Analyst Raises Eyebrows at

Also, shorts gloat after Tuesday's downturn and a <I>CNBC</I> personality gasps for airtime.
Publish date:

SAN FRANCISCO --- Strangely, strong corporate earnings begot selling today. Predictably, selling begot more selling and major averages bled recent profits, most notably in technology. (For more, see today's

Market Roundup.)

The Ronald Reagan IPO

You wouldn't have known today was such a rough day judging by IPOs, notably

Gadzoox Networks


, which soared 256%.

After the close,'s


offering of 12.3 million shares priced at $28 per. This after underwriters -- led by

Credit Suisse First Boston

and Frank "Duke of the Net(?)" Quattrone -- upped the expected price to $24 to $26 today vs. $16 to $18

last week and $9 to $11 originally. (Did somebody say "inflation"?)

"It's phenomenal," said Steve Harmon, senior investment analyst at

. "The interesting thing is they haven't figured out their business model. The most important thing has is traffic centered around music

but I don't think they can survive as a college-student free-for-all." (Having survived some, I can't tell you it ain't easy, especially on the liver.)

The company will need "meaningful deals" to expand from its current offerings, mainly "garage bands" and better-known artists who have been "reamed" by the music industry, Harmon said.

This will be paramount for the coming competition he foresees with other online music purveyors, notably



, which recently announced it will offer downloadable music.

" is a Teflon-coated IPO, but with


(SNE) - Get Report


Time Warner


on CDNow's team, better line up some serious players on the entertainment side," the analyst said.

"You have to be careful as an investor as you look at," Harmon continued. "It's as if

(AMZN) - Get Report

wanted to aggregate unknown writers and sell a compilation of their stories. How exciting a business model is that? hasn't been able to monetize the traffic of their artists yet."

Harmon recalls asking Chairman and CEO Michael Robertson (who owns over 25.6 million of the company's 53.3 million outstanding common shares, according to the firm's amended S-1 filing of July 14) about the company's "sell-through rate" at a recent conference.

"He said 'I don't have the stats,'" Harmon recalled. "It didn't sound quite right. Anybody in business, they're checking sales every 25 minutes. Basically it sounds like there's not any sales. People don't want to buy unknown artists, it's a fundamental flaw."

According to the S-1, had net revenue of $1.1 million from March 17, 1998, through Dec. 31 and a gross profit of $947,480.

Robertson could not be reached for comment but a spokesman promised to try to arrange an interview once "legal" clears it, leaving me feeling like a young

Herb Greenberg

(who I bet rues the day he left San Francisco for the apple in decay).

Despite that and a belief naming a company after a technology is a bad idea, Harmon said will "be one of the better-performing stocks in the aftermarket this year" and could trade north of $100 tomorrow.

For more on, see today's

story by



Jim Seymour


TSC Special

As a member of


markets team (and one who thinks it's the best in the biz -- online, offline or conga line), it's hard for me to be objective about our offerings. With that disclaimer, Senior Writer

Justin Lahart's

Selloff Signals a Good Time for a Summer Break From Stocks gets the nod today for its simple (but not simplistic) and pithy analysis of the action.

The Carnage, the Carnage

Today's action provided little solace for those long. But Ronny Kraft, CEO of

Gotham Capital Management

, was downright giddy.

"I think the high has been put in," said Kraft (also quoted in the aforementioned Lahart feature). "Today was huge. I took a bunch of shorts the middle of last week and was sweating my ass off. A day like today makes you whole."

Specifically, the hedge fund manager shorted at 134 last week. Other shorts include


(MSFT) - Get Report

at 99 7/16 and


(ATHM) - Get Report

around 48.

Simultaneously, Kraft has shed some long-held long positions in his roughly $55 million fund, including


(DELL) - Get Report


Tommy Hilfiger




(CSCO) - Get Report


Fox Entertainment Group

(FOX) - Get Report


"We'll probably rally at some point; I think the market is not going to go straight down," he said. "You're going to have idiots trying to hop in tomorrow thinking the day-and-a-half correction is over."

Kraft reiterated a long-standing belief inflation is the greatest risk, noting futures prices on various commodities jumped an average 7% in the past month. "Growth's tradeoff is inflation," he said. "You couldn't make that case in the last three years, but Japan and the Pacific Rim are coming back, wallets are open, pricing power is there."

That settles it, I'm doubling the fee to read this column.


For the gamblers in the house (bet, bet, bet, bet, bet), lay big money

Rick Santelli's days on


are numbered unless he changes his


. I have no facts to back that up, it's just a hunch.

It just seems he's getting less and less time on "Squawk Box" and

Mark Haines is less and less eager to interact. (The cold shoulder?)

That, of course, is a shame because -- as he joined


last month after a career as a trader with

Sanwa Futures

in Chicago -- Santelli actually knows what he's talking about, even if he's a bit bearish. He's just got a technical bent (and futures are confusing enough as it is) so I can't imagine he appeals much to "the masses."

And on TV, that's what it's all about.


Cory Johnson

wrote an excellent piece

yesterday that dealt with how journalists view peers who become financial pros. I wonder how Santelli's former company-workers and other traders view him -- hero, traitor or fool?

Aaron L. Task writes daily for In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in He also doesn't invest in hedge funds or other private investment partnerships. He welcomes your feedback at