If the market climbs to ridiculous heights without any significant pullbacks, it’s inevitable that some people become skeptical. In our current environment, the bears are starting to increase and yet, I wouldn’t call worrying about losing money a “wall of worry” - a phrase that is being exploited and misused.

The wall is supposed to be “a bullish market trend occuring in the face of negative uncertainties.” We have a bullish market trend, but I don’t see a lot of negative uncertainties on investor radar screens. I saw them last summer as the market rebounded, but those factors have disappeared. I guess you could suggest there are negative uncertainties about whether oil will increase to levels that no one seemed to care about before. Maybe an increase in interest rates is an uncertainty or whether rates will be lowered sooner than later by the FOMC. Someone might be concerned about a terrorist attack or an increase in geopolitical tensions. But all these things and almost anything else I can come up with are not overly negative right now and not measurably present. In fact, those issues are just ordinary aspects of the world we live in.

The wall typically occurs at the beginning stage of a rally when quite a lot of investors are pessimistic (and simultaneously sold out). That was also the case last summer but it’s not the case now. If you believe that the last 4 years is “the beginning stage” of a rally, I would view you as one hell of an optimistic and long term investor. I don’t know when this rally is going to end, but I know it’s not just starting now.

While doing my research for this post, I decided to look for references to the wall during the bullish trend. I know it’s unfair to hold the media accountable for overworking a story, but you can go backwards and read about how worried investors have been about one topic or the other for months and years on end. I find that funny because I used to imagine a wall being built over time, then climbed, then like Humpty Dumpty we fall off and get hurt. I guess I was wrong about that. This wall seems to have been around forever.

Ordinarily, walls are built by skeptics who are gradually converted to believers as the market increases despite their pessimism. Each round of new believers fuels more gains and some skeptics are left behind. This repetitive process is the “climbing.” However, this is not what is happening now. Our current market is full of believers and this talk about the wall is being perpetuated to keep the momentum going. The focus now is much more about keeping believers believing and trying to prevent them from being skeptics, but that is not part of the real process of building walls.

The biggest farce of all this “wall” talk is the crowd that is hyping it the loudest. It’s coming from the bulls. These men and women put a smirk on their face and point to one bearish sentiment indicator or another and proclaim that the wall is in tact. SHUT UP!! Bulls should stick to their rosey scenarios and leave the pessimism to people like me that actually believe it. You’ll notice that it’s tough to find too many bears who are pushing their case. Sure - you have a core group that love to be negative but they are ALWAYS negative. So the next time you hear someone commenting about the wall, consider the source. Mentioning the wall in blatant tones and then suggesting that because of those statements, it’s time to buy is a bullish tactic.

If you are a believer in my rant, you are a skeptic!  If you are a skeptic of my comments, you are a believer!  Regardless of which one you choose, you should be worried about losing money whether there is a wall or not.

OPEC is two things - a significant force in global energy prices and simultaneously, a weakened force in global energy prices. On one hand, their control over most of the world’s oil production and reserves is impossible to ignore. When we are looking for someone to blame about high oil prices or when politicians ask ignorant questions about who is setting the price of oil, it is convenient to point the finger at OPEC. Let’s face it - a lot of that has to do with the geopolitical mess we are in. It’s easy for Americans to hate the stereotypical image of our supposed enemies - Iran, Venezuela, etc. When gas was near $3.00, OPEC was hated and feared. Now that I can drive past a gas station and see $1.99 per gallon, it feels like we are ignoring them.

Listening to financial media today, you get the sense that the reduction in oil prices has to do with global-warming induced weather patterns in New York and lately, a mocking of OPEC. How many times do we have to hear about NYMEX traders who “don’t believe what OPEC says about quotas?” It’s almost as if those nasty speculators that got blamed for pumping up oil prices last summer have found a new way to make money - beat down oil prices by criticising the realities of OPEC quotas. What kind of cartel is this anyway?

It’s all a game. OPEC has a history of not following through on its production quotas - that’s a fact. Repeatedly, it has been pointed out that only half of the October quota has been achieved. And if that is not enough, we get to hear how this is standard practice for OPEC’s history of quotas. For their part, OPEC plays the game also and they just seem to do it poorly these days. Whenever they want to see oil prices level off or head higher, a rumor is leaked that they are considering an “emergency meeting”. All this does is give oil traders and the pundits new ammunition to point out that OPEC quotas are a joke that don’t need to be worried about and oil prices head lower. If they actually have a meeting, the traders make it clear that they don’t care what OPEC says they are going to do - it only matters what they actually do. Each time they don’t deliver on promised cuts, it adds to the downward momentum of oil prices. Just remember all this the next time oil rises and people start pointing at OPEC. If we make such a big deal today about how OPEC lacks credibility, how will that affect our credibility to blame them in the future?

It’s almost impossible to argue that lower oil is a bad thing, but I am getting concerned. Clearly, there are divisions with the OPEC oil ministers and most of those disagreements have little to do with oil. Iran, Venezuela and their camp are happy to use oil as a weapon against the United States and the Saudi led group is not so willing to participate. If OPEC keeps losing whatever credibility they still have, I wonder how long it will be before the anti-US members like Venezuela and Iran go on their own. In that case, we could fear one “cartel” and ignore another all at the same time. I know that’s a highly unlikely scenario, but it’s one that pops into my head every once in a while.  Another scenario is that OPEC members finally get tired of looking like fools and actually stick to production cuts.   That might give them some credibility back and it would put a hurt on oil markets that keep ignoring them.

Private Equity this, Private Equity that…it’s a slow news day in the markets unless we can overload it with talk about firms like Carlyle, Blackstone, Bain, KKR, et al. I think every angle has been covered to the point of overkill about the equity side of these transactions. But one thing that I want to see a show or print story on is the debt side of the buyout mania. After all, access to cheap debt is the fuel that is feeding this fire. You can talk all you want about the hundreds of billions in cash that has been raised by Private Equity firms but since many of these deals rely upon loading the company with debt at 3-to-1 ratios, I want to hear about the lenders. So I am challenging the tv and print guys that read my stuff to do this part of the story some justice. I don’t want to see another puff piece about how wonderful these deals are for the market. I want to hear some tough questions about the exposure of banks, pension funds, insurance companies, state agencies, etc. that are holding this paper. Are underwriting standards being maintained or is the money too easy? What are the yields, maturities, covenants, and other terms of financing the debt? What are the risks associated with rising interest rates? When and if these companies start to have difficulty meeting their debt obligations, I expect there will be a lot of whining from the same crowd that is desperate to get in on the action today. After the LBO craze of the 80’s, it was real easy to blame things on Milken and the barbarians at the gate. But unlike a gate which opens and closes, this story is more like a turnstile… it just keeps coming around. Hopefully we are getting it right and it will be different this time!

There are very few repeat guests on CNBC that I look forward to more than Doug Kass of Seabreeze Partners. In the past few months, Doug has resurfaced more frequently and it’s about time. With the Dow at a new record high, there is an abundance of positive spin and so much of it lacks substance. I guess that’s why I enjoy Doug and why he probably annoys the bulls more than any other figure. He’s a threat to the bullish case every time he’s on and the logic of his arguments are never without credible support.

When I was at the Money Show a few months ago, I was eavesdropping on a group of about 20 attendees who had just finished listening to Tobin Smith. They were discussing the financial tv guests they like and as you might imagine, the favorites list was all permabulls. I couldn’t pass up the opportunity to mess with people’s heads so I interjected “Doug Kass”. One guy said that he was always bearish and always wrong and another guy suggested that Doug was annoying (how insightful!) Hopefully, Doug would be flattered with those comments. If he wasn’t a threat, people wouldn’t care enough to criticise him, they would just move on.

I don’t agree with Doug on all of his concerns or at least the severity of the concerns, but I love that he makes me think about his point of view. Only a few bullish commentators are truly thought-provoking. They may make you feel all warm and fuzzy, but is that going to help you make more money or avoid losing it? So listen to Doug on CNBC or read his stuff at Street Insight, The Edge, give his ideas some thought and make up your own mind. Just don’t ignore him.

Pull up XOM in the PROFILE section of HEDGEfolios and scroll down to the industry comps. You’ll notice that I have DOWN signals on XOM and the other 13 stocks in the “Oil & Gas: Integrated” group. I am tooting my own horn here and you might say that it’s obvious that these stocks are going down. But take a look at the dates I gave most of these signals and you’ll see that only one signal (E) was given after December 26th. That was before oil and these stocks started slipping about 10% during 2007. I just pulled up the current prices for these 14 stocks and other than being wrong on XOM by 8.3% since I gave the signal on September 11th, all the other 13 signals are winners with an average gain of 7.4%. I usually don’t point out when I am right on a stock or sector as I am humble enough to remember all the signals that I get wrong. But two weeks ago I was challenged by a former oil exec about my ability to time stocks in general and specifically, he asked about my track record with the big oil companies given that (at that time) I was wrong on a bunch of them.

…would it smell so sweet? What’s in a name anyway? Cisco is suing Apple over the “iPhone” brand. What a shocker!! I guess they want a piece of the action and I don’t blame them. You have to wonder about the terms of the licensing contract that Jobs had in front of him before his showman act at Macworld. He probably thought Cisco was being too greedy then and yet, how greedy is it going to be compared to what they will ask for now that Chambers saw what happened to AAPL stock on the uttering of “iPhone?”

This isn’t the first time with Apple getting sued for going into a new business or using a trademarked name. Remember them taking on the Beatles over iTunes and a little tech company over its Tiger OS. So maybe we should have a contest to come up with alternative names in case Apple needs a new one. If you come up with a good moniker, it might be fun to file a trademark app and register the domain name. Hopefully you have a lot of bucks to pay the legal bills, but if you want to go ahead with it and need some ideas…how about these? I haven’t checked on their trademark status but that doesn’t seem to matter much (at least with Apple.) In case you want to do your homework, you can either hire Cisco’s intellectual property law firm or just look it up yourself at the US Patent and Trademark website free of charge.

Here are my contributions:

• NewtonPhone
• nextPhone
• aPhone, bPhone, cPhone, dPhone, ePhone, fPhone, etc. etc.
• PalmiPhone
• BlueberriPhone
• NokiPhone
• HIpePhone
• ExpensIvePhone
• wePhone, mePhone, usPhone, themPhone, hePhone, shePhone etc. etc.

I plan to add more as I think of them. Of course I am kidding about this but it was fun anyway.

The iPhone announcement has generated $10 billion in additional market cap for Apple since yesterday. How about them apples?!? I am not going to belabor this point as there are about 4000 other stocks I have to worry about everyday and I already wrote about this yesterday. But just put up with me for a few more paragraphs.

CEO Jobs set 1% of phone sales by 2008 as his market share goal. Make some assumptions and that means he expects to sell 10 million units during 2008. Further, let’s not get any more over the top than this already is and say that there were no iPhone sales implicit in their estimates or market cap prior to yesterday’s announcement and that no more increased market cap will be related to iPhone hype. Besides, I need to get this off my chest today and have no idea what is going to happen tomorrow or any following days. That would allow us to isolate the market’s assessment of iPhone’s business to the equivalent of a $10 billion company. All this for a product that has never sold a single unit and will not do so for about 6 months. Pretty cool.

Back to the numbers: Palm has a market cap of $1.4 billion and actually has sold a few Treos, even to me. Their Price-to-Sales ratio is 0.9 while Nokia has a Price-to-Sales ratio of 1.5. Based on my assumptions, the iPhone is valued at 2 times sales ($10 billion market cap divided by 10 million units at an average selling price of $500). In Apple land, that’s cheap given that AAPL is trading at 4 times sales on its “real” products. Regardless of the valuation metric you want to use, the iPhone better deliver decent results or this already expensive stock is going to look even more expensive.

The iPhone has been a myth and the next big thing in the Apple pipeline for years. Now that it’s a reality (6 months from now), I am much more interested to hear what the next cool product is going to be. It will have to be fantastic to provide more hyped up valuations than the iPhone has. I’ll give this story a rest for now and won’t even get into wondering what kind of options (or backdating!) activity might have preceded the announcement or any subsequent trades!

Eddie Lampert is an investing genius. He is this generation’s Warren Buffett. Just take all the other hero worship language and insert it here. Lampert found ways to make more money on Sears and Kmart than anyone else did and he did it at a time when almost everyone else saw a bunch of crumbling retailers. So now that we have all the ass kissing out of the way, let’s get to the point. I am seriously thinking of removing SHLD from the retail industry classification in HEDGEfolios and putting it into the Investment Management group.

Today, SHLD said that 4th quarter earnings could rise about 30% despite the fact that their retail sales figures are sucking wind. Oh well - investors are cheering today and giving a 3% push to the stock. I have no problem with what Lampert is doing as it all appears legal and investors seem to love worshipping him. I just need to make sure I put them in the right category. The board has given Lampert free reign to use excess cash for investments outside of retail and it seems, whatever Eddie wants to do with it, he can. Sounds like a publicly traded hedge fund to me. One difference between Buffett and Lampert is that Berkshire has been accused of being a big mutual fund and I don’t think anyone ever accused BRK/A of being a hedge fund.

Last year, SHLD generated about $3 billion of excess cash in the 4th quarter. This year, it appears they are going to generate only $1.5 billion or so. Last quarter, approximately half of their earnings were from investments and they had about $100 million in profits from something called “total return swap investments.” Returns are big in retail but these kind of returns have nothing to do with bringing back merchandise that you didn’t want and the swaps have nothing to do with in-store credit so you can swap an ugly sweater for a less ugly sweater. The real definition goes something like this….”derivative contracts that synthetically replicate the economic return characteristics of one or more underlying marketable equity securities.” Clearly, SHLD is in the business of derivatives trading and sometimes, like last quarter it works great. However, this quarter the company is reporting that it’s going to have a gain of about $20 million pretax from the net of real estate asset sales and losses on derivative transactions. Not much detail other than that and if you were counting on Lampert to generate $100 million in recurring revenue from running a hedge fund every quarter you might be disappointed. But no matter, the stock is going up anyway. Hopefully, there will be enough real estate to sell every quarter that derivatives trading doesn’t go so well.

With all the hubbub about hedge fund regulation these days, I like the brilliance of Lampert. Just buy an operating entity like Sears / Kmart and then run it like a hedge fund. If the hedgies have to disclose all their positions, will the SEC be fair and start demanding any public company will have to provide the same level of detail? If not, they should follow the SHLD model.

A very observant site visitor pointed out that I had reversed the % UP and % DOWN data in the HEDGEfolios Signal Indicator.  The site has been corrected and I’ll try not to make this mistake again.  I appreciate hearing about these issues and the site benefits from your feedback.

Mr. Maguire of The Graduate would not have been proud of GE today. It was all about “plastics” for GE but not the pursuit of making products of the future. I guess CEO Jeff Immelt finally realized that the high cost of oil was not going to allow the plastics unit to be profitable any time soon. Frankly, I don’t blame him and if he can get the rumored $10 billion for the group, that would be impressive. They can use those proceeds to buy Vetco for $1.9 billion and make more money on oil rather than losing it on oil in plastics. I guess if you are a company with an underperforming division, all you need to do to boost your stock price is to say you are putting it out for bids to private equity. Problem solved - forget about saying just one word of advice to aspiring businessmen. “Plastics” is the old word, now the future is about two words - “Private Equity”.

Getting 1.5 times the estimated $6.7 billion in 2006 revenues would be amazing given that the top 2 strategic buyers, DOW and BF are trading at 0.7 times sales. Furthermore, if the Citigroup analysts, Jeff Sprague and PJ Juvekar are correct and the plastics unit had $738 million in profit, that would make the $10 billion price tag a 14 multiple. DOW has a PE of 10. But why waste time on small details like fundamental valuations and dilutive acquisitions? Why worry about an industry that generated about 1% revenue growth? Why concern yourself with global competition which reduces pricing power or increasing materials costs from oil inputs? All you need to do is say the magic two words “Private Equity”.

According to the GE Plastics website and in their own words - “GE is a world leader in providing engineering thermoplastic material solutions.” That should come as no surprise for business they have run since 1930 based upon original experiments in plastic filaments for lightbulbs conducted by Thomas Edison in 1893. So forgive me for being incredulous that private equity management will be able to swoop in and do what GE cannot do. And forgive me for questioning the premiums that are being tossed around for this business. If someone wants to pay $10 billion, it really doesn’t matter what I think. Lastly, I wasn’t impressed with GE’s rules for the bidding so they can avoid a bad image or not get into trouble with regulators. They should do whatever they can to get the most ridiculous price possible whether strategic buyers are bidding or a group of private equity guys like Apollo, Bain, Blackstone and KKR collude so they can overpay. Seriously, this whole thing was unimpressive and the market really didn’t buy into it given that GE increased exactly $0.00 on the news from yesterday’s close to today’s close. But remember - it’s not about all that - it’s about the two words I have for you “Private Equity.”