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Herb's Hotline Part 1: Chickens Come Home to Roost

Myohmyohmyohmy!: Remember the heat this column took over THQ (THQI), the software company. Damn near broke the Hostile React-O-Meter. Well, guess who pre-announced (again!) yesterday, actually reducing guidance from previously reduced guidance. As this column pointed out in February, the company apparently met (either together or individually) with analysts to lower the boom regarding the first and second quarters. The first quarter has come and gone. The company touted that the 26 cents a share beat analyst estimates. (Of course it failed to say that the estimates had been cut from 55 cents per share.)

Now hear this: the company pre-announced a lousy second quarter and slashed guidance for the full year by almost half. What's more, the company is writing off inventory, which should be no surprise given the amount of unsold software originally noted by this column. Funny how that happens ... (The stock, meanwhile, is off 39%, recently trading at 8 13/16.)

Myohmyohmyohmy!: Prudential cuts estimates on Medallion Financial (TAXI - Get Report), which was mentioned in a recent HerbonTheStreet for quality of earnings issues.

Myohmyohmyohmy!: Seen MTI Technology (MTIC) lately? Speaking of unexpected expected surprises. Seems like just yesterday it was trading at 50. And now what is it? Something like 8, especially after yesterday's earnings report. Well, as this column (enough with the shameless promotion, Greenberg!) noted back in November that's what happens when companies get involved in funny-looking related-party transactions. And when a balance sheet, as Howard Schilit of the Center for Financial Research and Analysis showed, stinks to high heavens. The headline on that column was, "Oh, What a Tangled Web Ray Noorda's MTI and Canopy Weave!" Part of that web included buying switches from Ancor Communications (ANCR). ...

Speaking of which: Myohmyohmyohmy! Seen Ancor lately? It's trading at 27. That's down from where it was when it agreed to sell itself to QLogic (QLGC - Get Report). ... QLogic reminds me of how so many companies these days, more than ever, are leaving the bad news to the 10-Qs, proxies and 8-Ks, which is all that is required of the SEC for much of what is required for disclosure purposes. That's where you'll find all of this "related party" nonsense, and just some strangely worded disclosures that should in and of themselves be big red flags. For more on that see this morning's HerbonTheStreet's item on Pinnacle Systems (PCLE).

And, whoa!: The judge is now hinting that Microsoft (MSFT - Get Report) may be better off in three pieces? Who woulda thunk?! Well, if two is better than one, then three is better than two? That's akin to something I wrote in the May 29 issue of Fortune, in a story headlined, "I'll take two to go." It explains why Microsoft investors will be better off with a split. I base the whole thing (and give generous credit) to our very own Jim Seymour who, in typical Seymour style, said it the most succinctly: The breakup of Microsoft would produce the 1 +1 = 3 effect. (So would three Microsofts be 3+3 = 7? Come in, Jim!) ... and yesterday's item that said Continental (CAL) was best for customer service generated loads of react from readers who say Midwest Express (MEH) leaves them all in the dust! (So I've heard.)

Finally, with Cyber-Care (CYBR) imploding, the sad tale of investors who had margined their livelihoods starts to unfold on the message boards, where they're eating their own, I tell ya, they're eating their own! Look, I get no joy in watching people lose money but this column has railed long about the hype-meisters on message boards, and how individuals, with little experience in the market, can get sucked in by the cult-like feel of boards.

Which brings us to some guy named Martin, who posted: "I'm writing with a heavy heart and tears in my eyes. I have worked hard all of my life, always trying to do the right thing for my family, friends and the world in general. I have never taken advantage of another person in any way. I have scrimped and saved over the years as I did not have the luxury of a company pension or retirement plan. When I became aware of CYBR and the EHC, I did voluminous amounts of research and only after I was totally convinced, I started buying. I admit that I probably got caught up in all of the good repartee being bantered about the boards and violated some of my own basic rules of investing, but I really believed and in fact, still do.

"I have literally lost everything I have worked for my entire lifetime. A woman whose husband bought into CYBR on my recommendation called me this morning in tears as she thinks her husband is going to kill himself, as he did what I have done. We are both 62 years old and cannot recover from this. I called their son and told him to get over there. This is one of the most decent human beings you could ever hope to know. His life is ruined now. They are both sick and have less chance than I do of recovering from this. ...

"I did make a giant mistake by buying on margin. I have had to liquidate shares several times for margin calls and thought that the nightmare was finally over. Then this week happened. I am now so far in the hole that even if I liquidate totally, I still owe! Now that's incredible and shows the dangers of margin. I have until tomorrow and I don't know what to do, other than hope for a miracle."

Investing, unfortunately, isn't about miracles. In recent years, in many cases, however, it has been about luck. And that has made it seem way too easy. Which of course, it's not, which of course leads to stories like these. On that sad note, head's up later today for Part 2 of ... The Hotline.

Herb Greenberg writes daily for TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, though he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. He welcomes your feedback at herb@thestreet.com. Greenberg also writes a monthly column for Fortune.

Mark Martinez assisted with the reporting of this column.

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