Chris Edmonds and Eric Gillin Martini Chat on Yahoo!

Eric Gillin and Chris Edmonds chatted on Yahoo!, Thursday, Nov. 29 at 5 p.m. EST. For an audio transcript of the event click here.

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

Good afternoon, I'm your host Eric Gillin, coming to you live from the world headquarters of TheStreet.com on Wall Street, just across from the New York Stock Exchange. It's a balmy 48 degrees and drizzling here. Joining me from TheStreet.com's Atlanta bureau, where the weather is much nicer, is TheStreet.com Contributing Editor and RealMoney Columnist Chris Edmonds.

Chris, I know we're going to talk about this in about five minutes, but how about that Enron? I've never seen a company look more like Chevy Chase's career -- some interesting successes early on, but a few pratfalls later, and no one on earth wants to see you anymore.

Chris Edmonds: It's a sad story, Eric, and one that probably could [have been] avoided. We will talk about it more later, but quickly, I want to point out a couple of things. First, our colleague Peter Eavis was out front early on this story months before anyone else was. He could have made or saved investors a lot of cash. Second, there is a super column on RealMoney today by David Brail , a fund manager in New York, discussing exactly how Enron's demise could have been avoided: simply by Enron being more open and forthcoming with investors.

It's the old Greenberg principles at work: Run like hell from a company that bashes shorts and says, "Trust us, we know what we are doing."

Eric Gillin: Great show today. As mentioned about 78 seconds ago, we're leading the show with a discussion of all that is not well, Enron. TSC Energy Roundtable members Jeff Dietert and Bryan Dutt will join us to talk about what went wrong and how things at the Houston energy giant-turned-dwarf turned so sour, so fast. And well, Mr. Edmonds is no slouch in the Enron department either.

We will then turn our attention to wine and the holidays with our resident wine expert, Rich Cartiere of Rich Cartiere's Wine Market Report.

Finally, we wrap up with our markets roundtable with Tony Dwyer and Aaron Task -- two funny guys who get even funnier when they're together. Plus, they're sharp and insightful. All that and the latest news headlines.

But first, a toast.

Eric Gillin: This week, Advanced Cell Technology, a small biotechnology outfit, announced it was the first company to clone a human embryo.

The president of the United States quickly denounced the discovery. He said, "We should not as a society grow life to destroy it."

Bush demanded that the Senate pass a bill banning human cloning. But a look behind the news headlines reveals that they have little basis in reality. Those in the Senate, especially Democrats, asked for time to examine the issue closely. I raise a glass to the people who aren't ready to turn a complex issue charged with religious, social, scientific, economic and ethical issues into a 11-word sound bite.

Here's a toast to people who want all the information: the curious, the contemplative and the careful.

Indeed, using human cells for cloning purposes is often misunderstood. The science is so advanced that only dozens of people in the world can perform such experimentation. For more than a year, Advanced Cell Technology attempted to clone a human embryo to produce stem cells, which are the basic building blocks of human growth. Stem cells specialize over time, forming our bodies: organs, skin, bones.

Using these blocks, Advanced Cell Technology and other companies hope to invent therapeutic cures for diabetes, Alzheimer's, strokes and heart disease. Theoretically, the body would more easily accept cells cloned from a person's own genetic code than current stem cell treatments that involve severe antirejection drugs.

Advanced Cell Technology inserted human DNA into 19 human eggs. Sixteen died almost immediately. Three survived long enough to divide at least once. The largest embryo grew to six whole cells. An embryo doesn't become a stem cell until it has 100 or more cells. Although you couldn't tell it from the headlines or Bush's reaction, the company is a long way away from creating stem cells to cure people.

And don't be fooled by the word "clone." Advanced Cell Technology is not creating fully formed humans, just stem cells to put in humans. Other folks, like Dr. Panayiotis Zavos, a fertility expert from Kentucky, want to use cloning to help people reproduce.

There is a fundamental difference between reproduction cloning and therapeutic cloning -- one seeks to create life, the other seeks to prolong it.

People experiencing difficulty reproducing have other options. People who are dying don't.

The Bush administration wants to stop all forms of human cloning research, even that occurring in the private sphere. But such a desire throws the baby out with the bath water.

Besides, a total ban in America won't stop the science of cloning. It will only push it outside the United States. Case in point: Dr. Zavos has already set up laboratories in other countries to clone human cells for the purpose of reproduction. Other scientists have followed suit.

Fear often accompanies new technology. Twenty years ago, some people decried in vitro fertilization, better known as the test tube baby, as immoral. Today, it's so common for people with severe infertility problems or no male partner to use the method to have children that not many people raise any ethical questions.

At the core of the cloning debate is the question of when life begins. This question isn't something that science can answer. After sorting through their own religious and ethical beliefs, only people can answer that question for themselves. You can't sum that up in a sound bite. It's not that simple. Let's raise a glass to the Senators who chose to wait, instead of passing knee-jerk bans before the issue is fully researched and debated.

Cheers.

Eric Gillin: Such a difficult issue to even think about, let alone come up with a definitive opinion in under 10 seconds. With that in mind -- Chris, what's your definitive opinion on human cloning?

Chris Edmonds: If I could clone 10 of you, I'd be in favor. Otherwise, I guess I have some real concerns regarding the ethics of cloning. But, you are right, it is so new and the implications are so uncertain, I want to better understand the whys and hows before I pass any judgment.

Eric Gillin: I'll buy that for a dollar. Up now is a company you know almost too much about: Enron. Now, just an aside to the listeners out there -- the work of Chris Edmonds and Peter Eavis in covering the Enron story is top notch. They've consistently beaten their competition. Chris, seems all too fitting that Enron's slogan is "Why?" I'm sure investors are asking themselves the same damned thing.

Chris Edmonds: Why is a darn good question. Here to help us answer the "whys" and "what nows" of the Enron power failure are two veteran energy pundits. Jeff Dietert is the merchant energy and midstream energy analyst at Simmons & Company, a Houston energy investment firm. And Bryan Dutt is principal and portfolio manager at Ironman Energy Capital, a Houston energy hedge fund. Both are also members of the elite group of energy analysts that make up the TheStreet.com energy roundtable, and both join us from Houston.

Jeff, let me begin with you. What happened here? This was once a company that stood at the top of the energy mountain, and now, it couldn't possibly be lower in the powerless valley. Is Enron's unraveling largely of its own doing?

Jeff Dietert: It is. There are three big contributors. First, the company made a number of poor international investments of up to $6 million dollars over the past 12 months with almost no returns. The company also had a significant loss of credibility with investors, which led to concerns over credit and reduced willingness with partners to do business. In the end, Enron permanently impaired its wholesale business, which at one time was extremely valuable.

Chris Edmonds: In retrospect, did former CEO Jeff Skilling's sudden departure earlier this year signal the end of this company? After [Skilling's] quick exit, Ken Lay never seemed to regain control.

Jeff Dietert: It's tough to speculate on that. The departure was abrupt. It was a red flag. The company could have been spared, but obviously the executive management did not do what was necessary to regain investor confidence, which lead to the cycle that got them to where they are today.

Chris Edmonds: Bryan, first, congratulations on some very prescient analysis. You have been negative and short Enron for some time now. What raised the red flags in your book?

Bryan Dutt: For five or six years, it has been mystifying for buy-side and sell-side analysts as to where the company was going financially. It's complicated to say the least, and Enron's never been forthcoming over the past five or six years. It's a result of basically "booking" profits any way they can, and it never showed up as a cash basis on the balance sheet. It's a result of getting several hundred very smart young people in a silver tower in Houston saying, "Go ahead and book us some profits. You get a chunk of it." This is the result of having no one to answer to.

Chris Edmonds: As a short, you're often accused of pushing the stock lower. In the first-quarter conference call, former CEO Jeff Skilling was taken to task by another fund manager who was short the stock about the company's inability to produce balance-sheet data. That exchange went on for about 30-40 seconds before Jeff Skilling cut him off and called him an expletive that looks like the rear of my anatomy. Do comments or actions like that from CEOs raise red flags for you?

Bryan Dutt: They are huge red flags, and I do recall that comment. It signified to me a lack of discipline at the highest level of that company. There is no need to resort to that type of verbiage.

I was disappointed by Ken Lay who was regarded as one of the great premarket people in the energy industry. When Enron was on the ropes in the last several weeks, he hinted several times that the shorts had accelerated the process. All the shorts did was accelerate the discovery of the process. It is a big red flag. When people are under duress and they have things to hide, they lash out at those who are trying to expose them.

Chris Edmonds: You remain somewhat concerned about the industry in wake of Enron's demise. What does Enron's exit from the business it shepherded from its infancy mean to the industry?

Bryan Dutt: Short term, it's obvious there will be a decrease in trading volume and activity. In the long run, this may be a big benefit for our industry. There was a lot of wild cowboy and Indian-type games being played by people in the energy/natural gas/power market -- excessive speculation. That speculation has ceased and it will be a long time before it comes back. In the long run, this may be healthy.

Chris Edmonds: Jeff, Dynegy made an offer to purchase Enron, and there are those who say the offer was never terribly sincere, but rather a way to give Dynegy and others a way to unwind exposure to Enron. What happened to the Dynegy deal? Do you think the company was ever serious about buying Enron?

Jeff Dietert: They were serious. If Enron had been able to sustain its wholesale business, it would have gone through. I don't think Chuck Watson is playing games with $1.5 billion. During the period between November 11 and this week, there were a number of additional surprises that Enron had not presented to Dynegy or to Wall Street in the Third Quarter 10-Q. Over the last three weeks, the wholesale business has been permanently impaired. Those are clearly material outs.

Chris Edmonds: It is ironic that there's a big difference between today and four weeks ago regarding what the failure of Enron would mean to the gas and power trading markets. The Dynegy offer served as a buffer for companies' underlying positions.

Jeff Dietert: There's no doubt about it. We had a four-week transition period. You can look back before the Dynegy offer. There was a huge red flag. The company had four weeks to a month to establish relationships with other suppliers and provide a transition. One terrific example is yesterday when P&E Eastern refused to schedule gas to flow for Enron. P&E Eastern had to replace the contracts Enron had with other providers and did so in an orderly manner. That shows that this marketplace can continue to work even without Enron.

Chris Edmonds: Bryan, there have been some big changes in power prices and demand in the last several months, which has lead you to also be short Calpine, one of the largest independent power producers. What don't you like about Calpine?

Bryan Dutt: There was a beautifully conceived idea from '95 to 2000 when the U.S. was clearly underpowered. That is now over. Calpine still believes in the tremendous growth pattern, and the company has sold that to Wall Street. The U.S. is going to be overpowered. You'll see a tremendous number of cancellations. Calpine has a lot of capital requirements because of its growth pattern. It is short roughly $3 billion in capital funds over the next 12 months. The company has a weak balance sheet. It has bought some natural gas properties in Canada where management has recently left. The company will have some write-downs in natural gas acquisitions. It has a tremendous number of red flags to address.

Chris Edmonds: Jeff, there is a lot of talk about exposure of other energy traders to Enron. Does that exposure concern you?

Jeff Dietert: This transition period has allowed many of the counter parties to reduce exposure. In most cases, it's down to a manageable level.

Chris Edmonds: Are there any energy suppliers who have more exposure than others?

Jeff Dietert: What has come out publicly is that Duke's got less than $100 million. Dynegy has less than $75 million, and El Paso less than $50 million. Meritt has less than $60 million. Most other companies have less. Williams' exposure is not out publicly, but our guess is they have less than $100 million as well. They are probably less than $50 million.

Chris Edmonds: So what happens next? Can someone replace Enron as the leader in the energy trading business, or will there be a real competitive verve that emerges? How do investors play the sector going forward?

Jeff Dietert: What we'll see is Enron's market share spread over a number of the big players. The companies really in position to benefit are strong players that consumers are comfortable doing business with. They've been around and have good balance sheets, the asset-based companies. I share some of Bryan's concern with the recession we're in. It has allowed the new additions to catch up with the demands from six to nine months ago. Dynasty, El Paso, Williams ? these valuations are at the bottom end of where they've traded historically, despite the uncertainty surrounding the possible Enron bankruptcy.

Chris Edmonds: Bryan, any response to that?

Bryan Dutt: Who's going to play Jeff Skilling in the movie?

Chris Edmonds: Gentlemen, thank you. Our guests, Jeff Dietert with Simmons & Company and Bryan Dutt of Ironman Energy Capital, both from Houston and both members of the TheStreet.com Energy Roundtable.

Chris Edmonds: : Eric, seems like the Enron story gets more complicated and intriguing by the minute. I know news editor Yi Ping Ho is out this week, so that leaves the news to you. And, let me guess, Enron leads your headlines this Thursday afternoon?

Eric Gillin: More bad news for beleaguered Enron investors. At least four subsidiaries of the energy giant have filed for "administration" in the United Kingdom, which is similar to bankruptcy in the United States. This could very well be the first in a salvo of such filings to seek protection from creditors. PricewaterhouseCoopers will handle the U.K. filing and said in a statement, "The appointment follows the credit-downgrading of Enron yesterday and the impact on its ability to trade."

And tonight, Nvidia will replace Enron in the S&P 500. Mr. Insult, meet Mr. Injury.

In the broader markets, a late-day rally erased the pain of losing sessions in the past two days. The Dow Jones Industrial Average gained more than 70 points in the last hour to finish up 117 points to 9829. The Nasdaq Composite ended up 45 points to 1933, while the S&P 500 gained 12 points to 1140.

On the economic front, more and more people are being laid off. The Labor Department reported worse-than-expected initial jobless claims for the week ended Nov. 24. The number of first-time applications rose to 488,000 from 427,000 the previous week. Economists were expecting the number to come in at 448,000. Durable goods orders for October came in well ahead of expectations with a 12.8% increase, as compared with the 8.5% decline in September.

Financial juggernaut Citigroup rose 30 cents to $48.10, while blue-chip brother J.P. Morgan Chase rose 5 cents to $37.55. These two guys got shellacked yesterday because of their exposure to Enron.

Overseas, European stocks were mixed with London's FTSE 100 fractionally higher at 5209 and Germany's Xetra DAX up 0.4% to 4936. Asian stocks posted modest gains, with the Nikkei 225 finishing up 0.3% to 10,656 and the Hang Seng adding 0.2% to close at 11,091.

Chris Edmonds: Indeed. Time to loosen the tie a bit, kick back, pop a cork and pour a good glass of Chardonnay, or maybe a nice bold Zinfandel. It's time for our monthly look at wine, the wine markets and wine consumers. Joining us from Sonoma Valley is our regular wine expert, Rich Cartiere, publisher of Rich Cartiere's Wine Market Report and a long-time wine country journalist. Rich, welcome back.

Rich Cartiere: Cheers, fellas! Happy holidays!

Chris Edmonds: Let me begin by following up on our last conversation when we were talking about the effects of September 11th on the industry. Three months later, what's the impact of the terror on wine industry?

Rich Cartiere: Just like the general economy, the wine industry has been suffering for about a year. There was already a slowdown starting in January 2001, until August when things started to rebound.

Of course on September 11, things went into the tank. Restaurants have had sales go down, but drinking at home has increased. That has continued over the past 2-3 months. We're now seeing wine sales in grocery stores reaching 7% to 8%, which was where they were in August.

Chris Edmonds: : There are several interesting trends in the business you and I have discussed recently, including this emerging battle between old world vintners and new world wineries. You think that provides some real benefits for the wine connoisseur?

Rich Cartiere: This sounds like an arcane battle. "New World" refers to anything outside of Europe and Asia, whereas "Old World" refers to those old chateaus and Italian Estates. This battle between the way wine used to be made and the way winemakers started making it in California and Australia has racketed up. Particularly the Italians have looked at modern techniques and marketing. As a result, in 2002 you're going to see real battles for shelf space between New and Old World producers. This is really great for the consumers, offering better choice. And as we all know, choice is the Holy Grail! Also, better marketing, meaning better deals and tie-ins with your favorite pasta and cheese. You pick up a bottle of Bolla wine and get $1 off spaghetti or something like that. Consumers will benefit from that.

Chris Edmonds: The other trend we've talked about is the trend toward consolidation between venders and vineyards. How will that impact consumer choice?

Rich Cartiere: Again, the Holy Grail is experimentation, choice and the ability to move from one country to another. Wine really represents the region from which it comes. You can learn a lot about Chile or Italy or California just from drinking the wine. It represents the people and soil. So the consolidation and globalization will open up these worlds of wine to the consumer to an extent that has been unimaginable. Kendall Jackson started in Lake County, California in 1982. They now have wineries in Chile, Italy and Australia. They have some Malbec from Argentina. They are packaging it like a California wine, which makes it easier for U.S. consumers to understand. It's a big benefit -- greater choice and better wine-making techniques. Those techniques are now being shared by winemakers everywhere. There's even a new operation in Australia, The Flying Winemakers. These guys make wines in different places.

Eric Gillin: Rich, Eric Gillin here. Last time you were on, you mentioned that California had an absolutely killer crop that should produce some excellent wines. Are we seeing the literal fruits of that labor now? What are some of the best wines pouring out of that valley, and more importantly, what do they taste like?

Rick Cartiere: California really is going to see for its first vintage of the millennium, a spectacular vintage, the reds, especially. And they'll be reds at the lower end of the price range coming from the Central Coast near San Luis Obispo, from Monterey and from the interior valley Woodbridge area. It's not the finest wine in the world, but the quality of those lower-priced wines will be fantastic for 2001. You had freezes and hail this year, so it was very difficult weatherwise. You had the highest heat in May and June and the coldest July, but the good thing is it lengthened the maturation process. That really happened this year with the reds from California.

Eric Gillin: Here's a market question for you. Do wine prices, especially those for collectors, move like stocks in the stock market? That is, when the market for stocks goes bad, does the market for vintage wines follow suit? And with that in mind, is there such a thing as a "defensive" wine?

Rich Cartiere: Wine is very strange. Picking a wine is similar to picking a stock. This is one reason why wine drinking has been so popular with Wall Street types. You have to find the wine that is not known, one that is low priced but with great taste. It requires study and diligence. There's a great affinity between Wall Street and wine. In the California wine industry, you would find those that are delivering that high value from the lesser-known appellations. If you go outside of California, Washington State for example, you'll find some spectacular quality wines at much lower prices.

Chris Edmonds: The plethora of grapes should be having an impact on prices as well. What are you seeing regarding pricing trends in the current vintage? Prices higher or lower than past years?

Rick Cartiere: In retail prices, not much of a difference. I'm seeing a greater selection with new brands and new line extensions. In general, both domestic and foreign suppliers are not cutting their prices, but spending extra money in advertising. U.S. wine companies are looking at increasing their advertising also. I don't think you'll see a lot of lower prices, but you'll see extra programming, especially at resale and wholesale level. But you will see extra cases in the grocery aisle.

Eric Gillin: Speaking of price, we're in a recession and some wine drinkers are trying to save money. Is there such a thing as a "good" box wine? And, what are the best wines under $10 and what makes them so good?

Rich Cartiere: No one should laugh at you for asking! I conducted a box wine tasting about five years ago. We found several very good boxed wines. Boxed wine is casual wine, and we found several very good ones. You'd take it on a picnic, for example. You don't have to worry about breaking it. There aren't many producers of box wine, Almaden, Franzia, and a couple of others. You want to make sure it says it's Chardonnay or Cabernet or whatever you like on the bottle and not the generic type. If you find a cork in a box wine, you're in trouble!

Tony Dwyer: Tony Dwyer here, unless it had a twist-off top, how would you drink it?

Rich Cartiere: Just to mess things up, some of the high-quality wine producers are now putting screw tops on their bottles. The big push is coming from Australia and New Zealand. They work just as well, if not better than cork, in the short term.

Eric Gillin: I know you're both really into wines, so I'm going to ask Chris this one, too. If you were stranded on a desert island, what five wines would you want?

Chris Edmonds: I'd pick two whites, two reds and a dessert wine. I'd take Conundrum from the Caymans vineyards. It's a great blend of Chardonnay, Seyval and Sauvignon Blanc, just about every white grape you've ever seen. It retails for about $50 in a restaurant, $20-22 in a liquor store. The Mantanzas Creek Sauvignon Blanc is nice, balanced, fresh and clean with a bit of fruit. It's not oakey like a Chardonnay, and it pairs very well. On the red side, the 1997 Joseph Phelps Cabernet Sauvignon is a great big wine. It's a very nice compliment to red meat and pastas. It's not a bad wine to drink with chocolate. I'd also take one of the Cline vineyard old-vine Zinfandels. They're peppery, good to drink, and a nice finish on the palate. For dessert I'd take the Van der Heyden vineyards late harvest Cabernet.

Rich Cartiere: That's a great choice. I would take Jade Mountain Shiraz (Napa Valley). They've been purchased by Shalom Wine Group. I'd also take a Williams Seldon Pinot Noir from the River Block vineyard. I literally live down the street from this vineyard. It has a history with the community and with me. We follow it and taste the wines from year to year. I agree on the Creek; I would take their Chardonnay. It has a beautiful buttery taste. I like softer wines, so I would take a Mantanzas Creek Cabernet. Gallo has that horrible name from the past, but they are making some fantastic Russian River bottles now, so I'd take one of those.

Chris Edmonds: : OK, Rich, one last question, You are headed to a holiday party and want to impress your hosts. What bottle of wine do you take to the party? Does it matter if it's red or white?

Rich Cartiere: I always take a bottle of red. It shows more sophistication. It's the preferred color. I'd take a Cabernet Sauvignon

Chris Edmonds: I'd take a Bartholomew Park wine.

Rich, as always, thanks. We'll talk to you next month. Our guest, Rich Cartiere, publisher of Rich Cartiere's Wine Markets Report.

Eric Gillin: From wine back to the markets, and it's time for our weekly markets roundtable. Joining us this week are two veterans of the roundtable: From New York, Tony Dwyer, chief market strategist at Kirlin Securities and from our San Francisco bureau, our own Aaron Task. Gentlemen, welcome.

Tony, a lot of give and take in the market this week. Considering that there are only four weeks left to get in on the tax-loss selling, which way do we go from here?

Tony Dwyer: I don't think it's playing a role here. The dominant theme in the market now is performance anxiety. It's a sin to lose money, but everyone's done it. That has an excuse, but it's a mortal sin to not make money when the market's going back up. Now they're in a position where they got it wrong both ways, and they have to play catch up. You can't buy Bud and Pepsi and Coke. You have to buy when the market declines and buy higher beta stocks. That's what I think is behind the stability or rally we've been experiencing.

Chris Edmonds: Aaron, you are the resident skeptic. Well, we are in a recession now, at least according to the bean counters. Amazing it took them so long to count those beans. What impact does that have on the market?

Aaron Task: It's had a good effect on the market. Back in '91, they said we were in it when it had already ended, and a lot of people are expecting that it means the same thing this time around. There was this feeling that the recession must be over.

Chris Edmonds: Tony, what are your thoughts?

Tony Dwyer: The problem is the recession is creating a different situation as we begin the new year, especially the high-tech stocks. It's too early to say it's going to be a stereotypical recession. You're not going to get a news item because it's a lagging indicator. Consumer confidence won't be great. Even if you do get a great rebound, I'm still switching to more defensive areas like beverages.

Eric Gillin: 10,000 on the Dow is proving to be a tough ceiling. Tony, how important is that number psychologically, and what pushes us through that barrier?

Tony Dwyer: The media focus on these numbers is irrelevant. It's a dangerous number psychologically because we'll push through that barrier. It's overplayed. People need to look at what's driven the Dow back up.

Aaron Task: If I can counter, it's not great for the Mom and Pop investor who's casual and has been out of the market to try to get back into the market, but the retail money will come back after we hit 10,000. So, I'm still skeptical.

Chris Edmonds: How much time will it take for that retail money to get back into the market?

Aaron Task: I mean when the rally ends. The fundamentals aren't as strong as they were back in the 1990's. If we get the Dow back near 10,000, folks will return. January or February, retail investors will be back. The mutual fund investors, that is.

Chris Edmonds: Aaron, again to the skeptic, there has been a lot of talk about the impact of Enron on the energy markets, but there are a lot of nonenergy companies that have exposure as well, namely commercial banks. What are you hearing about the impact of Enron on the broader markets?

Aaron Task: I'm working on a piece about that today. Citigroup and Morgan Chase both have about 900 million exposure to Enron. At worst, Citigroup will take a hit at 10 cents per share, and JP will take 15 cents per share. There will be more stories like that.

Chris Edmonds: We're missing part of the bigger story here. When I talk with my sources in the banking world, they tell me that JP Morgan-Chase and Citi will certainly feel the impact of insolvency in a bankruptcy. They have recently upped their reserve margins and their problem loan accounting. Some of the smaller regional banks have not. SunTrust has $120 million in exposure, which is 1/5 of their individual credit legal lending limit. Bank of New York has $50, $60, $70 million, same thing with Northern Trust. These companies can use Enron as an excuse to bump those reserve numbers higher and blame an earnings shortfall in the 4th quarter on Enron.

Aaron Task: Absolutely. It gets to why Citigroup and JP Morgan have become these huge colossals so they can withstand this kind of hit and spread it out among several businesses. This will not become a threat to their solvency.

Tony Dwyer: Another angle. We know what the exposure's going to be, but the bigger angle is that we're right now in a situation where banks will be more hesitant to lend to stable companies, forget about more aggressive companies. This is at a time when the Fed is trying to loosen them up. You're going to have a difficult time raising money for businesses.

Aaron Task: Prior to Enron, the Fed said that the restrictions were too high. This Enron situation isn't going to help.

Tony Dwyer: There are a lot of comparisons to Long Term Capital. You want to look at this from the angle of the Fed. When Long Term Capital happened, the Fed was involved long before we knew there was a situation. If it was going to be that big a deal, I doubt the Fed would have missed it.

Eric Gillin: When the Fed meets again, will they cut rates? Can they?

Aaron Task: They can, and they will.

Tony Dwyer: I agree.

Eric Gillin: How much and when?

Aaron Task: They have 250 basis points left. They can do 50 at the December meeting and another 25 at the January meeting.

Tony Dwyer: Remember the Fed's job is to monitor and control inflationary pressures. It gives them ultimately the flexibility to cut rates as much as they can because that will stimulate the economy. Right now, I'm sure in the Fed meetings, they're talking about how to reignite some level of pricing pressures.

Chris Edmonds: I interviewed Larry Meyer years ago regarding the whole inflation verses interest rate cuts. He's been very hawkish and for him to make those comments is very instructive.

Tony Dwyer: Aaron, you interview a lot of people. What's your gauge of what they're expecting?

Aaron Task: A large majority believe the economy has already bottomed, and it's going to start to recover by the first quarter of the year. It's what the economists are looking for. If that's the case, you have to ask if stocks are priced for that reality, or for something better.

Tony Dwyer: I looked at Cisco, and it's still in the 80s with a 77% rebound growth rate. That looks like something value fund managers are buying.

Chris Edmonds: Great insight. Thanks to two of our best, Tony Dwyer of Kirlin Securities and our own Aaron Task. Eric, a big, big, big show next week!

Eric Gillin: That's right, rumor has it you will be sitting at the betting window in Las Vegas. Seriously, folks, in our first on-location show, Chris will be live from the Sportsbook at the Orleans Hotel and Casino in Lost Wages, Nevada. So, if you are in Las Vegas, c'mon down. They'll be giveaways, a little gambling tutorial and lots of fun.

We'll take the opportunity to focus on the Vegas economy since September 11, some holiday Las Vegas gift ideas and even some real talk about the college bowl picture, including live lines on the major bowl games.

Of course, we'll focus on the markets and your money, something Chris will be happy to help you lose while on the air from Vegas.

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

Chris Edmonds: Look forward to it, Eric. It will be a great week. If I have any money left by Thursday, I'll even place a little wager for you. See you from Vegas, baby. Vegas.

Eric Gillin: Excellent. I can hardly wait. Ka-ching. Until next week, Cheers.