “never sell” if they execute really well. We have to take this one a year at a time, and so far, not so good. On Monday, they surprised me and everyone else by lowering 2007 guidance for the second time in two months, citing delays in signing contracts that they have already won. They expect to sign them in 2008, but they also said that they saw slower-than-expected retail pharmacy sales and implementations.

In August, they cut the year’s guidance to $95 million to $97 million, with earnings of 63 cents to 68 cents a share. Monday, the second shoe dropped and they said that they now expect to do $92 million to $93 million and earn 51 cents to 55 cents. That’s quite an earnings drop for a relatively mild revenue guidance reduction, and I only hope that they don’t turn out to have three feet. They are going to lay off 7% of the workforce to generate annual savings of $3 million, but, of course, the $800,000 cost of the layoff hit the September quarter and most of the benefits come next year.

Analysts were looking for 65 cents on $96 million, so the stock dropped 18% on Monday and still has not found a bottom. I will be making this one a Top Buy after the dust settles, but the dust may not settle until their earnings conference call. For now, I’m cutting the buy limit to $13 and sliding this year’s $30 target price to 2008, and the $46 target to 2009.

ViroPharma (VPHM) almost made the “never sell” list based on their strategy and the quality of the management, but I decided to wait until we see how they spend their cash hoard. A great in-licensing deal on an approved drug or an acquisition could ignite this stock and give us a good indication of how long of a run they can have. VPHM is an excellent buy under $12 for my $25 target, as that is just the first stop.

UTStarcom (UTSI) has been too troubled to be a “never sell” stock, even though I think that we will make scads of money from its turnaround. UTSI remains a Hold for my $10 target.

Motorola (MOT) is in a fashion business, and I still wear Birkenstocks, so I don’t try to guess what phone trendy people will buy next. But in the next couple of years, they have nowhere to go but up, after getting passed by Nokia for the last year. After that, who knows? As I wrote last week, it looks like the Razr2 is going to kick-start the stock. We’ll take our projected triple on the LEAPs in 16 months and move on. I want you to buy the MOT January 2009 $17.50 LEAP calls (VMAAW) while they are under $4 for a $10.50 target ($28 minus $17.50) in January 2009.

QuickLogic (QUIK) is a terrific little company, in the right place with the right products, but the semiconductor business is just too fickle to predict which company will become the next big one. This one just has to grow to medium size to make us a bundle. QUIK is a Top Buy up to $4 for my $8 target.

Silicon Image (SIMG) will ride the HDMI revolution as long as possible, but like QUIK, it’s hard to forecast the very long-term potential for a small chip company. The stock is dirt cheap right now, and their strong holiday selling season is here, so SIMG is a Top Buy all the way up to $13 for my $20 target.

Telkonet (TKO) would be the smallest company on the “never sell” list, and I would have put it there if the current CEO had already resigned. But he has not, and until my theory that he is on the way out is proven to be true, there’s no way to move the stock up.

Rich asked: “I just read on Bloomberg about TKO exhibiting a ‘Continuation Diamond (Bearish)’ technical chart, according to Recognia. They claim it signals a continued deterioration of TKO’s price down to the $1.07 to $1.17 range. Do you place any credence on this, and if so, should we be worried?”

I don’t put much credence in this. It would not be unusual for a stock to have a quick, scary decline back to test its last low ($1.20 on August 7) before reversing to higher levels. I think that we should stay focused on their world-class in-building Broadband over Power Lines technology and the impending management change. Buy TKO up to $5 for my $15 target.

Zhone Technologies (ZHNE), like UTStarcom, has had too many problems to think about it as a “never sell.” Hold ZHNE for a turnaround or a takeover engineered by the venture capitalists that are still on the company’s board of directors.

Energy Focus (EFOI) is a neat little company in the LED revolution, but years away from having enough mass or protected technology to be considered a “never sell.” Don’t chase EFOI over my $6 buy limit, but certainly grab it on any dip for my $15 target.

Lighting Science Group (LSGP) is in the same position in the same industry as Energy Focus, but in the short term it may benefit from a leak yesterday that China has agreed to phase out incandescent light bulbs over the next 10 years. There will be a formal announcement in December. China is the first developing nation to join the Global Environmental Facility program. In surveys, 67% of Chinese consumers said that they would rather buy products from companies with strong environmental records. In Australia, 52% said that it made a difference. In the U.S., 42%. Sigh. LSGP is a Top Buy while it is under 50 cents a share for an initial $1 target. This one could develop into a multiyear 10-bagger; we shall see.

Packeteer (PKTR) is the technology leader in wide area network traffic management, but they need to turn that into consistent, predictable results instead of always fighting fires. They were good firefighters for a couple of quarters, but got burned in the June period. John asked: “Once again we’re approaching a critical time for PKTR. Please comment on your expectations for this company when it announces its earnings early in October. Do you foresee another ’surprise’ like we have gotten the last couple of times (with subsequent trashing of the stock) or are they stabilized and now executing (which may imply a chance for some recovery)?”

Well, that is the question. Results could be very weak and still not be a negative surprise, because expectations are very low. The consensus is looking for a 5.8% revenue decline to $33.9 million, in a fairly tight range from $32.4 million to $35.1 million. The loss forecast is wider, from breakeven to a nine-cent per share loss. Over the last three months, average expectations have gone from a six-cent profit to a five-cent loss. So, I don’t think there will be a relative disappointment.

However, if the company reports right on the consensus, with a small revenue decline and a five-cent per share loss, I would hardly say that they are executing well. I would like to see December-quarter guidance above the current consensus ($36.8 million and a two-cent loss) to say things are getting better. No one would believe their guidance anyway, but it would start the stock back up.

It’s important to remember that they have the best technology, and their problems are marketing and accounting issues. Both are very important areas to get right, of course, but if the products are mediocre, it’s a lot harder to do well even with great marketing and solid accounting. So, PKTR still has their basic advantage, and if Dave Cote can’t leverage it into solid results, I expect Elliott Associates will succeed in their efforts to get the board to sell the company. Therefore, disappointment or not, you can buy PKTR under $9 for my $20 target on their own or in a buyout.

Integral Technologies (ITKG) has electrically active plastics technology that is very intriguing, and the stock is cheap, but it’s far too small to make the “never sell” list. Buy ITKG under $2.50 for another run to the $4 target, and then we’ll look at raising the target or moving it to the “never sell” list.

Airspan Networks (AIRN) could turn into another Alvarion and make it to the “never sell” list, but they will have to prove themselves in mobile WiMAX. Alvarion has already shown that they can develop, sell, build, install, service and upgrade fixed wireless networks all over the world. I would say Airspan is about at the “install” step of that process, and we just need to be sure that they can do the rest of them — especially upgrade for more revenue. Still, AIRN is a cheap stock and a timely buy up to $5 for my $10 target next year.

MobilePro (MOBL) is worth more as a tax write-off than an ongoing business. It is time to pull the plug on this one. My mistake was not running in the other direction when I saw Cornell Capital was involved. My apologies to those who lost money on this one. Sell MOBL.

Proxim Wireless (PRXM) is even smaller than Airspan, and has further to go to prove themselves. But we can make good money on the stock during that process, as Wall Street gets excited about WiMAX and looks around for WiMAX stocks to buy. PRXM can be bought all the way up to $4 for my $7 target.

China MegaShift

Last week, I set the cat among the pigeons by writing that China is in a bubble stock market similar to the Internet bubble, and it is going to end the same way. I hastened to add that this could be the equivalent of January 1999, with another year of parabolic gains ahead. Actually, I think it is more similar to the end of 1999, with the Day of Reckoning not far away. The problem is that the Chinese are pouring money into their stock market in the belief that it is easy money with little risk, since stocks don’t go down for more than a day or two. Now that a recent liberalization means that the incoming cash can be diverted from the Shanghai Stock Exchange to the Hong Kong Exchange, the pieces are in place for a top and a sudden education in the two-way nature of markets.

What I did not know when I wrote last week’s analysis is that in late September the government said that it would put in a price freeze on most of the prices in the one-third of the economy that they still control, including oil, electricity, water and telephone rates. The reason for this: Citizens are angry about inflation accelerating to 6.5%, the highest level in more than 10 years.

The reason for inflation is not the high 10% growth in GDP, but the even higher increase in their money supply of 18% year over year. Yep, the Chinese have been printing yuan at a rate that would make even Ben Bernanke blush. Why would they do that? The yuan is tied to the dollar, so by flooding the market with yuan, they can keep the value down with the dollar, against the euro and yen. In fact, they actually did one better than Ben in an effort to end the international pressure to revalue the yuan higher. Why should a paper currency go up in value when the monetary authorities are creating 18% more of it every year?

We know where the price freeze will lead. If you have too much of something, freeze its price in an inflationary economy and watch it go away. Of course, China has too little oil, electricity and water, and the freeze will just make the shortages worse, create gray and black markets, and mess up the free market allocation system. Those are all things that are not good for earnings. When President Nixon imposed wage and price controls on August 15, 1971, the Dow Jones Industrial Average closed up the next day at 888.95. The controls were supposed to last 90 days, and 90 days later the DJIA was at 810.53, down 8.8%. But then we had Phases I, II, III and IV of the controls, in total lasting about 1,000 days. The whole program was a monumental failure in controlling the inflation rate, as you can see in this chart:

Chart courtesy of Econreview.com.

By the time most of the controls were lifted in August 1973, the DJIA was around 875, essentially flat from August 15, 1971. They kept the price controls over oil and natural gas for several more years, including 32 different prices for natural gas. The prices for domestic oil production were held down, effectively forcing domestic producers to subsidize imported oil, providing additional incentives to import oil into the United States and increasing our dependence on the Middle East.

Robert Schuettinger and Eamonn Butler wrote Forty Centuries of Wage and Price Controls: How Not to Fight Inflation in 1979. Too bad it was never translated into Chinese. I am not saying that the entire malaise in the U.S. markets from 1971 to 1974 was due to the imposition of wage and price controls, but I think it was a sign of severe strain that manifested itself in many bad ways over the next few years, and it is about to repeat in China.

So will the Chinese government stop printing yuan at such a ridiculous clip? If they do, the liquidity-driven Shanghai stock market boom in China, up 400% from the beginning of 2006, will not just deflate, it will crash. If they don’t, there will be higher inflation or continued price controls that result in shortages and rationing lines on Chinese TV. Maybe that won’t give newbie investors pause, but maybe it will. We will watch from the sidelines; this is a powder keg you do not want to go near right now.

Market Outlook

After seven days of a churning consolidation, the S&P 500 broke through the 1528 to 1534 zone that marked the breakdown in July, and it is now consolidating again comfortably above it. If we don’t get a retest back down to 1517, it will indicate that this is a very strong market that wants to run up to the 1555 all-time high and then, after some more consolidation, break through. If it does need the retest down to 1517 or so to build up enough negative sentiment for the move to 1555, that’s OK. A drifty consolidation between 1517 and the 1555 high, as we work our way through earnings reporting season towards the next Fed meeting and a 50-basis-point rate cut on October 30 and 31, would be just fine. Many of our stocks can move up in that environment based on their own earnings reports and outlooks.

There were very, very few negative preannouncements in the last three weeks, and expectations are low for September-quarter earnings. Yet the Economic Cycle Research Institute Weekly Leading Index that I discussed in the last Radar Report has stabilized and turned back up. The ECRI economists said: “Following its August plunge, WLI growth has exhibited a pattern of stabilization since early September that, if sustained, would make a recession quite unlikely in the near term.” And the Baltic Dry Index of shipping rates continues to soar to new all-time highs due to the strong demand for shipping space, which is a function of the strong global economy.

I still hear market gurus warning about October as a highly volatile month of crashes, but absent some new major event like a late hurricane or terrorist attack, I just don’t see it this year. Maybe it will happen in Shanghai, but our market looks like it wants to go up. Yet even with the DJIA setting a new all-time record high this week, the VIX Fear & Greed Index is still sitting in the high teens. As it declines to the low double digits or even single digits that will mark the next top, the transition from Fear to Greed can power a few hundred-point upleg in the S&P 500. We are fully invested and well positioned for that.

Dollar Death Watch

One of the biggest problems for the bears over the past few years is their argument that high inflation and a plunging dollar will trigger a global exodus from U.S. assets, causing prices to tumble. It may seem logical, but that is not what history shows. During hyper-inflationary periods, asset prices (stocks, real estate, commodities) go up across the board, as underlying values are repriced higher in response to a declining currency. That’s one way declining currencies cause inflation.

Last Thursday, the dollar dropped through long-term support to hit 77.60, a new record low. It is now in a little reflex rally, but I think that countries all over the world are backing away from holding dollars, especially China, Russia and Japan. Also add Saudi Arabia and OPEC — do not be surprised to see oil move from being priced in dollars to being priced in a basket of currencies, which will make the price in dollars soar. The next major target down for the dollar is 69.30, and we will start down that path if Bernanke cuts rates another 50 basis points at the October meeting, as I expect. Gold could be at $2,000 an ounce by the time the dollar gets that weak, so this is something to watch closely during the next six months or so. Remember to get out of bonds and keep your cash in yen or euros at EverBank, or hedge yourself with the new Philadelphia Stock Exchange World Currency Options.

The Fed

Bob wrote: “Based in large part on your recommendations over the last several months, I am ‘all in’ and standing by. Meanwhile, I find the background insights you have been providing to be excellent, but only the tip of the iceberg (understandable, considering the page budget of the newsletter). As you did with the book recommendations for LEAPS, could you recommend a couple of books to give us the next-level deeper understanding of printing money, the mechanism by which the Fed was already lending at 4.5%, and so on?”

Bob, I haven’t had time to write that book, and I am the only person in the world who understands the Fed.
Seriously, it’s hard to find a good book on the Fed that anyone without an advanced math degree can understand, yet is more than a conspiracy rant. I would start with Secrets of the Temple: How the Federal Reserve Runs the Country
by William Greider. It’s very readable, but it was published just after Paul Volker turned over the chairmanship to Alan Greenspan. Today’s situation is a little different, thanks to the massive non-bank financial system based on hedge funds and brokerage firms, although the basic mechanisms at the Fed are the same.

If you’re up for more, read The Creature from Jekyll Island: A Second Look at the Federal Reserve by G. Edward Griffin. The Fed was founded in a secret meeting on Jekyll Island, Georgia, in 1910. (As far as I know, Mr. Hyde was not present, although given the recent history of the Fed, he really should have been there.) This is an anti-Fed book, but not nearly as extreme as Murray Rothbard’s The Case Against The Fed. In fact, most books about the Fed beyond college textbooks are anti-Fed. Gee, I wonder why?