Martini Chat: These Companies Are Playing Games

Chris Edmonds and Eric Gillin chatted on Yahoo! Thursday, Oct. 25 at 5 p.m. EDT. Click here for an audio transcript.

Eric Gillin: It's Thursday -- 5 p.m. on the East Coast, 2 p.m. on the West -- time once again for TheStreet.com's "Martini Chat."

Good afternoon, I'm your host Eric Gillin, coming to you live from the world headquarters of TheStreet.com on Wall Street. Also here is my co-host, Chris Edmonds, contributing editor of TheStreet.com and columnist for RealMoney.com. This week, Chris joins us from Topeka, Kansas.

Chris, another week presents its own unique challenges for the market. Here's a good starter question: what's impacting this market more: earnings news or geopolitical news regarding our actions in Afghanistan and fears over the Anthrax scare? Oh, and by the way, where are your Braves now?

Chris Edmonds: All I can say is this kind of thing wouldn't happen if Ted Turner still controlled the team. The shellacking by the Diamondbacks was embarrassing and, frankly, it's all AOL Time Warner's fault. And, honestly, given the support Atlanta fans showed the team during the NLCS, the city deserves what they got. How embarrassing -- thousands of empty seats -- and good ones for each home game during the playoffs!

Eric Gillin: For the markets, as a caveat, I have to say I've been a bit out of the loop this week as I've been tending to some family matters. That said, I think you are getting a little of both. More importantly,

Chris Edmonds: What appears to be a pretty resilient rally appears to be the result the result of a mixture of enthusiasm for what appears to be a to-date successful execution of our battle plan in Afghanistan, optimism that the Anthrax scare is limited and we will catch those responsible, and the fact the sentiment could not get much worse going into Q3 earnings.

Can the rally last is entirely different question. Frankly, I've been surprised we haven't pulled back a little more markedly on top of last week. There are so many things that could trigger a sell-off, yet the market seems to be suggesting it is on the leading edge of some sort of recovery.

That said, markets don't go straight up and this will be no exception. And, valuations aren't exactly cheap. However, it is impressive that we held firm with recent gains.

The anthrax was very sophisticated. It could only have been produced here, Russia or Iraq.

Eric Gillin: Indeed. Well, today, another great show here at the Martini Chat. And, a little tweak of the format due to a very special international guest.

Since before September 11 we've promised a segment on video games and the new technology and today we deliver. Our first guest is Steven Poole, the author of Trigger Happy: Videogames and the Entertainment Revolution. Not only will he help spin us through the latest in gaming technology he'll talk to the question of why we play video games and the cultural implications.

Then, the return of K.C. Swanson and her popular feature, The Five Dumbest Things on Wall Street. We'll take a look at the past week's stumbles and K.C. will have a hint of things to come tomorrow. And, we promise, we've dropped the Ballmer dance, although it remains high on our list of the annual awards, which will be coming your way on a later edition of the "Martini Chat."

Then, we'll wrap up the day with an extended version of our market roundtable with Howard Alter of Alter Asset Management, Carl Tash, Principal at Cliffwood Partners and Dan Pickering, Director of Research at Simmons & Company. We'll also be joined by our personal finance editor, Lisa Meyer as we tackle the week in the markets and, of course, take your questions.

And, as always, Yi Ping Ho and the latest Wall Street headlines It's not easy screaming about safety for years let alone have the kind of event you tried to prevent happen: airplanes hijacked by terrorists and used as weapons to kill thousands of people.

For 70 years, the Air Line Pilots Association, or the ALPA, has demanded safety measures to help protect the 66,000 pilots the union represents and the millions of people who depend on them.

I raise a glass to you.

Recently, I spoke to ALPA spokesperson John Mazor and his demeanor encapsulated the unwavering fervor of the union's efforts to make the skies safe. I asked Mazor what he thought about the government overseeing airport security. He had a blunt, specific opinion and he delivered it in a gruff voice. "We tried that and it didn't work," he said.

The ALPA wants the federal government not just to oversee the implementation of airline security by private companies, but rather to take entire control over making the skies safe. The private sector hasn't hired, retained, trained and motivated qualified workers, Mazor said. He

So, here's to John Mazor for saying things straight during a dangerous time when people need clear choices and firm decisions.

Now, I must stress that the ALPA is a union backed by the AFL-CIO. And more ink has been spilled discussing its role in long, drawn-out labor disputes with management than over its role as a safety advocate.

This is why I'm toasting the union. I'm not taking a side on disputes between labor and management, but rather highlighting an overlooked task of ALPA. It is an advocate for safer air travel. And that endeavor is as old as the organization itself before there was even a management to argue with.

Since 1931, when Capt. David L. Behncke, a pilot for Boeing Air Transport, met with two dozen pilots to start the ALPA, the union has been slavishly dedicated to its motto: "Schedule With Safety." The initial purpose of the ALPA was not to unite pilots so that they could collectively bargain, but rather to keep its members alive and make flying safer.

Of those founding pilots only made remaining members try harder to make air travel safer. And the union has had marvelous results. From ensuring that safety regulations apply to planes with 10 or more passengers, to improving emergency evacuation procedures, to the creation of the National Transportation Safety Board to investigate crashes - the ALPA has been a part of almost every single safety advancement in the last 50 years.

The ALPA helped develop the first air traffic control centers, bringing order to the skies. It helped create the basic T instrument panel layout, standardizing the early cockpit. The ALPA promoted the modern collision avoidance systems that became necessary as passenger plane speeds reached and ultimately passed the sound barrier.

Two very telling factoids:

More than 20% of the union's dues are dedicated to aviation safety. And,

In the event of a crash, the ALPA helps in the investigation, because it is considered an "interested party." In some cases, not even the local police are allowed on the scene, but the

And in the wake of September 11, the ALPA has redoubled its effort. On September 20, Capt. Duane Woerth, the president of the ALPA, addressed the Senate Committee on Commerce, Science and Transportation on aviation security.

"We must replace that false sense of security with a genuine sense of security, by instituting the most advanced civil aviation security system in the world," he told the Senators. "The security improvements that I am here to recommend to you today range from the simple, inexpensive and

While others sorted through the issue nine days after the fact, Woerth was already presenting Congress with a detailed 30-point blueprint for aviation security.

Cheers to founder Capt. David L. Behncke. Cheers to current president Capt. Duane Woerth. Cheers to plain-spoken men like John Mazor. And cheers to the Air Line Pilots Association for 70 years of advocacy.

Chris Edmonds: Indeed. Well put.

I have to say, too, that flying for the first time since September 11 last weekend, I was stunned at how buys the airports were. Atlanta's Hartsfield was buzzing and even the Kansas City airport was jammed. Flights are going out full and the lines at ticket counters and check-points reminded me of Thanksgiving.

Eric Gillin: That will be very interesting to watch.

Speaking of airlines and airplanes, there are those who argue you can learn to fly from video games. And, with the vast improvement in video game technology in the last several years you can do virtually anything in the privacy of your own home -- from playing golf to flying a plane.

Steven Poole: I can tell you it's very cold and rainy in London. I've been living in...

Eric Gillin: I understand it's 9 o'clock at night there. What messages do you bring from the future?

Steven Poole: Actually, it'll be 10 o'clock - British summertime 'n all. I've just seen the future, and it works. Last week I was in Tokyo speaking with executives from Sony and Sega, and wandering around Akihabara, Tokyo's "electric town", where futuristic gadgets are piled high... People have been talking about the Japanese economic depression and testing times for the videogame industry, but the Tokyo Game Show brought in 120,000 visitors over the previous weekend and there's a lot of exciting stuff out there. What I really want is a large-screen super-thin TV. They had tons of them in Akihabara and I don't know what the exact technology is. I don't read kanji, unfortunately. It's not LCD, and it's too bright to be plasma. The things are only six inches deep. Amazing.

Eric Gillin: See anything good?

Steven Poole: They have 3rd generation mobile phones now. Broadband Internet connections. Widescreen tvs about 6 inches deep.

Eric Gillin: In your book, Trigger Happy, you debunk the notion of media convergence -- that video games will eventually turn into movies and vice versa. Instead, you seem to embrace media divergence -- that video games will not only remain separate from movies, but that at some point will surpass movies in terms of popularity. A year later, do you still hold that view?

Steven Poole: I never actually said that videogames will necessarily surpass films in terms of "popularity". Just that they already surpass them in terms of initial gross revenues, and are competitive in a creative as well as financial sense. I certainly agree that the forms are divergent, and that each does something else the other can't.

Eric Gillin: I'm sure you've been following the slate of videogame machines that are soon to hit the market. The PlayStation 2 has already been released by Sony, with Nintendo's GameCube and Microsoft's Xbox due to hit the shelves in the next few weeks. If video games will surpass movies in popularity, these systems will most likely be the ones to push that trend further along. What do you make of the three systems?

Steven Poole: Well, the PS2 has had a slow start, but there are some very exciting games coming out for it in the next few months. Particularly Rez -- a William Gibson-esque hypnotic, synaesthetic shooter and Burnout. A racing game that requires you to drive at suicidal speed through dense civilian traffic. The Gamecube also has some very nice stuff. Rogue Leader, a hyper-smooth Star Wars shooter, and Shigeru Miyamoto's new game Pikmin spring to mind. It's also a very cute machine. Much smaller in the flesh, as it were, than you'd expect. And its controller is probably the best game controller ever engineered.

The Xbox? It's big, it's expensive. It has raw power, but at the moment it doesn't look like it has much refinement. There's nothing on it that I'm really excited about except for Jet Set Radio Future, which is a Sega game.

There's some games coming out. "Res" -- a shooting game. A racing game called "Burn Out" where you're racing around a city with civilians to avoid. GameCube ... everyone knows Nintendo makes the best games.. It also has some more mainstream games. Rogue Leader -- a Star Wars game. It's nice.

A cute little device whereas PS2 looks hi-tech. GC is cute. Like a kid's toy. I don't know if that will do it any harm.

Then there's MS XBox, looks like a big muscle car. Inside, it's a high-end PC. There' s nothing coming out on it to get really excited about. It's just another beat 'em up.

Eric Gillin: It doesn't have a killer app.

Steve Poole: Yes.

There's an inline skating game that looks amazing. But that's Sega and will probably come to PS2 within 8-12 months.

Exclusivity won't last very long, so the game developers will be hedging their bets.

Eric Gillin: You've got $300. Ooops. Sorry. You've got 210 Pounds. What video game do you buy?

Steve Poole: Well, for a start if I've only got 210 pounds I won't be able to afford an Xbox, since that'll be 299 pounds over here. The Gamecube is very attractive, and has some wonderful games, and personally I'll definitely be getting one. But if I could only choose one system I couldn't help getting a PS2. In the United Kingdom, it's only 199 pounds, and it's a pretty good DVD player as well. It has, and will continue to have, the widest selection of games. And since it's already been out a year, it's kind of become the de facto standard for next-gen gaming.

Eric Gillin: People have been raising the argument that with gaming systems so powerful, the idea that something is "more advanced" than another system becomes a moot point. I suppose the argument is that the fundamental difference between the PS2 and Xbox is pretty negligible once the game is put in the system. Which is it? What's more important -- the system or the games?

Steve Poole: If I were a gamer and wanted the widest range of games AND a DVD, I'd go for PS2. I think there is a real danger. MS doesn't have a track record in making hardware. They haven't really made this themselves. They're getting an Intel chip and putting it in a plastic container. The others have the miniature experience.

There was a MS stand at the Tokyo show. Bill Gates was there himself. Saw some people playing the XBox. They said the game was pretty and nice, but they didn't have the room in their apartments. Japanese people don't have big apartments. The machine is big in every direction.

Maybe 50% taller than the PS2 and deeper. It's just a big thing. There's no subtlety to the design.

Eric Gillin: Like a VCR from 1982.

Steve Poole: Completely. I think it's a problem.

Eric Gillin: Do you think that the utter dislike for Bill Gates and Microsoft within the world of hard-core gamers -- the kids who send away to Japan for early release copies of games and fight over the black boxes needed to develop games of their own -- will ultimately backfire? Do you think people will blacklist the Xbox simply because of its lineage?

Steve Poole: People have the idea that MS tends to get into markets late when they realize there's money to be made.

There something like a $500 million marketing budget for XBox.

Chris Edmonds: Mr. Poole, I'm interested in your analysis of video games on culture. I come from the pre-pong era so, I admit, I'm not terribly hip. Yet, it seems to me that video games are having a cultural impact on children. Is there a risk to the video game craze on socialization or should we simply dismiss it like the hysteria that followed the introduction of the television and, more recently, the personal computer?

Steve Poole: There's always hysteria. A slight fear about new technology.

Chris Edmonds: Is there a risk to the video game craze on socialization or should we simply dismiss it like the hysteria that followed the introduction of the television and, more recently, the personal computer?

Steve Poole: The stereotype of the alone adolescent playing video games is far from the truth now. People have 4 way games on consoles. There's online gaming now.

People will make new opportunities to communicate with each other and meet new friends on the Internet.

Steve Poole: The Vatican talked about this last month -- particularly Pokemon. The Vatican bishops said that it taught the kids skills of negotiation and friendship, that you win through negotiation and not violence.

Eric Gillin: Much of your book is spent examining why we play video games and what kinds of games we like most. If you look down the history of the video game, we've had every gimmick in the book -- from light guns that you can zap targets with to steering wheels to electronic mats you can run on. What's next?

Steve Poole: People are beginning to do very interesting things with interface design.

Last week in Tokyo, a Sony engineer was telling us about his new concept of "high-bandwidth human interface". A regular game controller lets you press buttons or move a stick, but you're not actually giving a lot of information to the game system.

In effect, the vocabulary of your "conversation" with the game is limited. But Sony are working on image-recognition systems, where you control a game with your whole body by placing yourself in front of a USB webcam.

It is also doing work on voice recognition. And at the Tokyo Game Show I saw a great game called Martial Beat, which is a kung-fu training game. You attach wrist and ankle sensors to your body and follow the punching and kicking routines on screen.

I think videogame engineers are waking up to the fact that games will become more attractive to more people if they don't have to learn a strange mechanical interface, but can use their bodies and gestures more naturally. That's the future.

Eric Gillin: Wow. You can actually become the controller.

Mr. Poole, thanks for being with us. Our guest, Steven Poole. The book: is "Trigger Happy: Video Games and the Entertainment Revolution." Steven joined us from London.

Steve Poole It's been a pleasure.

Eric Gillin: Speaking of games and gimmicks, Chris, I think its time to continue the fun and poke fun at the lighter side of Wall Street.

Chris Edmonds: Eric, thanks and indeed it is. Back with us for the first time in over a month live from our San Francisco bureau is K.C. Swanson and The Five Dumbest Things on Wall Street.

K.C. Swanson: Thanks, Chris, good to be back.

Chris Edmonds: Plenty to talk about today, so lets get right to it. First on the list looks to be the company that makes that wonder drug that works wonders. But, now, it's a different wonder drug which is causing some to wonder what's going on at Bayer.

K.C. Swanson: That's right. One beneficiary of the anthrax scare has been Bayer AG, the German chemical maker, which has seen its share price gain 10.4% since the terrorist attacks. But investors bidding up the stock might be getting ahead of themselves.

Bayer makes Cipro, a leading treatment for anthrax. But while the demand for Cipro is high, sales from the drug are only a small portion of the company's overall revenue, which totaled 30.9 billion euros last year.

To put the demand for Cipro in context, J.P. Morgan expects U.S. sales of the drug to be approximately 1.2 billion euros for 2001.

Chris Edmonds: What about I2 technology?

K.C. Swanson: But on another front, Bayer is currently battling a class-action lawsuit related to an anti-cholesterol drug implicated in a number of deaths. It was forced to withdraw the drug from the market. Bayer may offer protection against anthrax, but that doesn't mean it's a refuge for investors.

Second on the list, you know things are bad for a company when its losses per share are double accounting principles that amounted to $5.5 billion, or $13.25 per share, for the latest quarter, including all charges.

Chris Edmonds: Very interesting. And, while we promised no more Ballmer the dancing - you can fill in the blank -- it seems only appropriate that Microsoft resurfaces on the list as The Five Dumbest things on Wall Street return to the "Martini Chat."

K.C. Swanson: No doubt. Just like the old days, Microsoft is in the hot seat for its shark-like behavior toward a competitor. It stands accused of sending 3,000 fake cereal boxes emblazoned with the words "Microsoft Server Crunch" to customers of rival server software maker Novell.

The boxes, according to Novell, contained "a number of false and misleading statements" intended as putdowns of Novell products.

Among the attempted insults were some not-so-clever plays on packaged food. For example, in a reference to Novell's flagship software product, a line on the Microsoft boxes read: "What's the expiration date on that NetWare platform?" A round of applause, please, for those gut-splittingly funny engineers.

Chris Edmonds: Guess we have to expect CEOs to be human. What a pain in the, oh well, you know.

K.C. Swanson: Fourth on the list is AMD. CEOs don't get their jobs by being eloquent, and it probably would be too much to expect them to sound statesmanlike. But sometimes their oratorical rough edges cross the line into embarrassing.

Chris Edmonds: Finally, K.C. a company dead center on my radar screen, Enron. Talk about a disaster. And, talk about coverage. Our own Peter Eavis has been way out front on this story. But, they also made your list. This is an amazing story.

K.C. Swanson: Case in point: Comments from Jerry Sanders, the CEO of Advanced Micro Devices, which earlier this week reported a loss for the first time in almost three years.

The company, facing harsh pricing competition from Intel (INTC:Nasdaq - news - commentary), said its revenue was down 22% from a year ago and it expects a likely operating loss for the fourth quarter.

In a conference call, he indulged in some spirited fist-shaking. Citing the company's so-called "Hammer" architecture for processors, Sanders declared, "We feel that when the upturn comes, we're going to kick ---." Does this guy carry around a surfboard in his car or what? Mr. Sanders, meet Mr. Reeves.

And it keeps getting worse. Analysts have complained for some time about Enron's rabbit-from-a-hat style accounting, with which the company produced results that wowed investors without making it quite clear where they came from. Now that its business has taken a sour turn, that tendency has gotten even more unsettling.

To cap off its disappointing earnings results this week -- Enron posted a steep loss after taking a $1.01 billion charge -- the company let drop that its shareholder equity had decreased by $1.2 billion. Enron's transactions have been so labyrinthine that it's hard to identify exactly if or how they were inappropriate.

Chris Edmonds: We'll talk more about what's worse at Enron in the markets roundtable later in the show. K.C. give us a hint of what we can expect in this week's installment?

K.C. Swanson: But the latest revelation, to say the least, does nothing to bolster the company's credibility. Enron, whose CEO resigned unexpectedly in August, had seen its stock fall 59% for the year leading up to its latest earnings release. While up slightly on the day, Enron shares have dropped more than 60% since the announcement as the news keeps getting worse.

The Disconnect in D.C.: Politicians are talking up the introduction of war bonds, but the message from the Treasury Department -- which would issue them -- is a lot more practical: Keep shopping. Please!

Chris Edmonds: Thanks, K.C. K.C. Swanson's "Five Dumbest Things on Wall Street" can be found each and every Friday on TheStreet.com. Eric?

Eric Gillin: Thanks, Chris. Now, with the latest news including how the markets finished at the closing bell, from the Wall Street headquarters of TheStreet.com, our news editor, Yi Ping Ho. Yi Ping, a nice rally back toward the end of the day. How did we finish?

Yi Ping Ho: Wall Street galloped into a positive finish today, shrugging off weak economic data and corporate earnings that had kept the market in the red most of the day.

The Dow Jones Industrial Average gained 117.28 points, or 1.3%, to 9462.90. The Nasdaq rose 43.90 points, or 2.5%, to 1775.44, and the S&P 500 was up 14.89 points, or 1.4%, to 1100.09. Stocks had been considerably lower for much of the session before a late rally lifted the major averages. In the lead were Tech, financial, biotech, consumer goods, and oil service shares.

Sellers outpaced out buyers this morning after the Commerce Department said that durable goods orders for September fell to the lowest level in more than five years. The sharper-than-expected drop of 8.5% reflected weakness in aircraft orders following the terrorist attacks. Separately, existing home sales dropped to 4.89 million in September from 5.54 million in the previous month. Meanwhile, the European Central Bank decided to leave interest rates unchanged, adding to the selling pressure.

Certain tech outfits were also grounded by some analyst downgrades. Oracle was downgraded by Solomon Smith Barney, while Juniper Networks was downgraded by Morgan Stanley. Brocade also tumbled after analysts cut their rating on the data storage company's stock, citing its high valuation in a challenging economic environment. The three stocks finished in red.

On the earnings front, Dow Chemical posted an 84% drop in profits, and its earnings per share fell to 6 cents from 40 cents last year. And electronics juggernaut, Sony, surprised the market by posting a loss in its second quarter. Sony said the loss totaled about $107 million, reflecting the global economic slowdown.

Boeing led the Dow industrials higher after the U.S. House Appropriations Committee approved a $317.5 billion Pentagon budget that promises a 7% increase in military spending and includes new aircraft purchases to help the company.

And coming in with its earnings after the closing bell, JDS Uniphase posted a big net loss on restructuring and other charges in its first quarter, amid the sharp drop in demand for telecom gear and global slowdown.

The fiber-optic networking gear maker said excluding items, the company's loss was $260 million, or 20 cents a share, compared with year-earlier earnings of $177.1 million, or 18 cents a share. The stock was lately falling by about 6% on after-hours trading platform Instinet.

Meanwhile, U.S. Treasuries rose, while the dollar was flat.

Eric Gillin: Yi-Ping, thanks. Chris, plenty to talk about today in the markets. Enron, earnings, Anthrax, etc. And, you know, we might even toss in a horror story question or two given its Halloween. And, of course, reader and listener questions. Let's get right to the Roundtable.

Chris Edmonds: Indeed, plenty to talk about including a pretty incredible reversal of fortune in the markets today. A strong downdraft followed by an incredible recover. We'll talk about the markets and several specific issues with our panel of market pundits -- always candid, never coy.

With us today is Howard Alter, President of Alter Asset Management, a Princeton, New Jersey asset management firm, Dan Pickering, Director of Research at Simmons & Company International, a Houston-based energy investment firm and Carl Tash, Principal at Cliffwood Partners, a Los Angeles based real estate investment management firm. Welcome to you all.

Dan Pickering: Hi.

Tony Dwyer: Thanks.

Chris Edmonds: Howard, let me begin with you, what do you make of today's action. Pretty impressive turn seemed to come about midday. This rally looks for real. What are your thoughts about where we go from here.

Howard Alter: Lust, liquidity and Bin Laden. Alan Greenspan is priming the pump. We have lower interest rates. The equity IPO calendar has become active. Issues have moved up 15-20%. We have 4 trading days left before the Mutual Funds end their year. The market is getting a bit of an artificial push. We are getting good news on the geo political front. Our friend in the Northern Alliance seem to be ready to make a push on the Taliban. I think we started weaker because we didn't see an interest rate cut in Europe this morning.

Department and shopping malls show that things are still a bit weak. Tony, you look at the charts.

Tony Dwyer: We took a breath for 6 or so days. It's a dicier call. We are still in a downtrend. You have to look at this market from 2 perspectives. If you bought after 9/11 then you were looking for bounce. We're in a downtrend and things are over bought. If you look at if from an investment point of view then it's a buy. We had no idea how bad things would get. The fundamentals still stink.

Chris Edmonds: Dan, the energy names have rallied here as well. The service names are 40% off their bottom, yet commodity prices aren't really perking up, earnings aren't lighting the world on fire and there are still all sorts of demand questions. Where do we go from here?

Dan Pickering : Good question, though I beg to differ in that you have seen an impressive rally in natural gas prices over the last 3-4 weeks. We touched $3 on the forward month yesterday.

A big part has been a rebound in natural gas. Part has been the stock market recovery.

As we look forward, I think the question comes back to the outlook for the economy. The real issue is: how long are things going to be soft? Companies have reported their 3Q results.

Production volumes have been less than expected which makes people wonder if the slow down in drilling is pushing prod slower.

Crude oil is on the back burner for now. Service companies -- people think "what if there's a supply problem in the Middle East"?

Investors have moved from afraid of owning stocks b/c of economy to afraid of NOT owning b/c of potential supply issues.

Chris Edmonds: Carl, the hotel companies perked up a bit today on earnings news from Starwood. The numbers were grim, the outlook not much better, but some say the news was somewhat better than expected. What say you and how are you playing the hotel sector today.

Carl Tash: Thanks Chris. I'll start by saying we're short the sector. We're not short Starwood; it's too emotional a time to be short that stock.

Supply growth is supposed to be dropping, but hotel growth has been averaging 2 and a half percent our thesis is that room demand drives what's going on more than supply.

Demand problems are still there. Sept 11 hid how much of problem is permanent how much was already there.

One hotel exec told me that we'd all be in bankruptcy court if [there's] one more terrorist attack. I don't want to wake up in the morning and be dependent on no terrorist attacks. I think we're going to win this war, but I don't want my finances to be dependent on terrorists.

Chris Edmonds: Let's talk about the economy. Durable good numbers were out today and they were poor. There are all sorts of signs of the impact on September 11th but very little indication of what the lingering and longer-term impacts will be.

The market seems to be suggesting it may get better faster than anyone thinks. Carl, you have your finger on the economic pulse through the real estate market. What kind of sense are you getting regarding the direction of the economy now -- look into your crystal ball.

Carl Tash: We have a very simplistic view of the economy. If you look at civilian employment rates, you'll see a trend of people employed at the same time you can also look at the trend of personal savings. Both have been on a downward slope for the last 21 years.

Balance sheet repair is going to be the most important item in the next few years. So to me if you believe these macro trends must reverse, it means contraction in the economy. It's healthy to repair balance sheets. War bonds not being patriotic to me seems silly. You have to go through a repair process and maybe not go out and spend.

Eric Gillin: I have a similar question. What are your views and what sector does that lead you to?

What about the Anthrax scare? How will that affect the health care sector? And why didn't the ECB lower rates?

Chris Edmonds: And Howard what's for dinner tonight?

Howard: I'll call Nancy and find out.

It was disappointing. The consumer needs more help. The consumer looks shaky. I think the Europeans will cut soon. But the pressure will build.

The Europeans are stubborn.

The pressure is going to build.

The family wants to stay home and watch DVDs.

As people lose their jobs they will have to restructure their balance sheet. Lose jobs and look at the balance sheet ...

It's part of the normal economic cycle.

Eric Gillin : Why is the ECB being stubborn? They have 375 points left.

Howard: I see no reasonable rationale for why they didn't make a move. Maybe they expect a rebound. It's not clear. Maybe they are worried about market weakness.

Chris Edmonds: They are scheduled to meet again in 2 weeks.

Dan, What are the energy markets telling you about the economy?

Dan Pickering: If you can assume that the stock market tells you things, I think the performance of energy stocks are telling you that investors are looking thru a downturn ... it's going to be short-lived.

Very resilient crude oil prices. You've got a lot of trading oriented traders in these games. Up 40% is a nice move, but I've seen them go down in the same period of time.

I'm trying not to look at stocks to see what they say about the economy, but the other way around.

Chris Edmonds: Tony, economic news has not been great -- the market is looking past that -- is that your side?

Tony Dwyer: It's part of the bottoming process. It's going to look like were going to break the lows one week and go to new highs another.

Carl Tash: I would like to add that any weak economic numbers for the next 60 days will be blamed on Sept 11. People have bought time psychologically.

Tony Dwyer: It's also important to note -- how we trade off on an economic number depends on how we trade into an economic number.

Chris Edmonds: It's now trading at under 8-times next year's current estimates. Help us out here -- you've been cautious for some time now but is this overreaction or does the punishment fit the crime?

Dan Pickering: Enron. The most intellectually interesting stock in the energy markets right now. Two ways to think about it. Are these guys going to survive the current chaos? You value the company in different ways whatever you think. They made some shaky int'l investments. They make a lot of $ in marketing and trading in gas & power. You need a good credit rating.

The balancing act is that the int'l aspects look overvalued in the books, but if written down, the profitability may be endangered in the trading business. Does it crater the earnings?

We traded 40 million shares today. 75 million yesterday. It's going to come down to a gut call -- can the management there be nimble enough to keep the credit rating?

If so, the stock's cheap and it will move back to the 30s.

Eric Gillin: Judging from the front office ability to pull rabbits out of the hats -- can you trust them?

Dan Pickering: Fair question.

Eric Gillin: Do you want to invest in a company with that kind of problem up top?

Dan Pickering: The market is going to make them behave differently. They'll have to increase their disclosure.

If they do, that will tell you something. There's no question that they'll have a credibility issue for some time. As an investor, you have to be realistic in that stocks aren't going to trade in 7x's earnings.

It's not going to ever trade there again. Depends on the price. We've seen the group sell off in sympathy.

Chris Edmonds: Carl, your cautious outlook in the past has kept you away from the homebuilders, until late, another darling of Wall Street. What's your view of that group now?

Carl Tash: When you hit a cycle top, these stocks start to trade at a discount to book value. This year, both for existing and new homes is going to be one of the 3 best years.

I'm confused when I hear people call this a cyclical play. These declining interest rates are helping people with loans.

Chris Edmonds: Carl, what else are you buying?

Carl Tash: Buying apartment REITs. We're being careful because we're nervous about demand. We're being reactive to where is the market letting us buy.

Chris Edmonds: Give us some names to chew on.

Carl Tash: We like Essex, good numbers down, but it's still a 5-6% yield. You want to invest with smart people who know how to buy and sell. Also Vornado out of New York, an office REIT. They are very smart.

Chris Edmonds: And, Dan, where are you playing in the oil patch?

Dan Pickering: In the convergence area, Dinergy, El Paso remain our favorite names. E&P stocks have run a little hard. Though Burlington is a good gas play.

Chris Edmonds: What would you avoid?

Dan Pickering: The refining sector that's gotten expensive. We expect building inventories. Valero would be a name to avoid on the short term. Some of the more internationally focused like Baker Hughes, Slumber. They are looking expensive.

Dan Pickering: Especially given our concerns that oil prices may be a bit rich right now.

Chris Edmonds: Howard, what are you doing now?

Howard Alter: Berkshire Hathaway and Microsoft have 76 million dollars between them.

Bridge table is in the middle of the pack.

Chris Edmonds: That is pocket money to those guys.

Tony Dwyer: That's the table minimum.

Howard Alter: Berkshire Hathaway stands to benefit with all that's happening now. Microsoft can take advantage. XP is going to be tremendous for them.

Washington Mutual is looking good. Financial services have cheap stock to be purchase.

Tony Dwyer: That's scary.

Chris Edmonds: Tony, you can have the last word.

Tony Dwyer: I'll wait for a pullback.

Chris Edmonds: Super great insight. Thanks to Howard Alter of Alter Asset Management, Dan Pickering of Simmons & Company and Carl Tash of Cliffwood Partners. Eric, what's ahead for next week?

Eric Gillin: Chris, with the PGA Tour Championship in Houston, we'll take a look back at the year in golf and Tiger's just "above-average season."

And, of course, we'll take a look at the markets, the Five Dumbest Things on Wall Street and Yi-Ping and the news.

Until then, thanks to all of our guests and Chris, thanks to you. See you next week.

Chris Edmonds: Look forward to it. And, look forward to being with you next week from Houston.

Cheers.

Eric Gillin: Excellent. Until next week, cheers.