Wow… what a week for the market. In last week’s Radar Report I said: “I did not re-recommend buying puts because there is a very good chance that this decline will stop at the major target at 1410 (the August 16 close) on the S&P 500, perhaps as soon as tomorrow. The day after Thanksgiving used to be a favorite to turn the market around, but the practice of holding half-day sessions has made it irrelevant. There is a possibility that the market will bottom out on Friday or Monday and start a move back up.

“If this happens at the 1410 level, the market can stage a humungous rally into next March.”

Well, the S&P 500 rallied back to the very important 1440 level in the holiday-shortened Friday session, then dropped Monday to the 1410 level. According to some folks, the accompanying drop in the Dow Jones Industrial Average generated a Dow Theory sell signal on Monday. The S&P 500 tested 1410 again twice on Tuesday, and the “humungous rally” began at 2:44 p.m. from 1409.52. Yesterday’s amazing 40-plus-point slingshot rally went through the 1440 level like it wasn’t even there, which is a crucial change in the character of the market that tells me this rally is for real. The fact that the market gave nothing back today is doubly amazing, and shows tremendous underlying buying pressure.

The first run up from the 1410 area to 1440 was caused by short sellers covering. Then the swing traders all went short at 1440, because that trade has worked so well for the last several weeks. Looking at a five-minute chart of the S&P 500, you can see the shorting come in, then the market’s upswing overpowering these new shorts, and then their panicky efforts to cover their positions. By the end of yesterday, the Dow and NASDAQ had put together their best two days in five years. Lots of luck on that Dow Theory sell signal.

I think the best that the bears can hope for now is a quick drop back to test 1440 from above, which might let them cover their shorts gracefully, but I sure wouldn’t count on that. When a market goes through a former crucial level so easily, it usually means that level has lost a lot of its importance. Plus, the VIX Fear & Greed index is way up in the mid-20s, and that can drive a rally of hundreds of points on the S&P 500 by the time it gets back down near single digits. And the 10-year Treasury note traded under 4% for the first time since 2005, and low interest rates are good for stock values, especially growth stock values. If I’m right about all this, we will be at new highs by the end of January at the latest — maybe by the end of December. The Santa Claus rally lives. I also think this rally will end in a parabolic upmove into the 1700 to 1800 range by about the third week in March, but consider that an early call, as I don’t have all the evidence yet. We shall see.

Also in last week’s Radar Report, I pointed out that the “Federal Reserve economic outlook notes released today said that it expects slower GDP growth next year due to the housing slump and the credit crunch, but it thinks that inflation will remain moderate. In other words: ‘We are going to cut rates!’”

Yesterday’s explosive rally was attributed to just a hint from Fed #2 honcho Donald Kohn that there will be another rate cut on December 11. Specifically, he told the Council on Foreign Relations that the Fed must be ‘flexible and pragmatic’ in its policy. What that means in Fedspeak is that they know they are not following their own professed policies on inflation, the dollar and the economy — they are just winging it. As long as the housing slump and credit crunch exist, they will cut rates. This time, I expect them to cut by half a point, because after they did a measly quarter-point cut last time, the markets spanked them.

Yesterday, the Fed also released its latest snapshot on the economy, and they said that shoppers are watching their pennies. According to their survey, “Reports on retail spending were downbeat in general. Most retailers said that they were expecting a slow holiday season, with only small gains in sales volumes compared with last year.”

How they can possibly reconcile that with the strength of sales over last weekend is beyond me. This is going to be a pretty decent holiday shopping season, and for technology products, it will be excellent. A recent Solutions Research Group survey of 1,200 consumers found that 75% had at least one digital product on their holiday wish list, including 35% who wanted a flat-screen high-definition TV. The second choice, at 20%, was a Windows Vista-based notebook computer, while the third choice at 17% was a digital camera. After that came, in order, Windows Vista desktop computers, GPS car navigation systems, cell phones, digital video cameras, the Nintendo Wii, Sony PS3, and Blu-ray or HD-DVD high-definition DVD players.

Apple didn’t have any products in the Top 10 this year, which is odd, considering that usually some version of the iPod is on the list. The MacBook ranked #11 and the iPhone was #15. Microsoft’s Xbox was #12. Those aren’t my choices, so let me present:

The Annual New World Investor Guide to a Killer Digital Holiday Season

When I was in college, an assistant professor of mathematics and party-level piano player named Tom Lehrer put out his first album. I still have mine, including the classic A Christmas Carol. The first two verses are:

Christmas time is here, by golly,

Disapproval would be folly,

Deck the halls with hunks of holly,

Fill the cup and don’t say “when.”

Kill the turkeys, ducks and chickens,

Mix the punch, drag out the Dickens,

Even though the prospect sickens,

Brother, here we go again.

You may be feeling its “Brother, here we go again” with this annual list, but there are some great digital gifts around this year that will earn you high ratings from the recipients, especially among the younger set. Plus, if you are one of the 35% looking forward to buying a flat panel HDTV, which one should you get? I’ll not only tell you, I’ll give you the model numbers.

“Black Friday,” the day after Thanksgiving, used to be the busiest shopping day of the year until you procrastinators looking for last-minute gifts shifted that distinction to the Saturday before Christmas. But the Thanksgiving weekend still accounts for about 10% of all holiday sales, and the 10 days before Christmas accounts for about 40% of the total. This year, there is a longer than usual stretch between Thanksgiving and Christmas with 32 shopping days, including five full weekends. But if any of the following tech gifts intrigue you, I suggest that you don’t wait for the last minute as many of them are known hot items and may sell out.

I’ll cover the biggie first: That flat panel TV. After that, this list is roughly in alphabetical order because only you can match the gift to the recipient — grandma probably wouldn’t like a Nintendo Wii, but the Kodak EasyShare might be just the ticket.

Flat Panel & HDTVs

First, notice that all flat panel TVs are not high definition. Regular TV images are made up of 307,200 picture elements, or pixels, in a 640-by-480 configuration. Some LCD TVs under 30″ still use that. HDTV has at least 921,600 pixels — three times as many — in a 1,280-by-720 configuration. The 1,280-by-720 sets give a great picture, and anything over that is just gravy. The very top end of HDTV has 2,073,600 pixels in a 1,920-by-1,080 configuration. Unless you have an HD DVD player or the newest video game console, you probably can’t get a 1,920-by-1,080 signal. Of course, eventually everything will move to the higher resolution. But if you sit at least 10 feet away from the set, you’ll hardly notice the difference.

It’s also important to note that the analog signal will be turned off on February 16, 2009, but only some of the new digital signals will be high definition. Also, there will be digital-to-analog converters, so you won’t have to throw away your monster 60″ rear-projection TV. But you’ll want to, once you see a digital picture.

So let’s sort out the high-definition issue first. Issue #1: Where are you going to get your signal from? Whether it is cable, telco or satellite, you probably will have to upgrade your set-top box in advance, and you may see a higher bill when they add on the HD channels. If you have TiVo, you may have to upgrade to TiVo HD, unless your new set-top box has a built-in HD video recorder.

Issue #2: Where are you going to put it? Setting aside the cost of the box for the moment, the size and setup of your TV room will determine how big of a set you should get, and maybe even which technology to choose. Here’s the standard table translating viewing distance to screen size:

Viewing Distance	Suggested Screen Size
6.25 feet	30"
7.3 feet	35"
8.3 feet	40"
9.4 feet	45"
10.4 feet	50"
11.5 feet	55"
12.5 feet	60"
13.5 feet	65"

You can always go one size larger or smaller for any given viewing distance, but if you go two sizes up or down, it may feel like going to the movies and having to sit too close or too far away from the screen. Of course, if you like sitting in the very front or very back row, feel free to ignore the table. If you have an entertainment center, be sure to measure the designated TV area carefully, and take your tape measure with you when you shop. You may have to hang the new one on the wall and figure out how to hide the wires, or buy an HDTV stand and set it in front of your entertainment center where it won’t block other components.

The salesman will probably try to sell you a $100 set of gold-plated cables to hook everything together. Don’t fall for it. Buy HDMI cables on the Internet for $25 and help Silicon Image (SIMG) beat their conservative guidance.

So, on to the choice of a TV. First, you probably don’t want a rear-projection TV, even though they are cheaper, because they are overly sensitive to the angle from which you view them. Unless you always sit in the same position in the same place every time you watch TV, you will be better off with a flat panel.

But which flat panel: LCD, plasma, or DLP? DLP technology really hasn’t caught on yet, even though it’s a good picture for the money, so unless you love the picture and the price, you’ll probably be better off elsewhere. LCDs are brighter than plasma, so if you will have the TV in a sunny room, they’ll perform better. Plasma has better contrast and marginally better color in a dim room. LCDs weigh less than plasma, and are your best bet if you want to mount the screen on a wall. They also run cooler, so you can mount them closer to the wall and still get adequate airflow for cooling. Plasma TVs used to suffer from screen burn if you paused an image for too long, but these days both the TVs and DVDs have screen savers to prevent that. Plasma screens do wear out faster than LCDs, but that means your plasma screen will last 30 years and the LCD screen will last 50 years. Who cares?

As far as picture quality, it used to be true that in the bigger sizes, LCDs were a bit slow to watch fast action like sports. That is still true of the cheaper big-screen LCDs, but the better models are much faster. If you watch lots of sports, you may want to go plasma; otherwise, you probably won’t notice a difference in quality. Plasma will cost more at any given screen size.

So here are my picks:

32-inch LCD (Sharp LC-32D41U): At a street price under $1,000, the 32″ Sharp LCD offers excellent image quality. On Black Friday, some stores were selling the 46″ Sharp LCD for $999, so you might be able to pick up the 32″ for well under $1,000 when the pre-Christmas panic sales hit in a couple of weeks.

37-inch LCD (Toshiba 37HLV66): This 37″ Toshiba LCD has a built-in DVD player and great picture quality, for a street price around $1,500.

40-inch LCD (Sony KDL-40XBR2 BRAVIA): How can this 40″ Sony LCD have a street price of $2,700, almost double the 37″ Toshiba? Because this is a 1,920-by-1,080 set, so it will make the PlayStation, Xbox 360 and Wii look great, plus give you serious bragging rights during the SuperBowl.

HP MediaSmart TV:

The Hewlett-Packard MediaSmart SL4278N flat panel TV (shown to the left) can easily access Internet videos without going through a computer. The LCD has 1,080 pixel resolution, which is as good as it gets on consumer TV, and it has built-in WiFi and a pre-programmed connection to Internet movies that you can download and begin watching as soon as you plug it in. $1,700 should get you one.

42-inch Plasma (Samsung HP-S4253): Ah, plasma. 42″ is a big screen, the image looks great, Samsung makes quality sets and the street price is around $1,800.

50-inch Plasma (Panasonic TH-50PX60U):

Ah, big screen plasma. Panasonic pretty much owns this market. This one has fabulous color and contrast for the $2,300 street price. The Panasonic TH-50PX77U 50-inch plasma is a less snazzy, cheaper model at a $1,600 street price, and a super buy.

Yamaha YAS-70 Surround Sound Bar

Wiring up five or more speakers in the living room to get a surround-sound system has what is known as a “low spousal acceptance factor.”

So you buy a surround sound bar –a bunch of small speakers built into a long case — that slides under the TV and is very effective in most living rooms. It may not be 100% surround sound to the purist, but it sure puts audio all over the place. This Yamaha adds a subwoofer that you hide behind the couch for more dramatic effects when you watch Star Wars or Top Gun for the ‘lebenty-leventh time. Only $600, and arguably a must-have with that new flat panel TV.

The Slingbox Solo

In the early days of New World Investor, I talked a lot about the Sling Media Slingbox, which lets you record video or HD video at home, and then play it back from anywhere on a laptop or smartphone. You can use your laptop as a remote control to set up the Slingbox from any Internet connection. The Slingbox Solo is a less expensive version of the original, and a great toy for the video-obsessed at $179.

Bang & Olufsen Beo5 Remote Control

OK, on your list you have a couch potato who already has a Panasonic TH-50PZ75OU, a surround sound system and a Slingbox. But I’ll bet they didn’t spend $560 on a remote control, so you still have a blow-away gift for them. With this Bang & Olufsen’s universal remote and a catheter from Rochester Medical (ROCM), they may never have to get off the couch again.

They simply call or email Bang & Olufsen with the details on their home theatre and HVAC systems — TV, stereo, DVDs, lighting controls, heating, air conditioning and security — and the company will customize this remote control for them and FedEx it. It has a customizable touch screen so it can be set to display any choice of buttons in any order. Unfortunately, it is launching in December and you may have to give a gift certificate, but the specs will cause heavy drooling and it will be Christmas all over again in January when the FedEx person shows up.

But TV Is So 20th Century…

Here are my other choices for those not among the 35% lusting for a flat panel TV and the accoutrements.

Apple 16 Gigabyte iPod Touch

I was a little surprised that this iPod didn’t make the Top 10 on the survey listed above. You could get the music lover on the go a credit-card size iPod Nano with four gigabytes that will hold 1,000 songs for $149, but the one they will love is the Touch. It has the same 4″ screen as the iPhone and can download music over a WiFi connection. The eight-gigabyte version lists for $299, but you may as well splurge and pony up $399 for the 16-gigabyte model.

Audio-Technica QuietPoint Active Noise-Canceling Headphones

I wear Bose QuietComfort noise cancelling headphones when I work at my computer, because I have various computers, routers and mass storage systems all whirring away with sterocilia-damaging chronic tones. (You may know that if the sterocilia in your inner ear get damaged by high sound levels, you lose hearing and you can’t get it back.) But when I upgrade these sturdy old phones, I’ll probably switch to Audio Technica. They cut environmental noise by 85%, while being sensitive to acute noises like babies crying. At only $124, they’re about a third of the cost of Bose’s new QuietComfort 3 headphones.

Audiovox 96-Watt DC-to-AC Power Inverter

Plug it into your cigarette lighter, then plug your laptop into it and recharge as you drive from appointment to appointment. It converts your car’s 12-volt DC power to 110-volt AC power, and will drive any electronic gear, like a portable printer, for only $30. Perfect gift for a road warrior.

FLY Fusion Pen Computer

Tom Lehrer’s fourth verse is:

Relations, sparing no expense’ll

Send some useless old utensil,

Or a matching pen and pencil.

“Just the thing I need! How nice!”

Well, they won’t be sarcastic about the FLY, a pen with a camera at its tip. Whatever you write with the pen, the camera scans and digitizes it, and a microprocessor lets you upload everything to your computer. The microprocessor also does calculations and some other neat things. It comes with a 160-page notebook filled with special paper in a package for $79. What a cool present for anyone in middle or high school! Notebook refills are $7.95.

Garmin Nüvi 350 Handheld GPS System

If your giftee travels at all, they will love a portable GPS. Garmin is the best-selling brand in the U.S. for several reasons: They are easy to use, both for entering information and reading the map; they can be upgraded to work outside the U.S. and they use SiRF (SIRF) GPS chips. The SiRF chips mean that they don’t lose the GPS signal and they react very quickly to small changes in position. At $370, the middle-of-the-road Nüvi 350 is a good choice.

Gateway XHD3000 LCD Monitor

I never thought I’d recommend a Gateway product, and I may regret it, but so far this monitor seems to be put together as well as it specs out. It has an amazing resolution of 2,560 x 1,600 pixels, and includes a video processor that can do a trillion calculations per second. That lets it sharpen 1,080 pixel images to look like 1,600 pixels, which gives unbeatable resolution. At $1,699 it costs more than many laptops, but if video or video games are important to your recipient, this will make an unforgettable present.

Guitar Hero III: Legends of Rock

Not a video game! It is a guitar peripheral that hooks up to a Wii, Xbox or PlayStation and moves your air guitar player to the next level. It includes tracks from Alice Cooper, Beastie Boys, Smashing Pumpkins, Heart and Kiss. Fair warning: Shoppers were mobbing the stores on Black Friday for this, so you are going to have to be nimble. It lists for $99.99 and don’t expect any discounts — just be grateful if you can find one.

Gibson/Hasbro Power Tour Electric Guitar $70

OK, not to beat this guitar theme to death, but this is a great gift for kids. It lights up the chords for 12 preset songs, and your junior rocker can plug in an MP3 player and strum along with their favorite tunes. Rock on for $70.

iMuffs Bluetooth Headset

Most Bluetooth headsets, whether for cell phones or iPods, make the wearer look like an extra in Terminator 3. Wi-Gear’s iMuffs, designed for the iPod, will connect from up to 30 feet away. So you put your iPod in one pocket or belt carrier, and your cell phone in another. If a call comes in, the headphones pause the song, you touch the “play” button on one of the earpieces, answer and deal with the call, and then go back to listening to your music. For only $180, no wires and no more fumbling around.

iRobot Roomba Robot Vacuum

Hey, you own the stock, why not buy the product? The new Roomba 500 is smarter and quieter than the older models — see the December 7, 2006 Radar Report. You can pretty much set it and forget it, which is especially useful if you have little kids eating at your dining room table. Go for the top of the line at $399 list, or get the entry model at $249. Let’s give iRobot (IRBT) a blowout quarter!

Kodak EasyShare Z812IS Digital Camera

You don’t have to buy a digital SLR camera to get great action shots. The EasyShare is a “snap” to use — you won’t even have to read the manual — and costs just $299.

Nintendo Wii

The Wii is the video game console that non-gamers love, so it has been in short supply ever since it was launched. The motion-sensitive game controller allows some innovative sports games for couch potatoes, especially tennis, golf, baseball and bowling. If you can’t find a Wii console locally, keep calling because shipments arrive unpredictably. You can also check availability on www.wiitracker.com. Or call the Nintendo World Store in New York City at 646-459-0800, which often has inventory when everyone else is sold out. At $250 it isn’t cheap, but remember Tom Lehrer’s fifth verse:

It doesn’t matter how sincere it

Is, nor how heartfelt the spirit,

Sentiment will not endear it,

What’s important is the price.

Seagate FreeAgent Go Portable Storage

The FreeAgent Go is one of the best portable storage products that lets you carry your presentations, movies, videos, music and photos, or backups of your files. You don’t need any software; just plug it in to any USB slot. You can get an 80-gigabyte model for $99 list price, but I recommend the 160-gigabyte version for $149.

Sonos Digital System

Do you know a family that has lots of music stored on several computers? If they care about music that much, they certainly don’t want to listen to it through their PC speakers, and they may be tired of always having to wear headphones. The Sonos system hooks up a receiver to their home network router. It then goes out to all the connected computers, finds all the music, and wirelessly makes any song available in any room with a set of good speakers and a Sonos receiver. The starter kit includes two receivers, the one for the router and one for the first set of speakers, for $999. As you add receivers for other rooms, you can play different music in different rooms if you want to.

Or Send a Check to Heifer International

Lehrer’s sixth verse is:

Hark the Herald Tribune sings,

Advertising wondrous things.

God rest ye merry, merchants,

May you make the yuletide pay.

Angels we have heard on high

Tell us to go out and buy!

If all this digital foo-fraw makes you long for the days of a Slinky, a doll or a BB gun, you could always just send a check for $500 to Heifer International to give a dairy cow to an impoverished family. My miniature Jersey will give me a gallon of raw milk a day with two milkings, while a full-size dairy cow can produce four gallons of milk a day. That’s enough for a family to drink and share with neighbors. Raw milk protein transforms sick, malnourished children into healthy boys and girls. The sale of surplus milk and cheese earns money for school fees, medicine, clothing and home improvements. And because a healthy cow can produce a calf every year, every gift will be passed on and eventually help an entire community move from poverty to self reliance.

It’s an udderly original gift, but if $500 is a bit much, you can send $50 in your giftee’s name for a cowshare, or $120 for a dairy goat (milk, cheese, two kids a year), $30 for enough bees to start a beehive (honey, beeswax, pollination), or $20 for a starter flock of chicks (eggs, meat and many more chicks).

Whatever you decide to do, don’t forget Lehrer’s good advice in his seventh and last verse:

So let the raucous sleigh bells jingle,

Hail our dear old friend Kris Kringle,

Driving his reindeer across the sky.

Don’t stand underneath when they fly by.

Now that you know my top tech picks for this holiday shopping season, let’s do a quick check on a number of our MegaShifts, and answer a couple of your questions.

Biotech MegaShift

eResearch (ERES) acquired Covance’s electrocardiographic operations, and signed a 10-year marketing agreement with Covance to supply centralized cardiac safety services to Covance’s clients. Covance is a $5.6 billion market cap company that provides a variety of drug development services to big pharma, biotech and medical device companies. They also provide central laboratory services and manage Phase II and III clinical studies, so it is quite a feather in eResearch’s cap to be selected to provide cardiac impact studies that Covance previously did itself.

ERES will make a cash payment of $35.2 million and may pay about $14 million in additional compensation based upon ERES’ potential realization of revenue from the backlog transferred and from new contracts secured through Covance’s marketing activities. Under the terms of the marketing agreement, Covance will exclusively use ERES as its provider of centralized cardiac safety services for ten years.

eResearch management increased their fourth-quarter revenue guidance of $27 million to $28.5 million by $1.5 million to $2.0 million additional revenue for the one month of the quarter that they will own the Covance operations. They said that the costs of integration will knock two cents off fourth-quarter earnings guidance of a range of nine cents to 11 cents a share, down to seven cents to nine cents. For the full year, they said that they now look for the midpoint of their previous guidance of $95 million to $103 million in revenues, and took the earnings per share outlook down the same two cents to a range of 27 cents to 29 cents. The stock rose 88 cents a share yesterday in response, but gave back 46 cents today. This is unqualified good news, and ERES remains a Top Buy up to $16 for my $30 target.

Isolagen (ILE) said that the FDA has asked for an analysis of the assessment scale used to track improvements in the company’s acne clinical trial. ILE will change the current trial from a Phase III to a Phase II/III. This has no impact on the Phase III study of the Isolagen Process for wrinkles. The issue is how to measure improvement in moderate to severe acne scars. I don’t think it will have any long-term effect on the stock, so ILE remains a buy up to $4.50 for my $9 target.

QLT (QLTI) normally trades around 500,000 shares a day. But on Tuesday, it traded 1.5 million shares, and the stock rose 38 cents. At 2 a.m. Wednesday morning, the company put out a press release saying that it has put itself up for sale, in whole or in part, and said that they are reviewing proposals. The stock jumped 93 cents a share yesterday on 3.1 million shares. Where is the SEC when you need them?

I think the real value of QLTI is at least $12 a share, so I don’t expect them to sell the whole company. But they might flush out a good bid for one of the parts. Whatever happens, I expect the stock to trade up so you can continue to buy QLTI up to $6 for an eventual target of $12 or more.

China MegaShift

Premier Wen Jiabao said that China will proceed “prudently” with plans to let Mainland residents invest directly in Hong Kong stocks. He also used the phrase “cautiously and pragmatically” and said a major concern is to ensure the financial stability of Hong Kong and the Mainland. I suspect it will be a long time before the “through train” plan, as it is called in the press, will ever happen.

The strong rally that I’m expecting in the U.S. should carry Chinese stocks ever higher, setting up a major Crash in the March to August period. If there is ever a time to sell on the news, it will be at 08:08:08 p.m. China Standard Time on August 8, 2008, when they light the Olympic torch in Beijing National Stadium for opening ceremonies.

Content on Demand MegaShift

Jupiter Research says that about three new users worldwide log onto the Internet for the first time every second. To save you the math, that’s about 95 million more users each year, added to the 1.25 billion users already connected. So growth in users has slowed to 7.6%. But the amount of data being handled continues to grow much faster at 55% per year. Much of that is driven by video, which requires far more bytes of bandwidth to transmit a message. The big winners from the growth in Internet traffic and video are Harmonic (HLIT), Akamai (AKAM), Intel (INTC) and Silicon Image (SIMG).

Telkonet (TKO) drew a question from Tom: “I don’t understand why you haven’t made any comment on the sell-off of BPL at TKO or why there has been such a sell-off since their earnings release. I thought BPL was the main attraction to TKO, so what does this mean for the company?”

Tom, Telkonet is still the leader in Broadband over Power Lines. They sold their investment in a private company called BPL Global for $2 million in cash, where they had invested $131,044 in the company in February 2005. BPL Global develops broadband services via power lines through joint ventures in the U. S., Asia, Eastern Europe and the Middle East, using Telkonet equipment.

The new proxy was just filed, and shows CEO Ron Pickett running for that job again. The annual meeting is scheduled for December 21. If you get a proxy, vote against Pickett and we’ll collectively send a message to the Board of Directors. I still believe that we’ll see a change in CEOs shortly, so TKO remains a buy up to $5 for my $15 target. That looks a long way away, I know, but things can change very fast in a small company with a core technology like this.

New Energy Technology MegaShift

Crude oil posted its own two-day milestone on Wednesday, falling $3.80 to settle at $90.62 a barrel on the New York Mercantile Exchange after dropping $3.28 Tuesday. The $7 two-day plunge was the second-largest since the Exchange introduced a futures contract 24 years ago. Isn’t it something when $90 oil arouses hope?

In the first nine months of 2007, U.S. venture-capital investment in New Energy Technology companies has already set a new record of $2.6 billion in 168 companies. That equals the total capital invested from 2000 through 2005. In 2006, $1.8 billion was invested in 180 companies. Of this year’s investments, most went to U.S. companies –$1.7 billion for 149 deals — and of that, $762 million went to 68 companies in California, mostly in Silicon Valley. So either the lemmings are running, or we got in early on what is going to be one of the biggest MegaShifts of all time. So far, it looks like the latter case to me. Between the industrialization of China and India and the concern over global warming, the drivers are there for years of growth.

Even Google just said that they plan to spend hundreds of millions of dollars over the next few years to research and develop cost-effective alternative-energy sources, including solar, wind and geothermal. Why? Because when you are running and cooling one million servers, as they are, your electricity bill is a major concern.

Energy Conversion Devices (ENER), through United Ovonic Solar, is providing the amorphous solar arrays that cover the 60-foot wingspan of the Zephyr, a new Unmanned Air Vehicle that recently flew for 54 hours straight at the White Sands Missile Range in New Mexico. Only Ovonic could provide solar cells light enough and powerful enough to drive the plane’s motor during the day while charging lightweight lithium-sulfur batteries to power it all night.

The 66-pound carbon-fiber Zephyr is launched by hand. During the 54-hour flight, Zephyr soared to a top altitude of 58,355 feet. A second test flight lasted 33 hours and 43 minutes, getting up to just over 52,000 feet.

You go, ENER! Buy ENER up to $30 for my $55 target.

Rentech (RTK) got a silly proposal from Sherwood Investments Overseas to buy the company for $2.70 per share, and Bill and other subscribers asked for an update. Sherwood owns 4.675 million shares of RTK or 2.86% of the company. Their letter is an obvious attempt to pump the stock rather than make a serious bid; you can read it here. Obviously, I completely agree with their opinion of the company and its opportunity — but why would I want to sell my shares in such a great situation to Sherwood near the all-time low for the stock? I don’t think anything will come of this. RTK remains a Top Buy for their real business up to $5 for my $11 target.

US Geothermal (UGTH) restarted their geothermal power plant test phase at Raft River yesterday, after about a month of downtime. The first start was on October 18, and it ran for 108 hours and generated 1,022 megawatt-hours of electricity before they shut down on October 23. Two injection pumps that failed were modified and reinstalled, and the turbine was disassembled and repaired. The test operation will run through January or February, with the electricity sold to Idaho Power. They should be running full-tilt by the end of December. You can still grab UGTH just under my $4 buy limit for the $6 initial target.

Dollar Death Watch

The dollar weakness is spreading. Saudi Arabia had to cut interest rates by half a percent to try to stop an inflow of currency speculators betting that the riyal will be allowed to appreciate against the dollar. Like many countries, Saudi Arabia pegged the riyal to the dollar years ago, in 1986, because oil is priced in dollars on the international market. But there’s no reason for the riyal to be weak against the euro and yen, and in fact it creates higher domestic inflation that could cause the government problems. The United Arab Emirates has the same problem, and UAE Central Bank Governor Sultan Nasser al-Suweidi said in mid-November that he is under mounting social and economic pressure to drop the dirham’s peg to the dollar to contain inflation, which hit a 19-year high of 9.3% last year. Given Fed Chairman Bernanke’s problems and options, I expect him to shine these folks on until they give up and cut the peg. That should be an interesting day for the dollar on world markets. I know I’ve been harping on this seemingly abstruse issue for over a year, but I feel like I’m watching a slow-motion train wreck where no one really knows where the cars will land.

In one of the strangest press releases of all time — it was put out well after the close on Wednesday, when they knew everyone had left their desks for Thanksgiving — Burst.com (BRST) announced that they had settled their lawsuit with Apple for $10 million, that they would net $4.6 million after legal fees and expenses, and that they would make no further comment. On the face of it, it was a devastating conclusion to what should have been a $100+ million settlement, and Wall Street cut the stock in half during the holiday-shortened Friday session.

But over the weekend, I did a lot of work on this, and I think BRST is a buy, not a sale.

First, look at the timing of the settlement. Judge Patel recently ruled in favor of Apple and invalidated 14 of Burst.com’s patents, but at the same time ruled in favor of Burst.com by reaffirming 22 patents. Those 22 patents put BRST in a good position going into the February trial. Apple’s damages could have ranged from $100 million up to as much as $1 billion if they were found guilty of infringing. The pressure on Apple to settle before trial would have gotten stronger and stronger, the closer we got to February. So why settle now, unless there is a hidden agenda? Which I think there is — read on.

Second, look at the timing of the announcement. I saw it a little after 5 p.m. ET on Wednesday, and Burst’s management was clearly trying to sneak it by all the gurus and commentators. It worked, too. With a couple of exceptions, the story was buried in one paragraph deep in the business section, and by today it was old news not worth commenting on. Why did the company want to do that? I think they simply did not want too many of their future lawsuit targets looking too hard at the news. Although they put the press release up on their website briefly, they then took it down and as of this morning, it is still missing.

Third, the language of the settlement is some of the strangest you will ever see. I was especially intrigued by this:

“Apple agreed to pay Burst a one-time payment of $10 million cash in exchange for a non-exclusive license to Burst’s patent portfolio, not including one issued U.S. patent and three pending U.S. patent applications related to new DVR technology. Burst agreed not to sue Apple for any future infringement of the DVR patent and any patents that might issue from the pending DVR-related applications.”

Say what? The license to Apple does not include one issued and three pending patents on DVR (Digital Video Recording) technology. But if Apple infringes those patents in the future, Burst.com promises not to sue. How is that different from just giving a license to Apple to use all the patents?

I think the answer is that Apple has agreed to license and pay royalties on the DVR patents in the future, when and if (a) the patents issue, (b) Apple needs them and (c) Burst.com successfully enforces them against at least one other DVR manufacturer. That’s why this one-time payment excludes the DVR patents. Why would Apple eventually need them? Because they are planning to add DVR to the faltering Apple TV box, to take TiVO head-on.

So, Apple would have been happy to quietly include the DVR patents in the settlement. But Burst.com did not want to put an implied value on the patents — “Your Honor, these patents were a small portion of the patent portfolio Apple licensed for only $10 million.” I think that’s because BRST is planning to sue TiVO, possibly with Apple’s support. Apple would like nothing better than to see all the other DVR manufacturers having to pay large royalties to Burst.com, while Apple has a sweetheart deal in return for its help with a TiVO suit. This kind of settlement happens in Silicon Valley; it’s just part of the game.

Fourth, look at the language that wasn’t there. There was no comment by Burst’s management about why they settled, or what this might mean, or what they might do next. Instead, we got this:

“The company will not be further publicly addressing issues or answering questions regarding subjects that the Company’s Board of Directors has not yet adequately addressed or resolved, or regarding subject matter that the company’s legal counsel has advised is either privileged in nature, or should not be discussed for strategic or other reasons. As the Board and management make further determinations regarding the matters discussed in this Release and other matters involving the Company’s future operations, the Company may, at its discretion, make further announcements to all shareholders and will also post those announcements on the Company’s web site.”

Of course, the fact that this press release almost immediately disappeared from the Company’s web site is the height of irony. Why not comment? You made a sneak, disappointing announcement with no explanation, the market cut your stock in half, and your only response is that the company will not be further publicly addressing issues or answering questions? Time to get into the 21st century, gang — corporate governance, shareholder rights and all that sort of thing, you know. Oddly, this is just begging for a minority shareholder lawsuit to block the settlement, which surely can’t be what Burst.com management wants. Or is it? The mystery deepens.

Burst.com has $3 million in the bank and burns about $550,000 a year for officer salaries and legal expenses. Management says that they might distribute part of the Apple settlement to shareholders. Although it takes a little digging to find the number of outstanding shares, which is not listed on the quarterly financials on the company’s website, there are about 40 million shares outstanding. So the distribution will probably be towards the low end of a five-cent to 10-cent range.

At Friday’s close of 28 cents, BRST has a total market value of only $11.2 million. Subtracting their cash plus the Apple settlement, the market is giving the patents a value of only $3.2 million. Yet, they just had a disappointing $10 million settlement with Apple to use the patent portfolio, and there are many, many more companies that Burst can sue. Their argument now becomes: “Microsoft settled for $60 million, Apple settled for $10 million, you are violating our patents that have now been through an intense judicial review, so let’s talk.” I don’t see how the patents Apple licensed can be worth less than $25 million to $50 million in additional settlements.

On top of that lays the DVR patents. While it is possible than none of the three unissued patents will ever be granted, Burst.com has a history of getting some very strong patents. It is also true that these patents, if they issue, will have to go through the same challenges and judicial review that BRST’s 22 other patents just survived. But if I am right, and Burst.com files suit against TiVO next, the stock will go from 28 cents to back over $1 in a hurry. The same will happen if they start notching up more settlements, especially if future deals include a royalty stream.

So if you already own BRST, or if you want to put a little money into it to see how it works out over the next year or two, it is time to double up and buy BRST under a tighter 50 cents a share limit for an unchanged $2 target. If you can start a position or double up under 30 cents a share, so much the better.

Your Radar Report is here early this week due to the holiday — Happy Thanksgiving! I’m going to wrap up the September quarter earnings reports this week, where we can be thankful that most of our stocks hit or beat their numbers and reported that business looks good through the end of the year. I’ll also talk about the critical condition of the stock market, which has not been able to rally up decisively. We can be thankful for the bull market year to date, and while it isn’t clear yet that the usual holiday present of a nice yearend rally is in the cards, I suspect that after a bit more work at lower levels the rally will begin.

Finally, we’ll take a quick look at the dollar, where we can be thankful that Asia and Europe have sent us lots of stuff in return for green paper that is going to turn out to be worthless. The Fed sure fooled them! Let’s mix in a little hope with our thankfulness, and hope that Asia and Europe forgive us and don’t hold it against us. Otherwise, the next half century could be pretty tough. But first, let’s get back to the good news: Earnings.

Biotech MegaShift

Dendreon (DNDN) reported last Thursday, and I thought that the conference call was uneventful, although the message board types were anguished because management did not announce the European marketing partner (I didn’t think they would), did not lay out their clinical program for 2008 (I didn’t expect that until the January call) and didn’t tighten the date range for the IMPACT trial data peek from “second half of 2008.” I was hoping that they would tighten the range now that the trial is fully enrolled, as they know exactly when the 400th patient was treated and they know exactly how long they have to wait before observing survival statistics. Management did say that the demographics of the patients in the IMPACT study aren’t substantially different than what we saw in the 9901 study, ending a recent rumor that the IMPACT patients are sicker and therefore less likely to respond.

DNDN management also was criticized for saying that they didn’t know what they were going to do with Neuvenge, their breast cancer treatment. That would be an important criticism except for one thing: They didn’t say it. It is the type of false accusation that people put on message boards to influence stocks. What they said was: “The IND for Neuvenge is active and we’ve already completed two Phase I clinical studies in Neuvenge, both in the breast cancer setting and also in the ovarian and colorectal cancer setting. So, what we are evaluating right now is exactly what disease state we take Neuvenge into and what would those clinical trials look like. And certainly that will be the topic of discussions with the FDA, but internally we haven’t fully decided where we are going to take Neuvenge from a disease setting as of now. Once we conclude on that, we’ll share that with you.”

Another such lie is that a major brokerage firm is about to downgrade DNDN — no major brokerage firm is recommending the stock. In fact, if you are a contrarian, here are the latest recommendations of DNDN by firm:

Date	Research Firm	Action	From	To
Oct 11	Wachovia	Initiated	NA	Mkt Perform
Oct 1	JMP Securities	Downgrade	Mkt Perform	Underperform
Jul 12	JMP Securities	Downgrade	Mkt Perform	Underperform
May 10	Banc of America	Downgrade	Neutral	Sell
May 3	AG Edwards	Initiated	NA	Hold
May 3	Next Generation	Upgrade	Neutral	Buy
Nov 10-06	McAdams,Wright	Downgrade	Buy	Hold

Finally, DNDN management confirmed that there will be several milestones over the next year in addition to the interim results from the IMPACT study, including more publications on Provenge and some new programs, plus a decision on the next study for Neuvenge. They also said that they are laying out a strategy for European approval of Provenge in an effort parallel to the process of selecting a European partner.

One interesting data point coming up is a new SEC regulation on short sellers, requiring that all Failures to Deliver (illegal naked short selling) be located and closed out by December 4. This will put upward pressure on all the “threshold” stocks with heavy naked short interest, like Dendreon and Telkonet (TKO). Although Dendreon dropped under $6 yesterday, presumably based on the false accusation that they don’t know what to do with Neuvenge, DNDN remains a buy while it is under $8 for my $40 target after Provenge is approved.

Rochester Medical (ROCM) also reported earnings last Thursday, and I included the numbers in that Radar Report: the company had $8.4 million in sales and 10 cents a share pro forma during their fourth quarter. On the conference call, management said that they will continue to invest in growing their sales force, because they have a large new opportunity in hospitals. The change in Medicare reimbursement policy I told you about some time ago, where as of next October Medicare will no longer reimburse a hospital for treating a hospital-caused infection, is starting to have a big impact. Management said they are finding that the infection control clinicians not only have a lot more influence now in each hospital, but they are very interested in looking for new technologies that are going to help them do their job better.

In addition to the pressure from Medicare, about 18 states have passed legislation requiring state hospitals to report infection rates for a number of different types of infections. This information will be made available to the public and also reviewed by the legislature.

Management also talked about completing another acquisition, probably of a distribution or sales-force type company. Their most recent purchase in the UK is working out very well. ROCM remains a Top Buy up to $23 for my $40 target.

New Economy MegaShift

CNet (CNET) is acquiring FindArticles.com from LookSmart for $20.5 million. That’s less than half of what they just sold WebShots, their photo-sharing site, for. FindArticles.com has a database of 11 million articles going back to 1998 from newspapers, magazines, journals and similar publications. The difference between WebShots and FindArticles is that it is easy to offer advertising with FindArticles, even if it only Google Adsense. That’s very hard to do with WebShots, because the computer can’t tell what the photograph content is. So CNet will be able to use FindArticles to more effectively advertise and attract users — smart move. CNET is a buy up to $9 for my $17 target.

New Energy Technology MegaShift

Oil futures were fibrillating around $95 a barrel recently, with periodic rumors that OPEC may discuss boosting production, further pressuring prices down, while cold weather, Chinese demand and inadequate refinery capacity in the U.S. pressuring prices up. Iran is pointing out that the weak dollar is hurting OPEC’s real income, and is also trying to start a bandwagon to price oil in a basket of currencies, presumably to include the dollar, euro and yen. Today, oil hit $98.30 as the dollar slid to a new record low against the euro, following the Fed statement today that the economy looks like it is getting softer.

$3 a gallon has been a number that gets consumers’ attention, but all summer long that meant $3 a gallon of gasoline. Now, it means $3 a gallon of home heating oil — that’s what the Northeast will be paying this year, and it’s going to clobber family budgets, especially if the cold winter forecasts are accurate, for a change. Heating oil is about 90 cents a gallon higher than last year.

Connacher Oil & Gas (CLL.TO) completed their Pod One production facility on time in mid-August, began injecting steam into the wells drilled at Pod One in mid-September, and was injecting all 15 well pairs by early October. And in late October they began selling their bitumen product. Needless to say, the company has seen wonderful growth lately. Now, in good South American banana republic style, the Government of Alberta decided to implement a new royalty schedule effective in January 2009 that increases their royalties when oil is over $55 a barrel. However, with oil prices where they are, Connacher’s tar sands investment will be spectacularly profitable even under the increased royalty schedule. Yesterday, they said that they will sell up to $600 million of 10.25% notes to pay off $175 million in debt and fund the development of Pod Two.

The company reported $102.0 million in revenues and seven cents a share for the September quarter, and is on track to become a major tar sands oil producer. Their Steam-Assisted Gravity Drainage technology gives them a substantial environmental and cost advantage relative to other tar sands companies. They now have full 3D seismic coverage of their lease holdings, and will drill about 120 core holes in the coming winter drilling season, almost doubling their current core hole inventory. They can then pick the most likely areas for Pods Three and higher, or expansion areas to feed Pods One and Two. CLL.TO is a Top Buy up to $4.50 for my $9 target.

Energy Conversion Devices (ENER) reported $47.0 million in sales for their September first quarter, well above the $42.7 million consensus expectation, due to strong solar sales. Overall, revenues grew 31% from the June quarter and 73% from last year. Solar revenues hit $41.9 million, or 89% of the total, growing 33% sequentially and 76% year-over-year. They lost six cents a share pro forma, compared to estimates for a seven-cent loss. It was a very good quarter, and management said they expect ENER to turn profitable in the June fourth quarter and stay that way. They also gave more detailed responses on the conference call than has been the case in the past, and it was obvious that all of us appreciated it.

Management reiterated prior revenue guidance for the June 2008 fiscal year of $220 million to $245 million, with UniSolar contributing $205 million to $225 million of that. For the December quarter they guided to $50 million to $55 million in sales. December-quarter solar gross profit margins will remain sub par due to the startup costs of the first Greenville facility, and they will continue to take a couple of million in restructuring costs each quarter. But the restructuring is saving money, and gross margin will improve as production accelerates. That’s how they expect to be profitable by the June quarter. The company will have 148 megawatts of nameplate capacity by the end of June 2008, 178 megawatts by the end of December 2008 and at least 300 megawatts by the end of December 2010.

The new CEO has made some difficult decisions, and so far he’s been right. On the conference call, he revealed that ENER and Chevron have some differences regarding operations and funding at Cobasys, and Chevron initiated an arbitration proceeding. He believes that Cobasys should be self-funding at this point, with revenues from sales and other customer support sufficient to fund operations and capital expansion. The CEO said: “We intend to work with Chevron to achieve this goal by the end of this calendar year, if we are unsuccessful, then Cobasys may be at risk as a going concern.” I think this was posturing to get the message to Chevron that Energy Conversion Devices is not going to be an endless deep pocket for what is already a successful technology. ENER remains a buy while it is under $30 for my $55 target as the restructuring improves their bottom line.

Energy Focus (EFOI) reported $5.7 million in sales for the September quarter, down from last year due to weakness in their pool-lighting operation thanks to the housing downturn. They still beat the $5.1 million consensus estimate, but their 28 cents per share pro-forma loss was much worse than the two cents expected. A lot of the extra expenses were in restructuring charges and unplanned severance pay.

In January they will launch five new LED products that include technology developed with Navy funding for shipboard applications.. These products will have operating efficiencies of about double the present products. The company also plans to hold a special 2008-outlook call before the fourth-quarter earnings conference call, after the new COO and CFO can get their hands around the 2008 budget. EFOI is right around my $6 buy limit, and I think the $15 target is reasonable for next year.

Gasco (GSX) did only $4 million in sales and lost three cents a share before an impairment charge. They were expected to report $6.6 million and lose one cent, but the strange situation in the Rockies makes it impossible to predict what they will show. Don asked: “What do we do about GSX? It seems to do nothing but go down, off 56% from where I got in. Is there anything that is going to move this stock in the short term? I am thinking we should cut our losses and move to something more promising.”

Don, Gasco’s results are still heavily impacted by a lack of pipeline capacity in the Rockies. Companies have found a lot of gas, but the pipelines won’t be expanded until the March quarter. Gasco has 36 projects that are ready for completion, but they have essentially had to shut down until the pipeline capacity is there. During the quarter, gas hit a ridiculous all-time low of 15 cents an Mcf one day, and closed on September 30 at 35 cents. Given that they will not sell gas at distressed prices, their revenues will fall far short of covering their expenses. But they are continuing to drill and are essentially stockpiling natural gas, so the big question is: When will gas prices improve, and when will gathering capacity improve? Spot prices already are up to $5 an Mcf (from 15 cents!) and I think the lows are behind them.

Regarding prices, about 18% of natural gas usage can be switched to petroleum products. So, when natural gas is cheap relative to oil, demand improves and drives up the price of gas — normally. Thus, natural gas follows the price of crude oil — normally. It doesn’t work the other way around because the oil market is much, much larger than the natural gas market. So in times like these, when gas is cheap relative to oil, all the switches that can be made have been made. Normally, the right thing to do is to buy natural gas stocks when gas is cheap relative to oil. Right now, the ratio of natural gas to oil prices is near an all-time low.

Regarding volume, the new Rocky Mountain pipeline will open in February or March. So I expect gas prices to rise with cold winter weather, and to rise more than oil due to the low starting ratio of gas-to-oil prices. Then I expect volume to accelerate beginning in the spring. So I think the worst is over for Connacher, with some price-driven improvement in the December quarter, and then volume-driven improvements starting in the March quarter. That’s why GSX is a buy up to $4.50 for my $9 target as natural gas follows oil skyward and the new pipeline opens up.

Lighting Science Group (LSGP) filed their 10-Q, showing September quarter sales of $452,000, up sharply from last year’s $126,000, and a gross profit of 28%. After all expenses they lost four cents a share. In the filing, management said the Board of Directors has approved a 1-for-20 reverse stock split, which will be submitted to shareholders. I am certain this will be approved. As I said last week, the only way reverse splits work is if the company has a plan in place to get Wall Street coverage and find institutional buyers, who won’t buy a 50 cent stock. Without that, history tells us the reverse split does not help current shareholders. Wall Street isn’t going to buy a $5 or $6 stock either, so this reverse split is really pointless.

I still believe that in a year or two the combined company will be in a great position, as more and more jurisdictions are banning incandescent lights, and there are very few ways to participate in the white LED revolution. But I can’t advise you to hold through an ill-advised reverse split, so let’s sell LSGP until after the split happens and the dust settles. Then we will buy back in, and look for a post-split target of $20.

Plug Power (PLUG) won a Wal-Mart order for fuel-cell powered forklifts, and New World Investor subscriber Norman asked: “Plug Power mentioned a sale to Wal-Mart which markedly moved the stock but PLUG did not elaborate. What is your take on this?”

This order was an important win because forklifts have been a crummy platform for electric motors due to the beating the batteries take. But gasoline or diesel-powered forklifts are so polluting that they can’t be used indoors. Natural gas is not quite as bad, although even it cannot be used inside a freezer. In the early days of solar energy, we could go to Safeway and buy a “dead” battery from a forklift that spent its life in a freezer, put the battery on a pallet where it would not be subjected to vibration and sub-freezing temperatures, and it would perform well for years. Incidentally, these are not 12 volt car batteries — each one weighs 750 pounds or more.

Plug Power bought Cellex Power Products to get into the fuel cell-powered forklift business because it is a great application. Of course, the Wal-Mart order is about the best reference sale a company could ask for, especially since this was Plug Power’s largest GenDrive order to date. During their trials, Wal-Mart ran 12 fuel-cell powered forklifts for four months in a big Ohio food distribution center, with 18,000 cumulative working orders and 2,100 indoor refuelings. Wal-Mart gets to save money and present themselves as an environmentally responsible company. PLUG is a buy up to $5 for a $10 target.

US Geothermal (UGTH) drew a question from John: “I noted that a west coast brokerage put out a recommendation on UGTH. They postulated a market value of just under $5 based on the worth of 65 megawatts of power produced and over $6 (I think) based on 200+ megawatts. Yet, the present installation is rated at 10 MW, but now quoted at 13 megawatts. (I spoke to the COO at the Money Show who noted the excellent reputation of the Israeli-made generator — which he said typically over produced on the specs — and the performance guarantees/penalties in their contract). Is it likely that there will be a ‘bubble’ premium over the actual power revenue potential, as this firm is merely ‘doing what anyone could do’ rather than rocket science?”

John, the value in UGTH lies in their Raft River property and the fact that they can actually produce power now, rather than sell dreams. Raft River is capable of 200 megawatts on its own, and I’m sure a functioning geothermal company will find it much easier to partner, acquire or finance its way to a much larger size. So anyone can’t do what UGTH can do, which is develop Raft River. I think that the stock will sell on its potential, not just current electricity production, so in my book UGTH remains a buy up to $4 for my $6 first target.

Nanotechnology & Materials MegaShift

Integral Technologies (ITKG) filed their 10-Q for the September quarter, showing no revenues, a loss of $350,000 and cash of $1.9 million. Management said that they are focusing all of their resources on researching, developing and commercializing their ElectriPlast technology. ElectriPlast is an electrically-conductive resin-based material that can be molded into any shape or size like plastic and rubber, but is non-corrosive and as electrically conductive as if it were metal. It can be used for shielding, lighting circuitry, switch actuators, resistors, medical devices, thermal management, cable connector bodies and so on. The company has filed for 117 U.S. patents, of which 27 have been issued, three have been allowed and are pending issuance and 87 have been filed and are pending approval. I’m reducing the ITKG buy limit to $2 to reflect the current market, while keeping the target at $4.

Security MegaShift

American Science & Engineering (ASEI) reported a quarter that missed the consensus, and the CEO said: “No apologies here. It’s a lumpy business.” The shareholders took the lumps, as the stock plunged below my $59 buy limit.

But it is a lumpy business, and Wall Street’s seeming expectation that it will somehow magically smooth out is hard to understand. ASEI did $37.6 million in sales, below the low end of the $38.3 million to $47.0 million range, and well below the average of $42.9 million. Earnings also missed, coming in at 48 cents a share, also below the range of 50 cents to 72 cents and average of 62 cents). The problem was the usual suspects: They didn’t deliver enough of the high-margin Z-Backscatter vansdue to one order that slipprd, so revenues were light, profit margins were light, they kept spending on R&D as they always do, they kept booking orders as they always do, and — oh, yes — they increased the backlog to a record $122 million.

So as I said a couple of issues ago: “The way to deal with this is to understand that the smoothed results for this company will be up and to the right for many, many years to come, until terrorism ceases to be a problem.” Buy ASEI only on dips back under my $59 buy limit, which would be caused by quarterly results below the average consensus, and otherwise hold for my $93 target.

Video iPod MegaShift

Burst.com (BRST) had an eventful early November. The stock closed at $1.50 on November 1 and $1.44 on November 7. It usually trades 25,000 to 50,000 shares a day. On November 8, it traded 3.3 million shares, opening at $1.45, hitting 23 cents intraday, and closing at 43 cents. The next day it traded 2.2 million shares, ranging from 52 cents to 79 cents, and closing at 73 cents. Since then it has drifted down to 60 cents or so while averaging over 100,000 shares traded a day.

On November 8, Judge Marilyn Hall Patel of the U. S. District Court for Northern California invalidated as obvious or anticipated 14 claims in the patents in the suit between Apple Computer and Burst.com, while leaving 22 claims that the court did not invalidate as obvious or anticipated. So Apple won some and lost some on their motion for summary judgment, and I have no doubt that they are violating the remaining 22 claims, some of which affect the Macintosh as well as the iPod and iTunes products. So as a result of the rulings, the price of BRST dropped by more than half, but the court case will go forward. The trial is scheduled for February, and I still think that Apple will lose — or settle. However, I also think that the trial will be delayed to deal with Apple’s newest filings.

Apple has filed three more motions for summary judgment, two of which are to declare Burst’s patents invalid. With Burst winning both the Markman construction phase and the 22 claims that are not obvious or anticipated, they now have to win, at least in part, on at least one of the two new invalidity motions. Apple’s third motion is to limit damages to the period since Burst sued, which would dramatically reduce the amount of money Apple would owe Burst. I don’t give Apple much chance of winning that one. I think the odds are pretty high that Burst will win enough claims for the lawsuit to proceed, with the main question being whether there will be enough exposure for Apple to bring them to the table for a big settlement.

To Del, Mike and other subscribers who wondered what to do now about BRST — I am sticking to my recommendation, while changing the buy limits to reflect the current price of the stock. Buy BRST under $1 for at least a $2 target. I’ll raise the target price to $3 after we see how Apple does in this next round.

WiMAX MegaShift

Sprint Nextel and Clearwire canceled their plan to combine the high-speed wireless networks they are each building. Clearwire will continue on alone. Sprint is still spending some money on WiMAX, and I believe that as soon as the new management completes their strategic review, they will have no choice but to continue the build-out. So there will be two nationwide WiMAX networks instead of one, unless they renew the agreement to combine, which is very possible.

But Wall Street assumed that this was a body blow for WiMAX and clobbered all the stocks. You have to be very U.S.-centric to think that way, since 85% of the WiMAX market is outside of the U.S. But the Street has never let logic get in the way of a commission on a trade. Even though some WiMAX stocks have been beaten down lately, all of my WiMAX MegaShift recommendations remain unchanged:

• Buy Airspan (AIRN) up to $5 for a $10 target.
• Alvarion (ALVR) is a Top Buy while it is back under $11 for an $18 target.
• Proxim (PRXM) is the most speculative, but can be bought up to $4 for a $7 target.
• TowerStream (TWER) is both the safest and cheapest of these four, and is a Top Buy up to $6 for a $16 target.

Market Outlook

The Federal Reserve economic outlook notes released today said that it expects slower GDP growth next year due to the housing slump and the credit crunch, but it thinks that inflation will remain moderate. In other words: “We are going to cut rates!”

That announcement tanked the dollar and sent oil and other commodity prices skyward. It could have driven a big stock market rally based on the expectation for lower rates, but instead it may have cemented the break below 1440. The market headed down at first, then rallied back to test 1440 from underneath. If it doesn’t break through quickly, this will be the “kiss goodbye” before another drop.

I did not re-recommend buying puts because there is a very good chance that this decline will stop at the major target at 1410 (the August 16 close) on the S&P 500, perhaps as soon as tomorrow. The day after Thanksgiving used to be a favorite to turn the market around, but the practice of holding half-day sessions has made it irrelevant. There is a possibility that the market will bottom out on Friday or Monday and start a move back up.

If this happens at the 1410 level, the market can stage a humungous rally into next March. That’s what I think will happen, but as I always say, the market does not care what I think. If 1410 is broken over the next couple of weeks, we’ll probably see a sideways to down market into next March that stops at 1326. It isn’t the most likely course, but it could happen. If I see a clear break of 1410, I will send you a Flash Alert when there is a graceful opportunity to buy protective puts again. From 1326, I would expect the next and last major move up in this whole bull cycle to 1800 or higher. I’ll keep monitoring the situation, so stay tuned.

Dollar Death Watch

What can one say? The Fed is in trap where they have to sacrifice something, and they’ve decided the dollar is it. The only difference between now and when I started talking about this a year ago is that now everyone knows it. When OPEC is whining about the weak dollar hurting their oil revenue, and the Chinese are muttering about shifting dollar reserves into euros or yen, you know that pretty much everyone except the see-no-evil American consumer knows what is going on. But as long as Helicopter Ben can fool the voters, you can bet the dollar will keep getting nailed.

After I sent the Flash Alert on Tuesday morning telling you to sell the S&P puts right away, the market used 1440 as a slingshot level to head back up to the top of the current range at 1490. While many market commentators called that a remarkable turnaround and hoped it marked the beginning of the next leg up, I saw it as simply a quick consolidation of the prior down move. And I think yesterday and today’s action confirms that view. Until the S&P 500 decisively breaks over 1490 or breaks under 1440, we simply don’t know which way the next four months are going to go. I still think that the situation will resolve to the upside, with a strong run up through the end of the year and probably into March 2008, but the market doesn’t care what I think.

In fact, I am more cautious than I was before this break, and the current situation has raised my stock market threat level to orange. That’s because the last slingshot up from 1440 starting on September 10 got all the way to the record intraday high at 1576. When the test back down from that high couldn’t hold at various important levels like 1532, 1520, 1507 and, finally, 1490, investors showed less willingness to step in and buy stocks than I expected. That’s not the type of action I like to see in a bull market, and definitely is cause for concern. I prefer to see markets consolidate by moving sideways and finding support, rather than going back down to previously important levels and then not finding support until even lower levels. Because that shows less real buying power ready to come in to support prices.

So right now we don’t know if Tuesday’s sharp jump means that the uptrend is back in control, or if it was just a test up to the 1490 breakdown level. Ideally, the S&P will drift around under 1490 — which is now a sell signal on the weekly chart — gathering strength, and setting up to break out. The second best scenario would be having the market fail to get through 1490 and then fall back to 1460. Then if a slingshot develops off 1460 that breaks out and closes over 1490, it could be a whopper, booking 200 to 300 S&P points in a matter of weeks. But we broke below 1460 today, and if this level is not regained immediately — as in tomorrow — it becomes potential bad news. Staying below 1460 would mean 1440 has to hold, or we will be looking at a move down to 1326 over the next several weeks (instead of over a few days in the Crash scenario that I was worried about last week). We should find out in the next few days whether the next four months are going to be a rip-roaring ride to new highs over 1600, or a grinding sideways-to-down environment to 1326.

In either environment, our MegaShift stocks are doing pretty well, with even some of the problem children like UTStarcom (UTSI) and Telkonet (TKO) posting good news recently. So this week, I’ll continue to review September-quarter reports and conference calls, and address some of your recent questions. We’ll wrap this up next Tuesday, when your weekly Radar Report will come out early due to the Thanksgiving holiday.

Avian Flu MegaShift

Crucell (CRXL) reported Tuesday before the opening, with revenues up 115% from last year to $91.6 million. Vaccine sales were strong and the new 5-in-1 Quinvaxem children’s vaccine drove the quarter and should strengthen further in the December period. The gross profit margin almost doubled to 35.9%, and the loss for the quarter fell to 10 cents a share from 53 cents last year. I was expecting closer to $115 million and breakeven, but the lone Street analyst was not too disappointed as he was looking for a 10-cent-per-share loss on $109.4 million in sales. The company is more profitable than either of us thought, but the revenues were still a little disappointing. The company repeated full-year guidance for $322 million to $329 million in revenues, and cash flow at breakeven.

Crucell also revealed good Phase I results for their rabies monoclonal antibody cocktail, and said that the FDA has granted fast track designation for this program. So, overall, it was a solid quarter, and the stock held up nicely until today, when it dropped $1.37 for no reason that I could find. Crucell is continuing to do well and their partners’ programs are advancing on a broad front. CRXL can be bought up to $28 for my $50 target.

Biotech MegaShift

Amgen (AMGN) moved up today after the company filed some new transfusion data with a formal request to the Center for Medicare and Medicaid Reimbursement to reconsider the national coverage determination for Aranesp and Epogen to treat anemia in cancer patients. The data suggest that since the Medicare decision to cap treatment at 10 milligrams of hemoglobin, transfusions are being used more frequently in mildly anemic patients that could have been treated with Aranesp or Epogen. Everybody who has looked at this data, including professional societies, European regulators and even FDA regulators, have concluded that their guidance should be for discretion by physicians between 10 and 12 milligrams of hemoglobin. Medicare is the only place that stops at 10 milligrams. Amgen is positioning this as giving physicians discretion to practice medicine, but I don’t think it will work. However, it does appear that very few non-Medicare payers will adopt the 10-milligram standard.

Based on this filing, Lehman Brothers upgraded AMGN this morning from equal weight to overweight and increased its target price to $72. I still think the stock is headed for $95, so you can buy the Amgen January 2009 $70 LEAP call (VAMAN) all the way up to $12.50, for a $25 target price when AMGN stock hits $95, on or before the LEAPs expire.

Dendreon (DNDN) reported results after the close today, and I am about to get on the conference call. Revenues and earnings don’t matter, but for the record, they were $112,000 million and a loss of 23 cents per share. The company burned $19.7 million in cash in the quarter and had $138 million left on September 30. There was no word on the European marketing partner — I didn’t expect any — but they may discuss some of the new programs that will follow Provenge for prostate cancer. With the pivotal trial of Provenge now completely enrolled, they should know exactly when the follow-up period will end for the 400 patients that will be in the “peek” at the data next year, so we may get a tighter estimate of when they’ll announce those results. DNDN remains a buy while it is under $8 for my $40 target after Provenge is approved.

Rochester Medical (ROCM) also reported earnings after the close. They did $8.4 million in sales and 10 cents a share pro forma, above the one published analyst’s expectations for $8.4 million in sales and seven cents. That brought them in at $32.6 million and 40 cents pro forma 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 that they can beat $40 million and do 40 cents. I’ll be on the conference call shortly, and if anything dramatic happens I’ll send you a Flash Alert. ROCM is a Top Buy up to $23 for my $40 target.

China MegaShift

China’s trade surplus jumped to a new, all-time, monthly high in October at $27 billion, up 13.6% from last year. The trade surplus with the U.S. rose 12% to $15.7 billion. For the first 10 months, the surplus is up 59% from 2006 to $212.4 billion. That’s already well above the full-year record of $177.5 billion set in 2006. Last year’s trade deficit with the U.S. was $232.5 billion, and this year will be bigger, even without importing pet food or toxic children’s toys. The government has been unable to restrain export growth, so in order to reduce inflationary pressures they drain billions of dollars a month from their economy through bond sales. As a result, they have piled up the world’s biggest foreign reserves at $1.3 trillion. They are very likely to start trading dollars for euros or yen, putting more downward pressure on the dollar and upward pressure on inflation. These kinds of imbalances are never good for the economy or the stock market, because they always come to an end with a painful period of adjustment.

UTStarcom (UTSI) jumped Monday after they beat sales expectations for the third quarter. I was glad to see this report, as it is the first quarter in about six to be reported on time, and all the accounting and SEC issues are finally behind us.

The company announced after the close last Friday, with sales up 8% to $646.5 million, well above the consensus for $592.1 million. They lost 46 cents a share, as expected. Management said that in the December quarter they will match or beat September results, which is well above Street expectations for $612 million in sales.

Business was strong across the board, but especially in the personal communications division (handsets and handheld computers) that they bought from Audiovox. Broadband and wireless are also doing well.

On the conference call, management said that they can reduce R&D to between 10% and 11% of revenue, and general and administrative expenses to between 13% and 14% by late 2008 or early 2009. UTSI should be profitable in 2009 and maybe in 2008 — we’ll get an update on that possibility on the next earnings call.

Their Internet Protocol Televison (IPTV) business is doing very well. They’ve booked $240 million in contracts and recognized $80 million in revenues as these systems are steadily installed. They have deployments in China, Japan, India and Brazil.

Finally, UTSI expects to announce a worldwide OEM agreement with a very large Asian global partner shortly, and they plan to have two or three worldwide OEM partners in 2008. These partners will put their private labels on UTSI products, especially handsets. It looks like the company has passed the low point, but I still want to keep UTSI as a hold for now, while maintaining the $10 target. If they can put a good December quarter in place, I’ll move it back to a buy.

Content on Demand MegaShift

Strong sales of consumer electronics caused the Semiconductor Industry Association to raise their forecast for worldwide chip sales this year to $257.1 billion, up 3.8% from 2006. Their June forecast was +1.8%, and I still think that they are a little low. Memory chip sales will be down due to poor pricing, so the rest of the business is healthier than the overall growth number suggests.

Harmonic (HLIT) drew a question from an anonymous subscriber: “Please comment on how this will impact HLIT: Comcast’s CTO Tony Werner last week stated that Comcast will be launching DOCSIS 3.0 in a ‘substantive portion of our footprint’ in 2008. He also noted that Comcast will be able to reclaim 240 MHz of spectrum by using switched digital video and a new video compression scheme — which Comcast says should improve bandwidth efficiency on Comcast’s network by 50%.”

DOCSIS 3.0 is a much faster communications standard that requires hardware upgrades to a lot of the Comcast network. I was a Comcast cable modem subscriber for a little while this summer, and my connection was not DOCSIS 3.0 ready. But this upgrade is actually good for Harmonic for two reasons: (1) a major reason for the upgrade is to handle more video, which means more business for HLIT; and (2) Harmonic is a leading provider of the switched digital products that will help Comcast improve bandwidth efficiency.

At a UBS conference, Harmonic’s CEO said that their total addressable market in 2009 will be $4 billion, thanks to the way that they are broadening their product line. With so many good things on the horizon for Harmonic, I don’t know what is behind the drop over the last couple of days, but HLIT remains a buy under $12 for my $18 target.

Intel (INTC) on Monday unveiled the new Penryn chip family, which uses 45-nanometer processing. At 45 nanometers, they can fit 30 million transistors on the head of a pin. Penryn also incorporates the metallic alloy hafnium in place of silicon dioxide as an insulator. This is the most dramatic shift in chip production in 40 years. It is that technology that makes me confident Moore’s Law and the whole technology revolution will continue past 2010 by at least another 10 years. This new technology also underlies Intel’s Nehalem chip family coming in 2008, and the Silverthorne processor family about to be announced to compact, portable Internet-connected devices like ultra-mobile PCs. I am making the Intel January 2009 LEAP calls with a $22.50 strike price (VNLAX) a Top Buy. They are trading just under my $6 buy limit. The target price is $12.50 at expiration, an easy double.

QuickLogic (QUIK) won an important contract with a “Tier One smartphone supplier” that will use QUIK’s flexible chips to produce 12 to 18 products in a new line totaling over $30 million in sales for QuickLogic. That’s just about as much as the company did from all sources for the last 12 months. Of course, that could be over a one- to two-year time period, but still, this is a big win for the company. QUIK is a Top Buy while it is (barely) under $4 for my $8 target. You need to have a position in this stock.

Silicon Image (SIMG) held their Analyst Day on Monday, not the January 24 date that I mentioned in the last issue. Although it was a good meeting, it didn’t help the stock. Analysts want to see their 2008 guidance on the January conference call to see if the company confirms that revenues could be down in 2008. I expect management to back away from that part of their forecast, but there’s nothing to do but wait for it. Certainly, consumer electronics with HDMI chips are going to be strong sellers this holiday season, and that should help support the stock. SIMG is a buy up to $13 for my $20 target, but I am taking it off the Top Buy list until management raises the lower end of their 2008 guidance.

Telkonet (TKO) reported a good quarter, with revenues up 25% from the June quarter to $4.6 million, and a seven-cent-per-share loss. Best of all, they actually held a conference call — but it was before the earnings release! President Ron Pickett read a press release on the “business update” and then turned the call over to Jason Tienor, the Chief Operating Officer, who I expect to become CEO any day now.

Management said that the ramp up in business from the second to third quarter is continuing into the fourth quarter, and they should be cash flow positive this quarter and turn profitable next year. In 2008, the joint venture with GE Energy will kick in, and TKO’s energy management products are now reimbursed by many utilities, making it a much easier sale to the corporate customer.

Subscriber Jim asked: “What is your take on TKO’s business update call on Thursday? Sounded good but we’ve heard most of it before. If all comes to pass, $15 as a target price may be way low. Thanks!”

Jim, from your lips to God’s ears. I still rate TKO a buy up to $5 for a $15 target after Tienor takes over as CEO.

New Energy Technology MegaShift

Infinity Energy Resources (IFNY) reported third-quarter results and finally held a conference call, but the stock was knocked under $1 a share following the report. First, the results: They did $2.5 million in sales and reported a paper profit of 18 cents a share. But the 18 cents was after a positive 28-cent adjustment required by energy company accounting rules for changes in derivative values, so they actually lost 10 cents a share.

The situation at Amegey Bank, which involves the sale of assets, is actually more important than the results. To recap quickly, the company went into technical default at the end of June, and the bank agreed to forbear on calling the $22 million loan until November 30. But they reduced the credit line from $50 million to $10.5 million, and the company agreed to repay the $11.5 million deficiency by the end of November. This will happen by selling assets.

On the call, management said that they signed a terms sheet to bring in a partner on the Barnett Shale wells, and as soon as Amegey Bank signs off, they can go forward. The partner will invest up to $20 million in a drilling program, and Infinity will have a carried interest. Infinity can then use the cash flow to pursue their own drilling program in Comanche County, using what they’ve learned in Erath and Hamilton County.

They’ve also signed a terms sheet to sell their producing wells in the Rockies, retaining the exploration assets and an opportunity to invest in new wells for a carried interest. Management emphasized that this was not a fire sale, and as soon as the bank blesses the transaction, we should get numbers.

Finally, Infinity should be about ready to move forward on their Nicaraguan concession, as the two regional governments that were suing the federal government over the process have come to a settlement. All of these entities are eager to see oil start flowing, as they want their tax revenues. This is a huge field that can make INFY a double-digit stock.

Stanton Ross, the CEO, pointed out that he was the original founder of Infinity, and when he stepped down in June 2005 the stock was at $10.40. He has now stepped back in as the CEO, changed the management team, and is determined to get “an appreciable value” back into Infinity for the shareholders. Makes sense, as he is one of the largest individual shareholders. I still think IFNY is a buy up to $3, but I’m reducing the target price from $10 to $7. Once I know the terms of the Rockies sale, I expect to make the stock a Top Buy again.

The S&P 500 made it all the way down to the 1440 level by Monday’s close, including another end-of-day 20-point waterfall downturn, just like Friday. As you probably recall, 1440 was a very important level on the way up, and it is especially important on the monthly chart. If the S&P breaks 1440, the next stop down on the monthly chart is 1326.

But when I recommended the put protection using S&P Depository Receipts (SPY) in last week’s Flash Alert, my real worry was that we would see 1326 in a matter of days. Although we’ve had quite a decline, the market has side-stepped a Crash so far. It would be very unusual to go through 1440 easily, and it is far more likely that the S&P will run back up to test 1490 from underneath. With the puts approaching expiration, a 50-point upswing would take away a lot of your profits. So I want you to sell the SPY puts immediately.

There is a chance that this current weakness in the market could extend all the way down to 1405, but that is a longshot. Even it if did happen, the turnaround and slingshot back up would probably be so sharp that it would be difficult to get out of the puts gracefully.

If you are a daytrader, you could wait for an hourly close over 1455 to chase you out of the put position (or whenever within the hour it is obvious that the S&P will close at that level or higher). If you don’t get chased out, you would then have to watch for a clear breakdown under 1435 to confirm that another leg down is beginning, and then be on the alert for a spike down to or near 1405 to cover. All of this could happen in one or two days. But 99% of you don’t want to play that game — this is not a trading newsletter — and I’m not going to follow that path in print.

It may seem like I am getting too cute here, but I am just watching the market pattern unfold and trying to keep my biases out of it. I’m no longer seeing the kind of weak pattern that I saw last Tuesday that led me to recommend the puts. If the S&P 500 can break 1490 to the upside, then the market should be able to move higher now and this little dipsy-doodle will be forgotten. If it goes up to 1490 and fails, it will quickly fall back to 1440 again for yet another test. If you are a trader, you could try to catch that drop and re-enter the puts. For the New World Investor portfolio, though, unless I see a lot more weakness developing, I am going to assume the market is in a 1440 to 1490 trading range until it tells us what it wants to do next.

I still think the S&P will be much higher by the end of the year, but we may have entered a new downtrend phase in the market. If so, I will not hesitate to recommend put protection again. Just in case I recommend puts again, I’d like to address a number of questions about this trade that I received from subscribers. I’ll also repeat some of this info in any future Flash Alerts involving downside protection.

Sam asked: “As per your recommendation, I did buy a couple of puts of SYHWT, which expire on Nov 16, 2007. What do you suggest that I do– sell the puts before the close of 11/16? Please advise.”

If the market still looked as bad as it did last week, I would have no problem holding the puts until Friday morning and then selling. But it is usually a bad idea to wait until the afternoon of expiration day to trade, because the market makers get very greedy near the close of trading.

Actually, if the market looked as bad as it did last week, I would have recommended “rolling out” the puts by selling this contract and buying puts with a December expiration. That kind of trade is best done early in expiration week, as well, but in this case, I think we should just sell them and watch what the market does for the next few days.

Dave wrote: “I just wanted to thank you for the timely heads up for the hedge on the portfolio. I immediately sold many of my stocks and bought the puts you recommended and have more than profited by the advice. It looks like this will work out about how you predicted. I would appreciate a Flash Alert when you see an end and we can get back to investing again. Thanks for your timely advice.”

Well, Dave, here it is. I trust you were careful about matching gains and losses for tax purposes, but now if you buy back things you sold at a loss, you could run afoul of the wash sale rules. So certainly sell the puts, and then either wait for the break over 1490 to buy back stocks (which may take a couple of more weeks, getting you past the 30-day wash sale date) or buy similar stocks but not the same positions.

John said: “Thank you for your most recent recommendation on the S&P puts, we’ve seen a very nice gain today with the S&P close below the support level of 1490. My question is: When do we jump off this option trade and what are the best stock investments to roll these gains into for a FAST turnaround trade?”

John, you may be one of the sophisticated daytraders that I mentioned above that could try to squeeze a little more out of this trade before you close it. Having said that, if the S&P breaks over 1455 for real, I think the fastest upturns will come in the Biotech, Content on Demand and WiMAX MegaShifts. I’ll be fine tuning the Top Buys in Thursday’s Radar Report, but I don’t expect many dramatic changes. It is certainly true that with oil already near $100 a barrel, the New Energy Technology MegaShift stocks should have a little less oomph going forward than, say, last August. So be sure to check out my updated list on Thursday.

Murray wrote: “I appreciate the warning you gave in your Flash Alert. In my situation, I am basically all in IRA accounts and cannot buy these protective puts. Do you have a suggestion for folks like me?”

It’s hard to get the leverage of options or futures elsewhere, but the various Rydex mutual funds that are designed to go up when an index goes down might help. There is the Rydex Inverse 2X S&P Fund (RSW) that is designed to move up when the S&P goes down, and it actually doubles the rate that the S&P declines. Also, think about starting one separate non-IRA account that you could use to buy puts when necessary.

Neville had a similar question: “Your Flash Alert on Tuesday was most timely advice for those who could act. But, some subscribers’ stockbroker accounts may not be authorized to trade derivatives. Please issue a follow-up Flash Alert and tell us whether to either (1) sell all our non-Top Buy holdings, or (2) sell half our holdings and buy Euros, or (3) sell the lot and fill our saddlebags with krugerrands and head for the hills?”

Good one, Neville. If any subscribers have an account that can legally buy options, please fill out the form to get qualified to buy puts and calls. We won’t have to do this very often, but when we do, it will be important for all of you to have an account qualified to make the trade. The answer to all three of your questions is “none of the above.” Buying puts was a short-term strategy to protect against a short-term risk. I still think that all of my recommendations will hit their target prices before we close them out. I also think that they will outperform euros, in part because a weak dollar pushes up the prices of all dollar-denominated assets, including stocks.

Now, krugerrands, hmmm….it looks to me like gold is going to $2,000 an ounce for sure, and $10,000 an ounce maybe. Of course, this is just the inverse of the weak dollar, so the only way to get to $10,000 an ounce is a dollar collapse that puts the S&P 500 up to 4500 or so. In that environment, it’s hard to tell how high the MegaShift stocks can go, so I’m sticking with them. (By the way, I prefer the Swiss or French 20 franc coins to the kruggerrand, as they are considered semi-numismatic and therefore less likely to be taken in the next round of gold confiscation by the government.)

Pete wrote: “Thank you, the protective puts are letting me sleep at night! What is the next level of protection?”

The next level of protection is to sell stocks and raise cash. But we don’t want to take that step just yet. It still looks to me like that is a March/April 2008 decision for an interim top, and a 2009/2010 decision for a final top. In other words, far enough away to let us book lots of profits along the way.

Larry commented: “Great insight to the banks and financials in your November 8 Radar Report. My question pertains to the overall U.S. markets if/when these financial centers do collapse. If you are correct, I would think we would not want to own any equities.”

The Fed bumped up the M-3 money supply growth rate to nearly 16% recently, but that isn’t a patch on what they will do to avoid a financial center collapse. They would rather see the dollar collapse. Your main protection against a collapsing dollar is to hold liquid assets: Gold, silver, stocks, commodity funds and the like. Real estate will also soar, so some REITs make sense. Equities do great when a currency collapses, because they are a store of real value.

Julien asked: “Following your remark that “Treasury Secretary Paulson has admitted that there is a working group on market functioning,” do you have a link with any web source for it?”

Sure, he has been very open about talking about it and seems proud he revitalized it (or at least wants his Wall Street buddies to know that they are on the job). You can just search for “Paulson” plus “Working Group on Financial Markets” and get a lot of hits. Look at http://www.treasury.gov/press/releases/hp174.htm and http://www.gata.org/node/4458 for starters.

I don’t believe in making broad market predictions. I just watch what the market is trying to tell me on an hourly, daily, weekly and monthly basis, and then I identify the critical energy levels that should provide support and resistance. When the market fails to hold at a support level, the next lowest down level becomes the new one to watch. When it breaks above a resistance level, the next highest one becomes the next target.

So, it was very unusual for me to send you Tuesday’s Flash Alert advising the purchase of insurance puts, because the S&P 500 had survived several tests down to the 1490 to 1500 area. Surviving is good, right? Well, usually. But a healthy market will go down to test support and build up negative sentiment, and then use that stored up energy to move up sharply and break through the next resistance level. If it keeps being attracted over and over again back to a support level, after a while each test becomes harder to survive, and if there is a failure after several successful tests, the resulting down move can turn into a waterfall. In this case, I suspected that breaking 1490 would force the short-term bulls, like me, to give up our positive outlook for the next few weeks, and that widespread change of opinion is what can turn a drop into a waterfall. And that’s what happened yesterday.

The whole situation is complicated even more by the Plunge Protection Team’s activities. Now that Treasury Secretary Paulson has admitted that there is a working group on market functioning, the only question is how often they actually intervene and how much. I doubt we will ever know the truth, but from watching the way the stock market acts in the last hour of trading, I suspect that the answers are “often” and “big time.” The problem is that Wall Street now essentially dares the PPT to not act by shorting stock prices all day long, covering and going long about 2:30 p.m. Eastern time, and then waiting for the PPT to rally stocks. If the PPT doesn’t show up, Wall Street will start to disgorge stocks in a hurry, beginning a mini-waterfall that makes it even harder for the PPT to turn the market back up. So the PPT usually performs its function on cue. Unless it wants to mousetrap the traders, as it did in yesterday’s final hour, and give them the painful choice of booking losses or going home with more long stocks than they really wanted to hold.

And that’s the reason why I sent you the Flash Alert yesterday. We are right in the middle of a difficult market pattern that could easily overwhelm the PPT, and that would really hit stocks hard. It probably won’t happen, but if you ever needed insurance against such a decline in the last few years, you need it now.

In the real economy, things look much better. The 4.9% productivity growth that was reported yesterday for the September quarter should lay aside fears of labor cost-related inflationary pressures, at least for a while. The Fed’s ongoing destruction of the dollar that I’ve been railing about all year will force wages higher next year, simply to keep people’s real incomes from falling too much. Even the heavily-manipulated government inflation calculations won’t be able to hide what’s coming down the pipeline. Gold is now at a 27-year high, around $825, and oil is at all-time records near $100 a barrel—that’s not by accident.

The dollar slipped another half a percent yesterday against a basket of currencies. In last week’s Radar Report I calculated that the dollar would be worthless by August 2010 at the recent rates of depreciation. At yesterday’s rate of decline, it will be worthless by May 23, 2008. In that environment, real assets maintain their value by going up as the currency falls. In addition to gold and other precious metals, commodities and real estate, that includes ownership of real companies — especially nimble companies in the fastest-growing area of the world economy. That’s where we are focused, and unless the whole world is about to go back to mainframe computing, landline telephones and black-and-white TV, we will inevitably win.

As earnings season winds down, I want to continue reviewing several portfolio companies that reported results, especially the biotechs, and answer some of your questions. Next week I will catch up on the energy companies, American Science & Engineering (ASEI) and the WiMAX MegaShift. Our only companies reporting next week are Crucell (CRXL) on November 13, and Dendreon (DNDN) and Rochester Medical (ROCM) on November 15, although I am looking for an Integral Technologies (ITKG) 10-Q filing with no conference call.

Avian Flu MegaShift

BioCryst (BCRX) reported third-quarter earnings this morning. They did $20.5 million in revenues, almost double my $10.5 million expectation, and lost 32 cents a share, which was a bit of a bigger loss than the 30 cents that I was expecting. The bulk of their revenues came from a Health & Human Services (HHS) grant to study peramivir, so the more money they spend, the more they are reimbursed and the higher their revenues — but the loss is not affected. On the conference call, management said that they are proceeding with the small trial of a longer needle length and are still getting data from the intramuscular Phase II trial that was not statistically significant. However, they still expect to file for and start a Phase III trial in time to catch the flu season this winter, and they still have HHS support for that timeline.

The analysts’ questions had a mildly negative tone on the order of: “What happens if HHS decides to stop funding you?” But I didn’t hear a single new negative, so I have no idea why the stock dropped 72 cents today. I see no reason to change my recommendation: Buy BCRX up to $13 for my $30 target after successful Phase II intravenous results are announced or IV peramivir is approved for avian flu.

Crucell (CRXL) will report September-quarter results next week, and they should benefit from the back-to-school “vaccine season” and coming flu season. Management expects a much stronger second half of the year than the first half. To reiterate, the one analyst publishing estimates is expecting $109.4 million in sales and a loss of 10 cents a share. 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 that 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

CombinatoRx (CRXX) reported earnings last week. They did $3.0 million in sales and lost 49 cents a share, pretty much on target. They will lose about $50 million this year and end up with $105 million in cash, thanks in part to the recent $33 million stock offering. As I said last week, what really counts is the outcome of their numerous Phase II trials.

In the September quarter, CRXX started a Phase IIb trial of their most advanced compound, CRX-102, in knee osteoarthritis. They also started a Phase IIa proof-of-concept trial of CRx-401 in diabetes, and a skin atrophy Phase II trial of CRx-191. Today, they began a Phase IIa trial of CRx-191 in psoriasis. By the end of the year, I expect them to complete patient dosing in a Phase IIb trial of CRx-102 in rheumatoid arthritis and a Phase IIa trial of CRx-191 in plaque psoriasis. They should also report the results from the CRx-191 skin atrophy trial.

Then they will take good Phase II results and find partners to fund the Phase III trials. It’s a great business model because their technology gives them a steady stream of new drug candidates. Continue to buy CRXX up to $7.50 for my $16 target.

Dendreon (DNDN) will report next Thursday after the close. I am hoping that they can say something about when they think the interim peek data will be available next year. They may discuss some of the related programs in breast and head and neck cancer that they have funded recently, although these are early stage. I’m not expecting to hear anything specific about a European partner, although they could fool me here.

Robin asked: “Would you please comment on the Motley Fool’s ‘Dendreon: the Scariest Stock’ blurb. They made quite a show manipulating the statistical data, implying that placebo patients would live longer than the non-placebo patients in their current trials. If they’re right, they’re right, but I had a hard time following their logic.”

Was that logic? It was just silly statistics. Basically, the author said that if you put one normal curve on top of another, and one has a somewhat higher mean than the other, then there will be lots of area that overlaps. That is always true. To quote him, because he deserves it:

“…if the study was run 100 times, then 95 of those times the placebo patients would have median survival times in the 12.8 month-to-25.4 month range. Unfortunately, 95 of those times the Provenge patients would have median survival times in the 13.6 month to 31.9 month range. So if randomness wasn’t in Dendreon’s favor in this study, placebo patients could easily have lived nearly twice as long as the Provenge patients (depending on the sample used). Yikes!”

In other words, the area from two standard deviations below the mean to two standard deviations above the mean for the placebo curve runs from 12.8 months to 25.4 months. The same range for Provenge runs from 13.6 months to 31.9 months — higher at each end. The mean for the placebo is 19.1 months and the mean for Provenge is 22.8 months. The difference of 3.7 months is in Provenge’s favor, but was not statistically significant.

Now, there are two ways to get to statistical significance in the current study. One way is to see a greater separation between the two curves. My back of the envelope is that if Provenge had shown a difference of over five months in the first two studies, it would have been statistically significant.

The other way is to increase the sample size. The first two studies treated a total of 225 people. The current study just finished enrolling over 500 patients. So, even if the difference stays at 3.7 months, Provenge will show statistical significance. (Again, that is my back-of-the-envelope estimate). Now, here is the interesting part. The interim peek at survival will happen around the middle of next year, and I believe will include 400 of the 500 treated patients who have survived at least a year. Management tells me that the peek is “powered” to show statistical significance even if the clinical results are similar to the prior two studies. So if Provenge can maintain a 3.7 months difference, the results this time will be statistically significant just because the sample size is bigger.

Finally, let’s address his statement that “placebo patients could easily have lived nearly twice as long as the Provenge patients (depending on the sample used).” That is partly true. 2.5% of the placebo patients lived longer than 25.4 months. 2.5% of the Provenge patients lived less than 13.6 months. So the odds of any one placebo patient living twice as long as any one Provenge patient are 2.5% times 2.5%, or 0.000625%, or about 1600-to-1. “Easily?” Yikes, indeed. DNDN remains a buy while it is under $8 for my $40 target after Provenge is approved.

Isolagen (ILE) filed their 10-Q report with the SEC on Monday, the same day that they held their annual meeting. Remarkably, they didn’t even put out a press release about the quarter. But I read the 10-Q and basically there is nothing new to say. They have enrolled the two 200-patient clinical trials at 13 sites to treat nasolabial folds and have begun treatment. They said nothing about when we might see the actual data. However, at the CIBC Healthcare Conference the next day, management said that they expected all injections to be completed by the end of the year or early January. Six months after that they will have all the data, so they should be able file with the FDA under their Special Protocol Assessment towards the end of 2008. Buy ILE under $4.50 for my $9 target.

Rochester Medical (ROCM) will report earnings on November 15. As a reminder, I am looking for better numbers than the one analyst that publishes estimates. He expects $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 that they can beat $40 million and do 40 cents.

A subscriber, Don, asked about the buyout possibilities at ROCM, and that is a very realistic exit strategy for these entrepreneurs. But I expect them to settle the Covidien and Novation lawsuits first, and get that cash on board. I also don’t think that they’d sell at these low prices. ROCM is a Top Buy up to $23 for my $40 target.

SXC Health Solutions (SXCI) reported third-quarter results this morning, and beat the reduced expectations. Revenues were in line at $22.2 million, but they hit 12-cents-a-share pro forma compared with the consensus for eight cents. They guided sales for the year to a range of $92 million to $93 million, right on the consensus for $92.5 million, and earnings to a range of 55 cents to 60 cents a share, above the 53-cent consensus.

The stock sold off 41 cents today on the news, and it is back below my raised buy limit, although not below the original $13 limit. Buy SXCI under $15 for my $30 target.

China MegaShift

Last night, following Wednesday’s drop in the U.S. market, the Hang Seng Index in Hong Kong dropped 3.2%, and the Shanghai Composite Index lost 4.9% — its biggest one-day decline in four months. It’s clear that the Chinese market is tied to the U.S. and vice-versa, through trade if nothing else. But the connection also goes the other way, and I think that the Chinese stock market implosion that is coming will be another force dragging down U.S. markets.

In 1997, when Great Britain handed over Hong Kong to Chinese rule, Hong Kong stocks rallied sharply for the six months before the transition, and everyone bought the “red chip” stocks that had strong connections to the mainland. About two weeks after the turnover, that bubble popped.

This one is worse. Shanghai Exchange investors have not been able to buy stocks outside of the mainland, and they’ve never been through a bear market. They think stocks only go up, with dips like yesterday just providing a chance to buy more shares cheaply. They mostly buy the state-owned companies because they appear connected and protected. In reality, many of those companies are technically bankrupt or don’t make any money under honest accounting.

Consequently, shares of a stock like PetroChina trade on the Shanghai Exchange at a premium to what they trade for in Hong Kong or on the NYSE. How much of a premium? Triple. You read that right. PetroChina is worth 200% more at Shanghai prices than in Hong Kong or New York. Based on the Shanghai price, the company is worth $1 trillion. That, my friends, is a very big bubble. Warren Buffet recently sold all of his PetroChina shares.

As you know, some of the mania has spilled over to Hong Kong, because China was about to allow mainland investors to buy on that exchange. But over the weekend, Premier Wein Jia-bao said that Beijing needs to do more research and planning before changing the rules for individuals. Whoops! The 50% run-ups in individual Chinese stocks over the last three months suddenly look a tad enthusiastic. Mutual funds will still be allowed to invest in Hong Kong, and I suspect it could be years before the rules are changed for individuals. Between now and then, I am still looking for a huge correction.

Content on Demand MegaShift

Silicon Image (SIMG) tanked after the conference call last Thursday, and I have spent a ton of time trying to find out if there is an underlying reason that I am missing. I had several concerned emails about the situation, including one from Neville: “You did not issue a Flash Alert last Friday, and this implies that you did not hear anything worrisome on their conference call. Is SIMG now a Super Top Buy or a Top Sell?”

Management said only one thing on the call that accounted for the drop: They think there is a chance that their 2008 revenues could be flat to down, because they have had some product delays that might mean they don’t win sockets until 2008 for products that will ship in 2009. There is no doubt that SIMG is the technical leader in the HDMI standard, and there is no doubt that the use of HDMI in consumer electronics and laptops is exploding. When we bought the stock, there were 400 customers using HDMI. There are now about 770.

This was their new Chief Financial Officer talking, and he promised a lot more detail at their Analyst Day on January 24. I think he is being overly conservative, considering that some retailers like Best Buy no longer even carry analog TVs, and every new set will be digital by the middle of 2008. And the analog signal will be turned off on February 15, 2009. I expect next year to be a huge year for digital TV and laptop sales, as well as smart phones and media centers. Only 11.3% of Americans have a high-definition TV, and why would you buy digital but not high-def at this point? SIMG’s technology is already designed in to a lot of products that will be big sellers next year. The CFO has committed to watching R&D expenses, so the odds of them actually having a flat revenue year or a down earnings year seem pretty low to me.

Not to the market, though, which clobbered the stock 25% after the announcement. SIMG now trades at about 10X trailing earnings, with almost no debt and $130 million in cash. Silicon Image is very cheap going into the holiday season, and I think the Analyst Day meeting will be a positive surprise. SIMG is a Top Buy up to $13 for my $20 target.

Market Outlook

In last week’s Radar Report I wrote that: “…I would not be surprised to see a quick probe down to 1497 tomorrow or Monday, which should be just as quickly rejected.” We got the probe down, but when it was not quickly rejected, I sent Tuesday’s Flash Alert. As I said in the Alert, this drop could extend all the way to 1326. At that point, the VIX (Fear & Greed) Index, which jumped 24% yesterday alone, would be sky high, and there should be at least a rally back to 1490. If the VIX doesn’t fall too quickly during that rally, there should be enough remaining juice to finally make the move over 1555 to 1607, or even 1690. But we will burn that bridge when we get to it, as they say.

The St. Louis Fed President William Poole must be very miffed about the way he is being ignored in his last six months before retirement, because he must have known that his comments yesterday would contribute to the sharp market drop, even though I thought that they were great comic relief. He said that the central bank will not raise interest rates when it meets December 11. Excuse me — was anyone suggesting that the Fed is about to raise interest rates, with their buddies on Wall Street still in deep toxic credit doo-doo? I must have missed that memo.

In 1990 and 1991, I was running an all-short fund of $40 million and doing quite well shorting the banks, which were loaded with nonperforming real estate debt. I could show you clear as day that Wells Fargo and Citigroup were bankrupt under the accounting rules for recognizing nonperforming loans. The Wall Street Journal interviewed me for”Heard On The Street.” It was just a question of when the SEC would force the banks and their accountants to tell the truth.

You can guess what happened. The SEC never forced anybody to do anything. Someone got Warren Buffet to buy a slug of Wells Fargo, and some sheik to put millions into Citigroup after a secret, personal visit by the Secretary of the Treasury. All of a sudden I was running a $25 million short fund. And they may be about to play the same game again. This week, Citigroup’s CEO followed Merrill Lynch’s into the Hall of Shame, cushioned by $150 million or so in severance benefits. Citigroup is busted again — the $8 billion to $11 billion charge that they admitted to last weekend isn’t nearly big enough. But while it appears that GM will be allowed to go bankrupt, they’ll figure out a way to save Citigroup again. But it won’t be easy, because the problem this time is huge.

The New York banks and brokerage firms all played the same game, leveraging up their equity to buy high-yield mortgage-backed securities. In most cases, some or all of these positions were further complicated by becoming the basis for derivative securities. Once you get down to the toxic junk level, all these securities have one thing in common: There is no bid. No one knows what any of them are worth, if anything. They don’t trade. So, here are the big sinners, ranked by the ratio of toxic junk mortgage-backed securities to equity:

	Toxic Junk (in billions)	Equity (in billions)	Ratio
Morgan Stanley	$88	$35	2.51
Goldman Sachs	$72	$39	1.85
Lehman Brothers	$35	$22	1.59
Bear Stearns	$20	$13	1.54
Citigroup	$135	$128	1.05
Merrill Lynch	$16	$42	0.38

Merrill Lynch already wrote off 20% of the equity that they have built up in the last 50 years or so. Morgan Stanley warned Wednesday that its fourth-quarter profit will be cut by $2.5 billion after taxes in toxic junk write-offs, but then went on to say that it could lose up to $6 billion if all the debt that it holds related to sub-prime mortgages were to go bad. Excuse me? You have $88 billion of paper that’s so gamey you can’t even price it, and your pretax losses will be limited to less than 10% of face value? I don’t believe it. I think their real losses are four or five times that high.

Goldman Sachs’ stock keeps going up because they haven’t announced any write-offs yet — what are people thinking? You don’t get penalized until you ‘fess up? That’s not much incentive to tell the truth. I suspect a down stock market will force Goldman to announce the inevitable, probably causing a panicky drop into the ultimate bottom. We shall see. It could come soon, perhaps as early as next week.

Dollar Death Watch

I feel like Dr. Doom this week, as at least I used to be able to say the falling dollar would push up equities. It will…sometime soon. But with oil topping over $98 yesterday, which should be the all-time record for a while, and gold on a tear, it’s hard to argue the case for a strong dollar. Especially with a Fed Chairman who thinks money is just green paper that you can print as fast as necessary to paper over problems.

Maybe we are at the low for the dollar in a contrarian sense, because from Warren Buffet to Bill Gates to Gisele Bundchen, nobody wants the dollar. Buffet and Gates are short the greenback. Ms. Bundchen, reportedly the most beautiful woman in the world, makes over $30 million a year modeling and endorsing things. She insists on being paid in euros, because the dollar is too uncertain.

Or maybe the worst still lies ahead. In 1978, when the dollar was very weak, Bette Midler did a European tour for $600,000, and she demanded payment in krugerrands. Gold was at $195 an ounce. Less than 18 months later, it was up over 300% at $850. The Divine Miss M. did OK. If this is just the beginning of the parabolic decline in the dollar, the most beautiful woman in the world might be the canary in the coal mine.

For the short-term, I do not like what I am seeing in the market’s action. And that’s why I’m sending you this Flash Alert today. It is possible that the S&P 500 is about to go all the way down to test the weekly breakout level at 1326, about a 175-point drop from current levels. It could happen over just a few trading days, in which case the media would call it a Crash. Certainly, a 10% to 12% drop in a couple of days would get everyone’s attention.

If this happens, I expect the test to be successful, the S&P to bounce back and the bull market to resume, so I do not want to move any of our stocks to a “sell” rating. You see, the Fed would cut rates deeply if this downturn actually happened, and our portfolios would soar right back to current levels and much higher.

However, since many of our holdings are development-stage companies that typically get hit the hardest in declines like this, you may want to protect your portfolio with some insurance puts for the next few days. I know that the current pattern in the market has been doggedly bullish, with every attempt to close under 1500 rejected. But that level has survived four tests in the last few days, and it gets harder and harder to survive these tests if the market can’t find the energy to rally up and away from 1500. This situation is very similar to April 2000, when the S&P 500 was also trying to hold at 1490 to 1500. In about 10 trading days at the end of March and beginning of April, the S&P touched or went under 1490 a total of eight times, but each move down was stopped. That included one crazy day when the S&P plunged to 1416 intraday, only to rally back to close above 1490.

But on the ninth test down, 1490 gave way, and over the next three days the market got as low as 1466, then 1430, and then 1339, where the decline ended.

And that’s why I’m recommending that you protect your portfolios with insurance puts. I know that puts are expensive if you hold them for a long time, but I really think that the dangerous period here will only last one to two weeks. If the S&P can break away from the 1500 level, we’ll sell them for a small loss. But if there is a Crash, we will have some protection.

So, I recommend that you buy puts on the S&P Depository Receipts, more commonly known as SPDRs or Spyders. The symbol is SPY. You can go cheap on this one by buying the November contract, which expires at the close on November 16. We should have a resolution to this situation by then. The equivalent of 1500 on the Index is the 150 contract on the SPDRs, and the symbol for the 150 puts is SYHWT. They are currently at about $2.15, or $215 per contract. Each contract should protect about $15,000 of portfolio value, so it will cost you 1.43% of your annual return to buy this protection for eight trading days. Not cheap, I know.

If you want to have some protection, but the SYHWT is too expensive, you could buy the 143 contract, SFBWM, for only 35 cents, or $35 per contract. At 1326 on the S&P 500, they would be worth about $1,000 each.

Let’s hope the puts aren’t necessary and expire worthless. But it’s better safe than sorry at this point, because a market crash on top of the credit crisis, weak dollar and overleveraged consumer would not be good for the economic outlook, no matter what the Fed does.

On Tuesday, the Fed futures market was giving a 98% probability of a quarter-point rate cut, and a 2% chance of a half-point cut. Since I said in last Thursday’s Radar Report that I was pretty sure that the Fed would cut 50 basis points, I was wondering how the market could square Bernanke’s life-long advocacy of quick, decisive action with an outlook for only a 25-basis-point cut. It was especially intriguing because the housing news continues to be so awful. A large number of middle- and lower-middle class Americans are losing their homes to foreclosure. The Fed can accept some level of foreclosure problems, but one of the Fed’s main unspoken jobs is to bail out the Wall Street fat cats, and when the head of Merrill Lynch loses his job just because the sub-prime mess forced a write-off of 20% of the company’s book value in one quarter — why, that’s not just a middle-class problem, that’s a fat cat crisis.

But apparently what Ben advocates as an academic is not what he does as Fed Chairman. The anemic and thoroughly discounted quarter-point cut came on the heels of a stronger-than-expected GDP report yesterday, with the preliminary read for the September quarter up 3.9%, well ahead of the anticipated 3.0%. So does Helicopter Ben know something about the underlying strength of the economy that we don’t?

I don’t think so. His very public quarter-point cut in the price of money contrasts to his very private actions on the quantity of money. Bank credit has expanded by a whopping $360 billion over the last 12 weeks, an 18.1% annual growth rate. For the year-to-date numbers, bank credit is growing at a 10.8% clip and just passed $9 trillion for the first time ever. M3 is growing at a 14.7% annual rate. So, if you hear a helicopter, run outside with a basket — it might be Ben passing overhead, showering money on the voters. But if he does know something that we don’t about the underlying strength of the economy, it appears to be pretty bad news.

As you might have already guessed, the printing of all this money is very bad for the dollar, and will ignite a major inflation sometime in the next three years or so that will kill the bond market. But in the meantime, stocks, gold, oil, commodities, metals and, yes, even U.S. real estate will soar in nominal dollar terms as the dollar becomes worth less. I doubt there is any way to avoid the day of reckoning at this point, but the bears’ problem is that they think the day of reckoning is tomorrow, while the market is telling us that it wants to tack on another few hundred (or maybe several hundred) points before things fall apart. In Silicon Valley, the excitement over Web 2.0 and social networking feels like 1997 or 1998 with the building irrational exuberance, to quote Alan Greenspan from December 1995. He was four years and three months too early, similar to the position of the bears today.

Since the day of reckoning isn’t in the near term and shouldn’t be your primary focus right now, I am going to continue to stay focused on third-quarter earnings. And I must say that the MegaShift stocks are doing pretty well, while the big S&P companies are doing better than the weak expectations. In early October, the forecast earnings growth rate for the S&P 500 companies for the September quarter fell to only 0.1%, down from nearly 4% in the prior week, and down from the 6.2% forecast in early July. Wall Street started to talk about a possible decline in earnings for the first time since the March 2002 quarter. Their fears centered on financial stocks (earnings forecast down 8%), consumer discretionary (down 7%) and energy (down 4%). In contrast, healthcare earnings were forecasted to rise 12%, and technology, 10%. That’s pretty much the way it has been coming out, with financial stocks a little worse, energy a little better, and technology and healthcare unscathed.

Now let’s review all of the reporting companies from this week, and I’ll also give you a preview of what I am expecting next week from our portfolio. The latest anticipated reporting dates for next week are:

Week of November 5
11/5	American Science & Engineering
	Isolagen (projected)
11/7	Airspan
	BioCryst (projected)
	Dendreon (conference call on 11/8)
11/8	Energy Conversion Devices
	Lighting Science Group (projected)
	SXC Health Solutions
	UTStarcom (projected)
11/9	Telkonet (projected 10Q filing — no call)
	Connacher Oil & Gas (projected)

Avian Flu MegaShift

BioCryst (BCRX) will report earnings next week, and I’m expecting 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. I’ll be looking for a discussion or update on the small 40-person trial of a longer needle length for administering intramuscular (IM) peramivir for seasonal flu. I’d also welcome a discussion of the plan for the intravenous (IV) peramivir Phase II clinical trial for avian flu that is about to begin. BCRX is a buy up to $13 for my $30 target after successful Phase II intravenous results are announced or IV peramivir is approved for avian flu.

Biotech MegaShift

Dendreon (DNDN) will report next Wednesday and hold their conference call Thursday morning. The numbers won’t matter much — they 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. You see, the key to the stock is the ongoing trial for Provenge, so on the conference call I will be looking for any information on how fast the pivotal trial of Provenge is accruing patients and when they think the interim peek data will be available next year. I also expect them to discuss some of the related programs in breast and head and neck cancer that they have funded recently. I’m not expecting to hear anything specific about a European partner, although they could fool me here. DNDN remains a buy while it is under $8 for my $40 target after Provenge is approved.

eResearch (ERES) reported after the close today and the conference call is imminent. They missed estimates for $26.5 million in sales and eight cents per share earnings, coming in at $24.0 million in sales and seven cents a share. I thought they might report as much as $28 million and 10 cents. I also wanted to see orders top $30 million, with less than $5 million in cancellations, and they blew that away: $35.5 million in new orders, more than 40% higher than last year’s quarter, with just under $5 million in cancellations. The orders-to-shipments (book-to-bill) ratio skyrocketed to 1.5, and backlog is up to $115 million. ERES guided for $27.0 million to $28.5 million in sales in the December quarter, compared with the Street’s $28.1 million. On the bottom line, they guided for nine to 11 cents per share, compared with the consensus for nine cents. This is a cautious management that likes to set the bar low, so I think they will hit the $28.5 million and 11 cents. Others think the same way, and that’s why the stock is up in the aftermarket.

I don’t expect anything negative on the conference call, but I’ll send you a Flash Alert if there are any surprises. ERES is a Top Buy all the way up to $16 for my $30 target.

Geron (GERN) reported yesterday, with a 17-cent-per-share loss, which was a bit better than the expected 20-cent loss. They still have about $208 million in cash, but management expects the burn rate to go up 50% next year as a spate of new clinical trials get under way. One of these trials will be the world’s first embryonic stem cell human trial. Management did not reveal any new clinical trial news, or medical society presentations or publications, and the stock just drifted for the past two days. Buy GERN up to $9 for an $18 trading target, and much higher levels in following years.

Isolagen (ILE) should report next week, possibly on Monday. Wall Street and I expect an 18 cents a share loss in both the September and December quarters. The big issue here is how fast they are enrolling patients now that the clinical trial of the Isolagen Process has restarted, and when we will actually see the data. Buy ILE under $4.50 for my $9 target.

Millennium Pharmaceuticals (MLNM) reported before the opening this morning. Wall Street was looking for $118.4 million in sales and one cent a share, and the company beat the consensus, hitting $122.3 million, which is up 17.5% from last year, but they lost five cents a share proforma. Due to strong sales of Velcade for multiple myeloma, up 32% year over year, they raised guidance for annual sales from the previous $250 million to $260 million range to a single point estimate of $265 million. They now expect full-year proforma earnings of $40 million to $45 million, a dramatic increase from the previous range of $20 million to $30 million. On a GAAP basis, they will report a $30 million to $35 million net loss, much smaller than the previous estimate for a $50 million to $60 million loss.

Next month, the company will file for a label expansion to include newly-diagnosed multiple myeloma, based on the Phase III trial that was stopped early due to a positive interim analysis. They still expect to finish the year with more than $800 million in cash. MLNM dipped slightly under my $12 buy limit today, and you should have a full position at these levels for my $23 target, possibly in a takeover.

Sequenom (SQNM) reported September third-quarter sales of $9.8 million and lost 14 cents per share, both just about equaling the consensus for $9.7 million and a 13-cent-per-share loss. They attributed the 51% yearly growth in revenues to 14 new placements of MassARRAY systems, bringing them to 40 for the first nine months, compared with 34 for all of 2006. They also saw related product sales and growth in the Contract Research Services group, although that operation has lower gross profit margins that pulled down the overall numbers. Sequenom didn’t bring more revenue to the bottom line due to increased marketing expenses, which worried Wall Street. I expect these marketing investments to pay off in future quarters, especially as SQNM introduces new products in the first half of 2008. And the company is well funded for these upcoming products — they completed their private placement at $9 a share, raising $28 million net of fees.

Following last night’s conference call, the stock briefly fell under $8 this morning before rallying partly back to close at $8.80, down 91 cents for the day. Investors are worried about the margins, and I expect the company to address that head-on when they present at the Rodman & Renshaw 9th Annual Healthcare Conference next Tuesday. SQNM remains a hold for my $10 target.

SXC Health Solutions (SXCI) will report the expected bad quarter next week, with a consensus estimate for $22.6 million and eight cents a share. Wall Street expects them 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, because 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 raised the buy limit to $14 to give you a chance to buy it, and it has moved over that level. So, I’m raising the buy limit on SXCI again by $1 to $15. Buy SXCI on any dip under that level for my unchanged $30 target.

ViroPharma (VPHM) reported $50.9 million in sales and 26 cents a share, compared with the consensus expectation for $52.6 million in sales and 28 cents. Revenues were a bit light because sales of Vancocin fell $4.2 million or 7.6% from last year’s artificially high level, due to wholesaler stocking in the 2006 third quarter. The company is also accelerating its R&D investment in Camvia for transplant patients.

Vancocin sales are up 22% for the nine months, so I think this decline is a one-quarter problem. Management said that the market for Vancocin’s class of therapies is maturing, but they then raised the bottom of their sales forecast for 2007 to $202 million, keeping the top of the range at $208 million. They also pointed out that during the quarter, Genzyme’s competing drug in Phase III trials failed to show non-inferiority against Vancocin. And, of course, no one has filed for generic Vancocin yet. At this point no one could get a product into the marketplace earlier than ViroPharma management has expected all along.

The consensus for the December quarter is $51.9 million and 24 cents, and I think that’s too low. They have $552 million in cash, and the stock trades with a total market capitalization of only $563 million, with $250 million in convertible debt. It’s as if Vancocin and Camvia are near-worthless, which is ridiculous.

They will use some of the cash to do an acquisition or in-licensing deal. 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.

I’ve been doing some work on methicillin-resistant Staphylococcus aureus (MRSA), the disastrous mutation that is wreaking havoc in Southeastern hospitals. Vancomycin remains the reference standard for treating this systemic infection. Buy VPHM up to $12 for my $25 target… or better.

China MegaShift

UTStarcom (UTSI) is getting caught up on restated quarterly filings, and may be ready to announce their September-quarter results on time. The consensus is looking for $592.1 million in sales and a loss of 45 cents a share. In the recently-reported June quarter, they did only $538.2 million and lost 51 cents a share. I doubt that they will hit the consensus for September, but I also don’t think that Wall Street will care all that much if the tone of guidance is good. Continue to hold UTSI for my $10 target.

Content on Demand MegaShift

Harmonic (HLIT) priced their secondary stock offering at $12, raising about $155 million net of fees. Management’s excellent record since the new CEO took over almost two years ago suggests that HLIT will put the money to good use. I raised the buy limit to $11, and now the stock is trading over $12. So, I am again raising the HLIT buy limit to $12, just in case some of you haven’t gotten on board yet. But I’m keeping the target price at $18 for now.

Silicon Image (SIMG) reported after the close, and I am about to jump on the conference call. They did $86.3 million and 10 cents a share pro forma, above the consensus estimate for $84.0 million and nine cents. Management said that they experienced strong sequential growth over the June quarter (+8.3%) for semiconductors used in consumer electronics like digital televisions, DVDs, digital still cameras and HD camcorders.

For the December quarter, the consensus was at $78.6 million and seven cents a share. SIMG said that they will do $77 million to $79 million and, as I calculate it, eight or nine cents.

Before the report, subscriber Norman asked: “Trident got crushed on Friday due to poor earnings. Aren’t they in a similar area as SIMG, and shouldn’t I question their earnings?”

They are in the same area, Norman, but SIMG has better products and better management, as this quarter demonstrated. If I hear anything worrisome on the conference call, I’ll shoot you a Flash Alert tomorrow, but I must say this looks like a pretty good quarter. SIMG is very cheap going into the holiday season, and is a Top Buy up to $13 for my $20 target.

Telkonet (TKO) doesn’t hold conference calls, but I expect them to file their quarterly 10-Q with the Securities & Exchange Commission next Friday. If so, I will read through it and give them a call with any questions that arise. The real news that I am waiting for is that the current absentee CEO Ron Pickett has set a date to turn over the company to the current Chief Operating Officer, Jason Tienor. He was the CEO of EthoStream, which TKO acquired. He is a very effective, hands-on entrepreneur that can take advantage of what Scott McNealy of Sun Microsystems used to call the “insurmountable opportunities” facing a company that dominates an important technology.

Pickett, who lives in Wilmington, North Carolina, had a nice write-up in a local paper: “When Ron Pickett goes to work, he has only to stroll down the hall of the Gov. Dudley Mansion, his newly restored residence and a Federal Style landmark located at the corner of Front and Ann streets in historic downtown Wilmington. Pickett’s inner sanctum is on the second floor of the north wing, where he eyes the Cape Fear River across his buttressed lawn. The office features floor-to-ceiling mahogany panels hand-built by Mike Lewis. Pickett, who worked for the Democratic National Party in the Johnson White House, was L.B.J.’s Director of Youth Activities. During that administration, he served as executive secretary of the Youth Advisory Council. In the 30 years since, he has been pulling strings in the private sector. ‘I’m what you call an angel investor, someone who works with entrepreneurs at the start-up stage, investing capital and mentoring projects.’”

Trouble is, when we bought the stock I was under the impression that he was a CEO who worked in Germantown, Maryland, which is 404 miles away and a six-hour and 24-minute drive, according to Google Maps.

Subscriber Jim asked: “TKO had triple its 50-day average volume and double its 200-day average volume today, and announced the partnership with GEEK (Geek Link System) and a contract with Motel 6. Seems like all good news, but with the price down three cents on heavy volume and good news, am I missing something here?”

You are just missing the need for Mr. Pickett to depart. I still rate TKO a buy up to $5 for a $15 target after Tienor takes over.

New Energy Technology MegaShift

Light, sweet crude for December delivery hit $96.24 last night, a new trading record, before backing off to $93 to $94 today. The nominal reason for the jump higher was a disappointing weekly inventory report that showed oil supplies fell 3.9 million barrels last week when analysts were looking for a 100,000 barrel increase. One oil terminal at Cushing, Oklahoma, which is the delivery point for Nymex crude oil futures, suffered a 3.1 million barrel drop as speculators held onto their oil as a defense against the falling dollar. That may not change soon, and even a mild winter could see a shortage of heating oil in the Northeast.

Connacher Oil & Gas (CLL.TO) may report next Friday, and all eyes will be on the scale-up of tar sands oil production from Pod One. CLL.TO is a Top Buy up to $4.50 for my $9 target.

Energy Conversion Devices (ENER) will report earnings next week. The Street is looking for $42.7 million in sales and a loss of seven cents a share. That’s about right, and the conference call should focus on when we will see the cost savings from the restructuring. Bob Stemple decided to retire as Chairman at the annual meeting on December 11 — I’m sorry to see him go, but glad we have a hard-nosed operator in as CEO. ENER remains a buy while it is under $30 for my $55 target as the restructuring improves their bottom line.

Gasco Energy (GSX) will report results and hold their conference call tomorrow morning. Results are still heavily impacted by a lack of pipeline capacity, but that problem goes away in the March quarter. The consensus is looking for $5.1 million in sales and a two-cent-per-share loss. That’s about right. For the December quarter, the consensus is at $6.6 million and a one-cent-per-share loss. Again, that’s probably on target because even if natural gas prices shoot up in a cold winter (which I am not anticipating), Gasco will not have access to adequate pipeline capacity until the spring. But GSX is a buy up to $4.50 for my $9 target as natural gas follows oil skyward and the new pipeline opens up.

Lighting Science Group (LSGP) may report next week, although the merger with LED Effects that I covered in last week’s Radar Report may delay the announcement.

Norman asked: “On the message boards for LSGP someone mentioned a 20/1 reverse split. These are generally not a good sign. What is your take?”

Yes, I saw that. They are not good, but this one has not been set or approved by the Board. If they do it, the stock would probably slip from my $10 buy limit (equals 50 cents a share on the current stock) to $7 or so (equals 35 cents a share on the current stock). But LSGP closed today at 40 cents, so it’s almost discounted already.

The only way reverse splits work is if the company has a plan in place to get Wall Street coverage and find institutional buyers, who won’t buy a 50-cent stock. Without that, history tells us the reverse split does not help current shareholders.

The big question is where the combined company will be in a year or two, and that has not changed. More and more jurisdictions are banning incandescent lights, and there are very few ways to participate in the white LED revolution. So, LSGP can still be bought up to 50 cents a share for my $1 first target price.

Security MegaShift

American Science & Engineering (ASEI) will report next Monday. The Street consensus is for $42.9 million, but that’s in the usual wide range from $38.3 million to $47.0 million. As you know, ASEI has a lumpy business selling big ticket items, and it’s hard to predict when they will be accepted and revenues booked. That makes the earnings range equally difficult — the single point average of 62 cents is in a range from 50 cents to 72 cents. The way to deal with this is to understand that the smoothed results for this company will be up and to the right for many, many years to come, until terrorism ceases to be a problem. Just this morning ASEI announced a nice contract to provide parcel inspection systems for the 2008 Beijing Olympics. Buy ASEI only on dips back under my $59 buy limit, which would be caused by quarterly results below the average consensus, and otherwise hold for my $93 target.

Packeteer (PKTR) said that they resolved their tax dispute with the IRS. As I expected, it will have almost no impact on their cash or future operating results. You may recall that when the situation was announced, the stock was knocked down sharply as if a resolution would cost a couple of hundred million dollars. Instead of the $171 million in taxes and penalties for 2003 and 2004 that the IRS asked for, the company settled for less than $500,000, and that includes state as well as Federal taxes, and 2005 as well as 2004 and 2003. PKTR remains a buy up to $9 for my $20 target, which could come in a takeover.

SiRF Technologies (SIRF) jumped almost 30% yesterday after they clobbered Wall Street expectations. The conference call was vastly entertaining, because the predominant emotion was disbelief. Half of these people couldn’t spell GPS two years ago, and they have no idea how big this is going to be.

First, the numbers. SIRF reported $91.2 million in sales and 29 cents a share pro forma, far above expectations for $85.7 million and 22 cents a share. The company cited strength in System on a Chip (SoC) sales incorporating technology from the Centrality acquisition, where they booked $8.8 million versus their guidance for about $5 million. They also had good sales in automobile GPS devices like GM’s OnStar system. The company suggested that wireless revenues in the cellular handset and other markets could double or triple next year, and wireless was 20% of September-quarter revenues. All of Wall Street’s estimates for 2008 are much too low.

The next wave of GPS devices will be as a feature of other products like cell phones, and today SIRF has very little competition in the SoC market. Qualcomm has products for the CDMA market, and I’m sure Broadcom and STMicro will get into this area in 2008. But SIRF is well ahead of the curve, and it takes a long time for a cellular service provider to quality test and approve a new handset design. I suspect SIRF is already “designed in” to a lot of slots that will be there for the next two or three years.

Some of these applications include 3-D GPS, which gives you a screen presentation that looks like you are driving through a city rather than crawling over a street map. Others include area information like nearby restaurants and movies, with ratings, coupons and so on. Some have mobile digital TV — recall that SIRF bought a mobile TV receiver company in 2006. There is no other company as well positioned for this MegaShift than SiRF.

I’d been looking for about $100 million in sales in the December quarter, above the consensus for $98.5 million. The company guided for $99 million to $102 million, so I was low. We bought SIRF right under $23, and I am moving it to a hold for a raised target of $42.

WiMAX MegaShift

Intel (INTC) and Motorola (MOT) have loved WiMAX technology for years, but Cisco’s executives, especially their Chief Development Officer, have publicly and frequently criticized WiMax. But now it looks like Cisco has seen the light. For the last few weeks, there have been rumors that Cisco might make a bid for Airspan Networks (AIRN) or Alvarion (ALVR).

And this week Cisco confirmed the Year of WiMax by acquiring a private supplier of mobile WiMAX equipment, Navini Networks, for $330 million. A Cisco spokesman downplayed the U.S. market and said: “We were hearing from a lot of customers in the emerging markets about their interest in WiMAX and how they were getting very serious about it. Through this acquisition, we are focused on delivering broadband wireless in emerging markets, such as India, China and Eastern Europe. In these countries, cell phone penetration is high, but broadband penetration is not. And that’s largely because of the lack of infrastructure.”

The excitement for 2008 is Fixed WiMAX for business and home connections. Mobile WiMAX received approval last week from the International Telecommunication Union as a third-generation wireless technology. Motorola and Intel will have products for mobile WiMAX in the market sometime in 2008.

Subscriber Elie asked about the impact of the Cisco acquisition, and then added: “Can you give us any guidance on when there will be devices that will work with WiMAX (i.e., do you have an idea when WiMAX will happen? Two to three years from now?”

Fixed WiMAX is taking off now. Every WiMAX equipment supplier is showing rapid growth, lots of trials, and lots of requests for quotes. Mobile WiMAX will take off in 2008. Intel will introduce processors with built-in WiMAX in the first few months of the year, and they will be in almost all laptops after midyear. In this morning’s conference call, Sprint Nextel said that they are continuing to prepare for soft launches of WiMAX in the Baltimore, Washington and Chicago markets later this year. They have slowed down their capital spending on WiMAX and have not signed a final deal with Clearwire yet. But Clearwire is going ahead hammer and tongs, so I think it is fair to say that 2007 is the Year of Fixed WiMAX and 2008 is the Year of Mobile WiMAX.

Subscriber Eugene asked: “Now that Cisco bought Navini and is in WiMAX, how do you view the survivability of Airspan Networks (AIRN) and TowerStream (TWER)?”

It’s good news for TowerStream because they buy equipment to provide a service, and the more suppliers that they can play off against each other, the better. It will be mean more competition for Airspan Networks eventually, but mobile WiMAX is so new and the worldwide markets so huge that I think any impact is years away.

Airspan will report next week, and I think that they will about match the consensus, which is looking for $22.1 million in sales and an 11-cent-per-share proforma loss. They should be able to show us a good jump in the number of operating customers and in the number of trials. Buy AIRN up to $5 for my $10 target.

Alvarion reported record revenues for the September quarter, hitting $60.6 million for 39% growth from last year, and booked four cents a share pro forma — both right on the consensus. BreezeMax sales broke $100 million for the year to date, and ALVR is on track for 25% to 30% growth in 2007. They ended the quarter with over 200 commercial deployments, up from 170 at the end of June, and most of those are early in their network buildout.

The stock fell today after they issued conservative December-quarter guidance: $61 million to $65 million in sales and two cents to five cents a share in proforma earnings. The consensus was at $62.9 million and four cents. That spooked the Merriman, Curhan, Ford brokerage firm, which downgraded ALVR to neutral from buy, due to “mounting concerns that the company lacks the critical mass to compete directly with a growing list of global telecom equipment providers,” such as Motorola, Alcatel-Lucent and Nortel. And this is a new worry? They’re on my short list of companies that might buy Alvarion.

Alvarion has deployed more than three million wireless broadband units in over 150 countries. In WiMAX, they have more deployments and more products covering all the frequency bands for both fixed and mobile solutions than anybody. Just in case there is a little more weakness in the stock, I am moving ALVR back to a buy with an $11 limit this time, while keeping the target at $18.

Market Outlook

The quick drop in the S&P 500 to the 1520 to1530 breakout point just after the Fed rate cut announcement yesterday was another bear trap. These big, widely-anticipated events almost never change the underlying trend, because the market anticipates the event and establishes the trend before the announcement. So it’s a poor bet to think a rising market will start to fall after a Fed announcement, no matter what they say. Bulls can argue that a half-point cut is great because it will unlock the credit markets, while bears can argue that it’s a negative because it shows that the Fed has inside information about how weak the economy really is. Then, when the announcement is a quarter-point cut, bulls can argue that’s great because it shows that the Fed has information that the economy is in better shape than the headlines suggest. And bears can argue that it is inadequate to deal with the developing, spreading real estate crisis.

While this all may make for excellent financial entertainment on the champion, CNBC, and the challenger, Fox Business, it’s meaningless. The market has been stair-stepping up for some time now, and the bear trap snapped shut yesterday as the S&P reversed to slingshot much higher. Today’s textbook test back down to 1520 failed, and the S&P fell back to the 1507 area that was important in both the last downturn and upturn. We closed near the low, and I would not be surprised to see a quick probe down to 1497 tomorrow or Monday, which should be just as quickly rejected.

Today’s story on the close told it all: “Wall Street plunged Thursday, pulling the Dow Jones Industrial Average down more than 350 points, as investors found themselves confronted by two uncomfortable prospects: an end to interest rate cuts and a slowing economy.” If we have a slowing economy, we have not seen the end of interest rate cuts. Bernanke has said over and over that he is more worried about downward spirals in the economy than about inflation. Wall Street can worry about both of these happening at the same time if they want to, but my question is: In what universe?

Today was just another opportunity to build up negative sentiment, and it seems obvious that as soon as we clear the 1550 to 1555 area, 1607 or 1690 becomes the next target. The VIX (Fear & Greed) Index dropped a huge 2.54 yesterday, but shot up 4.66 today to 23.19. A move from there down through the high teens to low double digits — or even high single digits — can drive the S&P 500 up hundreds of points over several months. Stay fully invested.

Dollar Death Watch

The dollar tanked after the Fed rate-cut announcement, as gold soared to touch $800. Since mid-August, the dollar has fallen 6.7%, setting another new all-time low today. At that rate, it will be completely worthless by August 2010. It’s a strange thought to think that the dollar is going to be used for toilet paper, but you need to think about all your assets and liabilities in an environment where cash is trash, inflation and interest rates are soaring, and everyone wants real assets. I think stocks like US Geothermal (UGTH), Rochester Medical, TowerStream, Lighting Science Group, Silicon Image, Telkonet and on and on will sell for stunning prices in that environment. Even the sub-prime mortgage holders will clean up, if they don’t get foreclosed out of their houses first.