The Five Dumbest Things on Wall Street This Week

1. Exchange Students

With The Wall Street Journal reporting that the New York Stock Exchange is in talks to acquire the American Stock Exchange from the National Association of Securities Dealers, we've got a simple question for the involved parties: Who cares?

Yeah, we know that the Amex does a busy business in options and exchange-traded funds -- funds that trade very much like stocks. And expanding into the Amex's trading floor real estate might solve the overcrowding ills at the NYSE.

But we at the Five Dumbest Things research lab are perennially struck by the staggering irrelevance of the Amex, home to such microcapitalized buttresses of the American economy as car painter Earl Scheib(ESH) and Etch A Sketch manufacturer Ohio Art(OAR).

In fact, we'll let you in on a little secret: The Amex is central to one of our favorite indoor sports here at the research lab, an endeavor we label The World's Slowest Drinking Game.

Not that we condone drinking games, drinking on the job, or drinking in Utah without membership in a private club.

But here's how it goes: Instead of chugging a beer when someone bounces a quarter into a glass, or doing a shot when someone on The Bob Newhart Show says, "Hi, Bob," we take a drink whenever anyone at the lab writes a story mentioning a stock that trades on the Amex.

By our count, that's meant two drinks this year: one for a passing mention of Plastic Surgery (PSU) in January, the other for mentioning Paxson Communications(PAX) a month later.

At this rate, we figure our bottle of tequila will last longer than the Amex does.

2. Tower of Babel

What do you call a sell-side analyst who puts a price target on a stock that's nearly 20 times higher than where it's trading now?

An optimist? A visionary? A madman?

To be safe, let's just call him John Bensche, a telecommunications analyst covering the tower industry for Lehman Brothers.

Yes, clinging fast to stock-price appreciation goals that might have made sense a year or two ago, Bensche in recent days has reiterated targets for four companies in his stable, prices that imply a rapid turnaround in some steadily declining fortunes.

Crown Castle International (CCI) should more than quadruple to $36, wrote Bensche earlier this week. SpectraSite Holdings (SITE) and American Tower (AMT) should appreciate about eight times over. But SBA Communications(SBAC) is the doozy in the analyst's strong buy portfolio, slated to rise more than 1,800%, according to Bensche's March 1 forecast, issued when the stock was trading at $2.40.

Bensche, who was traveling Thursday, was unavailable for comment.

To get a sense of how rosy Bensche's glasses might be, compare his views with those evinced in a report issued Thursday by Deutsche Banc Alex. Brown analyst Naveen Sarma. Calling SBA the fastest grower in his portfolio, Sarma reiterated a price target of $10 for SBA -- a tad below Lehman's $47 target for that same company.

Up 30% Thursday afternoon, SBA was trading at $4.38. That's $2.18 down, and only $42.62 to go!

3. What's Job One, Again?

We're big fans of the full-page newspaper ad we saw from Ford (F) this week.

You know, the one in which Chairman and CEO Bill Ford -- the great-grandson of founder Henry Ford -- talks about the responsibility of running the company inextricably linked to his family, and the inner satisfaction he derives from it.

No Back Seats You, too, can be a scion

No problem with those sincere thoughts. But the part of the ad we took slight issue with was the motto that ran next to the Ford shield at the bottom of the ad's copy: "No Boundaries."

Yup, we thought. There are no boundaries at Ford. No dividing lines between people and their goals, between the factory floor and the CEO's office. Why, anyone can grow up to lead Ford. Of course, it doesn't hurt if your name happens to be Edsel Ford, Henry Ford II or William Clay Ford Jr.

4. Ouija Board of Directors

Speaking of the whole visionary vs. madman thing, one must admire the baseless optimism of the Telecommunications Technology Forecasting Group.

That's the telecom industry consortium that recently sponsored a research report predicting what local phone networks will look like in 2015. Authored by the forecasting firm Technology Futures, the report -- emailed to us this week -- makes assertions such as that in 2015, only 30% of North American households will have a traditional wireline phone. Another one: Less than 10% of the $355 billion in network infrastructure that's in place today will still be in use by then.

But predict 13 years into the future? Why, the telecom industry can barely forecast whether the sidewalk will get wet in a heavy rain.

Case in point: Nortel Networks (NT) (admittedly not a member of the TTFG). This week, Reuters reported, the company indefinitely postponed release of an optical switch developed by Xros, a company Nortel bought two years ago for $3.25 billion in stock, or about $36 million per employee, reported TheStreet.com. Nortel already has written down "a large portion" of the Xros purchase price, says Reuters.

Hmm. Companies make multibillion-dollar bets based on the direction they think technology is heading. Nortel makes a prediction error that takes only two years to cost $3.25 billion. Why, at that rate, someone basing a decision on the TTFG report could make a mistake costing $21 billion by the time 2015 rolls around.

We can hardly wait to find out who that will be.

5. This Is Where We Came In

We thought the time had come and gone for money-losing dot-coms to go public. We were wrong.

Yes, this week online DVD rental company Netflix filed to go public, only two years after the company originally made an IPO filing (which it subsequently withdrew).

But Netflix is different, we assume its supporters will tell us. Sure, the company had an operating loss of $36.9 million last year. But it actually generated $4.8 million in cash flows from operation in 2001!

Well, yes, but ... look a little closer at a little acknowledgement the company makes in the filing. As Netflix points out, the money it spends to acquire DVDs -- the perishable lifeblood of its business -- is actually classified under cash flows from investing activities. Include that money in cash flows from operations, and you get a negative $4 million.

Or look at the numbers this way, say the lab staffers. Of that $36.9 million in 2001's operating loss, $22.1 million comprised DVD amortization. In a business driven by consumers looking for the latest videos to rent, should you really be ignoring that amortization cost?

To be sure, Netflix's financials look a lot better than they would have if the company had gone public in 2000. But beware: The company is too far from the final reel for you to assume a happy ending.

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