Dolan Vu - I was going to say “deja vu”, but Dolan Vu sounded better. Haven’t we been here before? Once again the Dolan family is getting Cablevision attention with a go private offer. In June 2005, the deal was a mess and as a result, it didn’t go through. This time around, it looks much simpler and has a better chance of closing. Tons of private equity capital and cheap debt will do wonders. I gave CVC a down signal last week so my timing sucked - maybe my poor performance on the most recent signal should should nullify my comments. Or maybe my performance on past signals should mean something. That’s your call. If you do nothing else, take a look at the two year stock chart for CVC and pay special attention to June 2005, the runup on the Dolan’s last offer and then the sell off for the next 6 months.  This time around, I hope investors will not get hammered like the last time.  So if you are thinking of buying into CVC, before you do it - ask yourself a few times - Deal or No Deal?

I spent most of the week doing a lot of market research and thinking about the current move and what we have to look forward to next. It’s important to stop and smell the roses when the market is on a roll, but I think it’s critical to watch out for the thorns and bees that might be hanging around. When looking at the bigger picture and trying to see what comes next, I focus on probabilities, percentages and outcomes and wrap it all up with a theme called “Expected Value.”

I apply Expected Value to my overall assessment of what we face every day in the market. What is our current state? What is the probability it will continue and what is the payoff for that continuation? Then I look at all the other possible scenarios, their probabilities and their outcomes. The net result of all this is a rough guess of the upside or downside. I do this for geopolitics, earnings, fundamental valuations, technical analysis, economics via treasury rates, oil, currencies, and commodity prices. I typically do this one day out of the month and focus on my expectations for the next 30 days. It’s limited, it’s “subjective analytics”, it’s pretty short term and it usually turns out pretty correct. So look back at this post a month from now and see how I did.

Earnings - the next scheduled event on the calendar is the earnings season that’s just around the corner. Last quarter, earnings were overshadowed by other events such as Israeal / Hezbollah and the August FOMC rate decision. This time around, earnings season is the primary focus. So far, negative vs. positive pre-announcements has been worse than usual but most of that has come from consumer discretionary (not a surprise). I just don’t see the 14% earnings growth that Thomson is expecting. When we are facing a moderate to low GDP growth, I struggle with the mismatch with expected earnings. This past week, executives were relatively negative about corporate outlooks, but everyone either ignored it or just downplayed it in light of the Dow’s record highs. I took it as a hint that things may not be as great as expected. Even more importantly, I have concerns about guidance. Summary: The current state of earnings is very good, but I think there is a high probability that it will not be good enough or even disappointing, especially forward outlooks.

Geopolitics - We have benefited from relative calm since August. Israel is out of Lebanon, Iraq is somewhat worse, Afghanistan is definitely worse but no one seems to notice, no significant terrorist activity, etc. etc. However, despite Iran and North Korea being in the shadows for a few months, that appears to be coming to an end. US politics has degraded into its usual pre-election mess, and it is not good for the markets no matter the spin. Summary: The current state of geopolitics is good, but I think there is a very high probability that tensions with Iran and North Korea will shake up the market.

Fundamental Valuations - With the S&P 500 PE hovering around 17, it’s reasonable to say that valuations are not out of control. In fact, they have been pretty reasonable and don’t give me much concern. However, I doubt that they will get much lower and to me, the most likely case is an S&P 500 PE that will likely stay between 16-17 as a normal range for some time to come. Summary: The current state of market fundamentals are good, and even if the earnings scenario I mentioned above leads to higher valuations, I don’t expect them to be a cause for selling.

Technical Analysis - Market technicals are strong and yet, we are due for a correction. I have no idea when things will start to slide, and until that happens, I will remain bullish. As I have written in recent posts, I am getting less comfortable with a positive view. Summary: The current state of market technicals are very good and I think there is a good probability they will start to weaken.

Economics - I think we have squeezed as much as possible from the Goldilocks scenario and rates (as reflected in the 10-year) are about as low as they will go. The slight inversion of the yield curve is concerning but like the rest of the equity market, I am still not overly convinced that a recession is a must - just a “maybe”. With each conflicting economic report, it looks like we will stay in no-man’s land. Summary: The current state of the economy is decent, and unless we get a clear indication of economic contraction, I expect rates to increase from here, especially the 10-year.

Oil - The oil market was trying to find support on its own around $60 but now that OPEC is hinting at pulling some supply, it looks like there will be less of an effort to sell oil. In fact, we might even get some of those nasty speculators to accumulate some long positions. Summary: The current state of oil (and by default, gasoline) has been beneficial to the consumer during the 30% decline in gas prices, but I expect the declines to level off, if not start a reversal higher.

Currencies - Since Secretary Paulson showed up, the dollar is strengthening and yet, I am a bit concerned about the relative growth rates in the US vs. China as well as the gap between European and US interest rates. Summary: The current state of currencies relative to the dollar are not affecting US equities and I don’t expect anything dramatic enough to change that.

Commodity Prices - The slide in commodites since May has been more than a healthy pullback, it was painful for the longs. It’s tough to look at commodities as a single item because some (like copper) were more bubblicious than others.  Overall, I don’t think the long term bullish move is over. Summary: The current state of commodities declining has been bullish for equities, but I think there is a very high probability that the CRB will rise very soon.

Overall, many of the factors I look at when thinking about the market have been conducive to higher equity prices. However, what concerns me is that I don’t see them getting much better than they already are and in my opinion, several of them look like they are doing more than just leveling off - they are reversing. From an Expected Value perspective, the probabilities of negative outcomes outweigh the combined probabilities of maintaining our current state or heading towards more positive settings. I expect equities to battle with average earnings and guidance, geopolitical stress, weakening technicals, higher treasury rates (10-year), higher oil, and generally higher commodities in the coming month.

It appears that Kirk’s joy ride at GM is coming to a dead end. Since last May, Kerkorian has been playing around with GM and the market has come along for the ride. The Dow has benefited greatly during 2006 from GM’s 70% year-to-date performance and after today, I think it’s time to question both GM and the Dow. I’ll save my take on the Dow for a later post but will focus this one on Detroit.

Kirk has made a few bucks on this deal and hopefully helped you make some too - and that’s all good. I just never understood the appeal of buying into GM in the first place but Kirk is a billionaire and I am not. That being said, I just didn’t believe any of the comments that suggested he or Jerry York really cared about making cars. They said this was a long term investment and not a raid. Yeah right!! I know that the charade was important to prop this thing up but come on. They said Jerry York needs to be on the board to help them run the company and work his IBM and Chrysler magic, so he was offered a seat. What happened to his five point plan that would take about three years to implement? Now that the Nissan Renault alliance sham is over, he doesn’t need to be on the board? Was it really the case that Ghosn was the only salvation for fixing this company? Nope, the automakers are a mess and they were a mess before Kirk bought in, during his “investment” and they will be the same after he sells his last share. The initial investment was a trade, the failed tender was a trade maneuver, the York board seat was pseudo-blackmail, the alliance talk was hype, and you know what? It worked - at least for Kirk and anyone who rode along. GM is fundamentally no better off now than it was a year ago. It certainly is more expensive and now the only Kerkorian-play is to speculate that removing York from the board will lead to a hostile takeover runup in the stock.  Good luck with that.

Two economic figures interested me over the past few days. One was the increase in SUV’s and pickup truck sales in September and the other was the same store retail data that came across today.

Regarding trucks, the comps are a bit misleading due to the fall off from Katrina a year ago, but if you just ignore that it is still very striking. American consumers apparently have a very short term memory. It seems to me that it was only a few months ago that “all of America” was complaining about high gas prices. Well, at least that’s how the media portrayed it. At the time, I kept saying to anyone who would listen that despite all the whining, Americans were not changing their fuel consumption. And now we have this further evidence that Americans are gluttons for punishment. I get it that gas prices are down about 25 percent from the peak of $3.03, hit the week of August 7th. However, isn’t it odd that a decline at the pump and great incentives from the auto dealers would cause a bunch of people to rush out and jump into a new truck? They are either convinced that gas is staying down here or going lower OR they aren’t as sensitive to gas prices as they said they were. Proving once again that actual purchasing can be very different from survey questions about the intent to purchase.

The retail sales figures are also worth mentioning. Today a lot of momentum continuation has come from the glowing same store sales reports of many retailers. Yet, almost all of the gains were for clothing which really doesn’t mean much to me. It was only a day ago that Wal-Mart did the big mea culpa for messing up their prior guidance calculations. And it wasn’t an error to the upside. Last time I checked a lot of people shop at Wal-Mart and they buy more than clothing there. In fact, Wal-Mart’s poor showing for clothing sales was one reason for their overall mediocre results because the rest of their products couldn’t make up for it.

Lower gas, cooler weather, improving stock market… take your pick of reasons why other retailers did well. But at the end of the day, I don’t see how sustainable those things are. If you want to chase the retail sector, you have to believe in a continuation of those factors. But that is a double-edged sword because if gas prices go a lot lower (which I doubt) well, then you might want to attribute that to slowing global growth and a weakening economy. I don’t think we want that either. Lastly, the consumer’s pocketbook and their actual spending has been bolstered by the housing bubble and associated low financing costs. Clearly, that situation is largely over.

Consumers are consuming - that’s a fact. But I don’t expect it to last. By the way, I did not buy a truck, SUV or any clothing during September. Sorry for holding these numbers down!!

What do you call the people that rush out? Obviously, all the hype about the new Dow highs are a sentimental push to get momentum back in the market. And yep, there is a tremendous amount of momentum. One of my identifiers for “Big Mo” is the appearance of Abby Joseph Cohen on financial media talking about her current and future S&P targeting. That was a very common occurence during 1999 and early 2000 and less so during the last few years. HMMMM?!? For those of you that care and happened to miss it - Abby is predicting an 8% move between now and the 3rd quarter of 2007. Whatever!! I find S&P targets to be useless regardless of who is making them up. It’s a tough thing to do and unless you really believe in things like Ouija boards, crystal ball gazing, palm reading and the like, I suggest you should just ignore it.

But to be fair, let’s take an objective look at her predictions for the years ending 2000 to 2006(year to date). If you want to do your own homework - google for Abby Joseph Cohen S&P target then insert the calendar year. Just for fun, look at the Google results for the year 2000. Amazingly, she upped her guidance to 1575 in late March / early April of 2000 (the absolute peak in the S&P before the bear took over). Similarly, she lowered her targets at the end of 2002 (the market bottom) for the year 2003. Oh well, the results of the historical analysis are mixed. For 2000, 2001 and 2002 her targets sucked and were off by 13%, 30% and 35% correspondingly. However, I did say I was going to be fair. Abby’s targets for 2003, 2004, 2005 and 2006 (if the year ended today) have been great. She has been within 3-6% of the actual results. Quite a winning streak. Will it continue? That’s not a prediction I will make. My crystal balls are small, cracked and cloudy.

Here’s my take: Abby loves to be bullish and when the markets are with her, she is pretty much on target. When the bear market shows up, she is ridiculously wrong. She is not alone, but my goal is to be accurate on the direction regardless of which way it heads. I have been bullish since July 10th and I have no idea how high it’s going to go. However, I am getting less bullish over the past several weeks. The HEDGEfolios Timing Indicator took a more decisive move last week with bullish strength declining and bearish strength picking up. As I have written in previous posts, this indicator tends to lead the actual market move by about a month. I recognize that the market is celebrating and breaking through the emotional high on the DOW at the same time I am getting less positive. Tends to make me sound stupid but it is what it is. Let’s see how things play out. Note that I am not bearish (yet) or calling an end to the current move, just not as excited as others seem to be.

I am fearful of the North Korean situation and to a lesser degree, Iran’s nuclear ambitions. I am ending my bearish call on oil and not because it hit my target. For the near term, I expect oil to level out between $57 and $60 per barrel. Similarly, I don’t expect to see the Ten-year T-Note to continue its decline. If these things actually happen, I expect the market to slow down a bit. I am sure this isn’t as provocative as Abby’s S&P target, but it’s the best I can do.

All the new signals are available to registered members, EXCEPT for the following which I am posting here for two reasons:

1. As a teaser for those of you who have not registered yet.
2. Because I have been working to add a bunch of stocks to the HEDGEfolios universe and until I update the EVALUATE section of the site tonight, these new stocks will not appear in EVALUATE, MANAGE, MY FOLIO or PROFILE.

So here they are:

UP SIGNALS (15)
AVNR, GIB, GTOP, IAL, ISTA, MFLX, NTLI, PGC, SNHY, SOLD, SPWR, TGA, UTL, WRSP, WYN

DOWN SIGNALS (13)
AUY, AVNC, CBBO, DDMX, ENSI, FLSH, GRB, GRC, HBIO, NGPS, OSCI, TLCV, WIBC

As I said, registered members will see these stocks in the database this evening.