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RealMoney's Best Blogs

David Morrow

The markets had a choppy week -- from Monday's sharp selloff to Wednesday's big rally and everything in between. Friday's move lower punctuates a week in which the Dow fell 0.7%, its second losing week in a row. The S&P 500 gave back 0.3% for the week, while the Nasdaq dropped 1.9% during the five sessions.

Some RealMoney contributors noted a rotation into commodities, while some focused on how the wild weather in the Midwest was affecting energy prices. Meanwhile, most had something to say about the ongoing tug-of-war between bulls and bears in the equities market.

Once again, RealMoney's bloggers were all over the market action, and we'd like to share the best of their commentary this week with readers of the TheStreet.com. These posts best capture the intent of these blogs, which is to provide intelligent discussion on the issues each writer sees as most pressing that day.

Let's take a look at Jim Cramer on the Google-YouTube link, Rev Shark on a shift in leadership, Cody Willard on how this environment is different from May's market, Steve Smith on LEAPs strategies, Tony Crescenzi on renewed rate-cut hopes, and The Street Research Team on a potentially hot IPO.

Click here for information on RealMoney.com, where you can see all the blogs -- and reader's comments -- in real time.

Cramer's Blog: Don't Fret Google's YouTube Buy

Originally published on 11/28/2006 at 7:59 a.m.

You want to know why Google's (GOOG Quote) taking over the world? All you have to do is get together with friends who have kids.

You will know. Last night, charity dinner, couples with children, what did I hear, what kind of Thanksgiving was it? It was a YouTube-download Thanksgiving.

Pretty much everyone at the table had been asked to watch a video their kids had downloaded from YouTube. None of the videos were the same. I couldn't wait to tell my kids about the ones that were talked about.

The stuff is just the opposite of what the suits want us watching on TV: huge, perfect productions without glitches designed to get you hooked for a season. Other than Idol and 24, who has time for a season anymore?

But we do have time for two-minute videos that make us laugh. We have time for goofiness and for amateurism and for spontaneous fun. We have time for viral must-watch TV about things that interest us in particular.

Google, above all companies, saw this.

Google, above all companies, did not care about crater-ing its stock.

Google, among all companies, was not afraid of NBCI.com, or whatever it was called, or Goto.com like Disney or all the now unimportant little CBS.coms.

Nor did Google fear that it was buying Broadcast.com or Skype, non-monetizing assets.

Lastly, Google did not care about bogus copyright issues that will always be worked out in the wash, which is what has to happen when you have a tidal product.

So, today, Google announces a deal with Verizon (VZ Quote) for YouTube. If you are like me, watching the plodding Yahoo! (YHOO Quote), the insular MSN.com -- what is MSN anyway? -- or the revolving door of AOL, you know that none of the other Big Four could have pulled this off so fast. And the cell phone is the ideal vehicle to watch a lot of YouTube stuff precisely because of their short duration.

Now I am not saying "buy Google" with this piece. I am merely saying that one more example of what the media called a colossal overpay has probably just paid for itself. And one more example of how the old media doesn't get it and can't be saved is now manifested.

You know how funny this is? If Tribune Corp. (TRB Quote) had simply sold the Cubs, and not bought back stock, it might have been able to buy YouTube and be a player.

But then again, that's pure fantasy.

I am sure the people who run Tribune Corp. would have the same experience I had last night at dinner, if they bother to listen to what the kids are doing. But then again, they are in the newspaper business, which presumes a total lack of knowledge of what kids are doing because almost no kids read the paper at all.

Random musings: College students, listen up! RealMoney is offering you something special... a free subscription through May 31, 2007. The only requirement: You must have an email address that ends in .edu. Email collegetour@thestreet.com to accept my personal invitation to come read my blog every day, plus all the other writers on that great site. Pass it on!

At the time of publication, Cramer was long Yahoo!.

Rev Shark's Blog: A Shift Out of Extended Tech?

Originally published on 11/30/2006 at 8:40 a.m.

"It is easier to perceive error than to find truth, for the former lies on the surface and is easily seen, while the latter lies in the depth, where few are willing to search for it."

-- Johann Wolfgang von Goethe

Although yesterday's action looked like a continuation of our four-month rally, there were some changes that demand our attention. The point move in the indices was big and breadth very strong but many of the leading technology stocks showed relative weakness while the hot money chased oils, metals and heavy cyclical stocks.

It is possible that this was just a one-day aberration and that we will soon revert to chasing parabolic moves in stocks that everyone -- and I do mean everyone -- love such as Apple (AAPL Quote) and RIM (RIMM Quote). On the other hand we would be remiss if we didn't at least examine the possibility that the market is ready to undergo some sort of change in character.

It's unlikely that the indices -- which have been so strong for so long -- are suddenly going to collapse. The more likely course of events is that shifts into new leadership will slowly take place under the surface as the most extended stocks consolidate and look for support. We often have these sort of "rotational" corrections in the market and if you can catch them at their early stages they can be quite profitable. They have a tendency to play out longer than you might think and in a choppy fashion so don't be too quick to dismiss the idea if it isn't smooth.

As I discussed a bit yesterday, I believe there is a likelihood that fund managers looking for performance may be more interested in less extended oils, metals and industrial stocks, which have low PE ratios, good valuations and are far less extended than many of the technology leaders. I believe we could see money come out of technology, semiconductors and retailers and flow into those low-PE stocks as managers look for way to have long-side exposure without the risk of owning a tech stock that is up 20% in recent months.

We have a positive start this morning as exporters in Asia gain ground and the dollar weakens once again. Oil is holding steady after a big jump yesterday and gold is trading up sharply.

At the time of publication, De Porre had no positions in stocks mentioned, although holdings can change at any time.

Originally published on 11/29/2006 at 9:13 a.m.

At least the dollar has stabilized, as the U.S. stock markets did yesterday. Japan and Europe were up overnight, which is certainly better for the bulls than the way those markets have been trading.

That said, take a look at a five-day chart of the Nikkei. It's all over the map, with big gaps up, followed by big gaps down, followed by today's big gap up. The 2% threshold for dislocation, which is a bit of an arbitrary number, might not have been hit, but those rolling gaps are themselves rather disruptive. By definition, a gap is disruptive, after all.

The U.S. markets have been toppy, and volatility has finally returned. Such a change in character might actually be bullish and could propel further gains in the market. After all, maybe the character change is one of another big rally mode. I doubt that scenario, but I am cognizant of it.

I've been asked a few times in the past week about some of the differences between the current market and the market back on May 10. Here's what I'm seeing:

• Obviously the geopolitical, economic and market setups have shifted and changed over the months since.

• The tech inventory gluts were just creeping up back in May. They're pretty much standard knowledge now.

• The metal stocks were in blowoff-top mode back in May. I'm still no metal bull, but most metal stocks like Titanium Metals (TIE Quote), which I cited back in May, are still down nearly 50% from their highs. That's certainly healthier for the broader markets than blow-off tops after 1,000% rallies.

• We're closer to getting a Fed cut now than we were back then.

• Vista is coming out this week, and Microsoft (MSFT Quote) is up nearly 50% since the May lows. I still like Softee a lot, and it remains my biggest position. However, I'm not sure I can call Softee at $29 "the greatest investment opportunity of my lifetime," as I repeatedly did back in May and early summer.

• I'm long a few more names today than I was back in May, including Cisco (CSCO Quote) and Adobe (ADBE Quote), and that underscores the different setup today.

So, yes, I'm cautious for the near term. But I'm less worried about rolling dislocations and market meltdowns of a major magnitude than I was back then. I do expect some scares to get priced back into stocks, and probably sooner rather than later.

Finally, I'll strive to be flexible in my approach and analysis, and I'll refuse to be pigeonholed into any particular stance or approach because I will undoubtedly be wrong about many things before year-end. And the economy and market are dynamic anyway.

Stay vigilant. Stay rebellious.

P.S. I'm heading down to Wall Street today for an interview on TheStreet.com TV. Hope you'll catch it later.

At the time of publication, the firm in which Willard is a partner was net long Microsoft, Cisco and Adobe, although positions can change at any time and without notice.

Originally published on 11/28/2006 at 3:30 p.m.

Reader Barry P. posed the question of what to do with LEAP options that have moved deep into the money and are approaching their expiration date. Specifically, he owns calls in Google (GOOG Quote) and Chicago Mercantile Holdings (CME Quote), which are both more than $100 in the money and are set to expire Jan. 19, 2007.

He is planning on exercising the calls and taking the stock to avoid a large tax bill that would be incurred if he sold out the calls and booked the profit. The problem is that both stocks trade near the $500 level, and a purchase of the underlying shares would require significant capital or incur a large margin requirement on which he'd likely be charged interest.

One approach might be to consider writing some out-of-the-money calls against any stock purchased through exercise to create a covered position. This would not help avoid taking a tax hit on the sale of the stock, but it could help reduce some of the risk of owning the shares and lesen the margin requirement.

Many firms are now offering portfolio margining to qualified customers. Portfolio margining basically means that the firm will take into consideration offsetting hedges against a stock position for calculating the margin requirement. For individuals, this is mostly applicable to married puts (long stock/long puts) and covered calls and can often bring the margin requirement down to around 15% of the stock price. That is well below the typical 50% margin requirement.

The covered call will help reduce risk and provide some incremental income, while selling a call whose strike is some 20% out of the money will leave plenty of room for further stock appreciation.

For example, with shares of Chicago Mercantile trading around $535, you could sell the January 2008 LEAP calls with a $650 strike for around $40 per contract. That gives you about 7.5% of downside protection or potential income if the stock is flat for the next year. It also leaves room to earn 27% should shares rise above $650 in the next 13 months.

Originally published on 12/1/2006 at 12:07 p.m.

The ISM index was weaker than expected and probably weaker than the whispers, falling to 49.5 in November from 51.2 in October. It is the first dip below 50.0 since April 2003.

The index will reignite worries about the economic outlook and boost odds of an interest rate cut from the Federal Reserve. Many will surely reference the fact that Fed rate cuts are almost always delivered soon after the ISM index dips below 50.0.

According to the ISM, past relationships between the ISM index and the overall economy indicate that a reading of 49.5 corresponds to a 2.4% increase in real GDP. That is almost exactly equal to the growth rate of the past two quarters and not too far from where growth is likely to be in the current quarter.

It is a growth rate that stocks and bonds are already priced for; the key question is momentum. The concern will be that today's report points to greater downside risks than previously thought.

None of the details within the ISM report contain any meaningful amount of deviation from the overall figure, although it is notable that the indices on inventories, order backlogs, supplier deliveries and employment contain no meaningful red flags.

The ISM is obviously being weighed down by housing and autos, so these remain the sectors to watch. The drags from these sectors are likely to diminish in 2007, but the question is whether or not they will diminish early enough to prevent meaningful spillover into other sectors of the economy.

Stock Talk Blog: IPO Interest Ahead for Interactive Brokers

Originally published on 11/29/2006 at 4:48 p.m.

Leading online broker and market maker Interactive Brokers recently filed an S-1 with the Securities and Exchange Commission, and investors should keep this name on their radar screens.

While unknown to most of the public, Interactive Brokers is among the 20 largest securities firms in the country, and it is very popular with highly active traders due to its cheap commission rates and robust trading platform.

To my delight and to many bankers' disgust, Interactive Brokers, which proposes to trade on the Nasdaq under the symbol IBKR, will be going public via the Dutch auction method, with W.R. Hambrecht running the deal. In addition, the company will retain a very complex ownership structure designed to leave voting control in the hands of Chairman and CEO Thomas Peterffy.

In the first nine months of this year, Interactive Brokers reported net revenue of $969 million, up 43% year over year, with pretax income up 47% to $600 million. This growth is simply enormous relative to traditional online brokers like E*Trade (ET Quote) and TD Ameritrade (AMTD Quote), and I plan on doing a lot of homework on this deal.

Between the Dutch auction and the company's complexity, Interactive Brokers could end up being an incredibly cheap stock. Sell-side firms will want to see a large deal like this fail because they won't be collecting big, fat banking fees on it. Given Peterffy's control over the company, the media will probably trash this deal as being shareholder-unfriendly.

Google's (GOOG Quote) auction was frowned upon by many. And we've seen many companies with convoluted ownership structures, like Lazard (LAZ Quote), get heavily criticized by the media. In spite of that, they ended up turning into stock market home runs.

In keeping with TSC's editorial policy, Michael Comeau doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships.