Dec. 11, 12: Guest Donald Luskin

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Participants on Dec. 11 included host Brenda Buttner, Jim Cramer, Herb Greenberg, Gary B. Smith, Adam Lashinsky, Dave Kansas, Dagen McDowell, Joe Bousquin and guest Donald Luskin. The transcript is unedited, and phonetic spellings are indicated with a (ph).

BRENDA BUTTNER, THESTREET.COM:

Hi, everyone. I'm Brenda Buttner and you are connected to "TheStreet.com." We're here to help you make smart decisions when investing in the market.

Let's get "The Word on TheStreet."

With us from

TheStreet.com

financial Web site, Jim Cramer, who also runs a hedge fund,

TheStreet's

Editor-in-Chief Dave Kansas and Senior Columnist Herb Greenberg. Also joining us, Don Luskin, the co-founder of

MetaMarkets.com

, which runs what's called an open mutual fund. The open fund is up some 60% since its launch in September. We will be talking more about that in a few minutes.

But first what else but the market? Another powerful week for tech stocks. No question they often go up fast, but check out the bottom line and you don't see much in terms of earnings.

Look at these three, no profits yet for

Amazon.com

(AMZN:Nasdaq),

Juniper

(JNPR:Nasdaq) and

Excite@Home

(ATHM:Nasdaq), but they are valued in the billions of dollars because of their stock prices.

So, what do you do in this type of market? Do you throw away the old investing rules? Herb, it seems that what goes up must go up.

HERB GREENBERG, THESTREET.COM:

It seems that way. It's like a speeding locomotive and you don't want to be in front of that thing. And so the question is do you throw out the old rules, you know?

And I have to tell you something, in this market if you're a trader, there are no rules, but you still have to think. I still think you have to be disciplined, and you have to understand what you own. Because in this market -- of all markets -- unless you have flexibility, you're going to get slammed. And I keep saying that, but one day on some of these stocks, the bottom is going to come out. There will be no short-sellers there to act as a cushion, and boom.

BUTTNER:

How long have you been saying that, though?

GREENBERG:

Way too long.

(LAUGHTER)

JIM CRAMER, THESTREET.COM:

I want to make a point because you said you don't want to get in front of it. Why can't you just get on it? You see, here's what I think is happening: I see companies and I hear Juniper, Amazon. We are not valuing companies on a price-to-earnings ratio. We are valuing companies on whether their business models are great and whether they can execute those business models. And if they can, I am confident if Amazon can execute the business model that it wants, you will pay substantially more for Amazon -- I'm not long on Amazon -- you will pay substantially more for Amazon out three years than you will right now.

DAVE KANSAS, THESTREET.COM:

I mean that's the point, we have a revolution going on in a lot of these places, and everyone like, well, how the Baltimore (ph) 1957 manufacturing economy apply to these stocks. And you can't think that way. I mean this is a total paradigm shift that's going through so many parts of the economy, and the world. And it's like they start thinking about P/Es and things like that. It can't apply in the near term here. The business model is right.

BUTTNER:

Don, what do you look at? You have been buying these stocks since the funds launched in September and you bought them high. But you've watched them go higher.

DONALD LUSKIN, CEO, METAMARKETS.COM:

Yes. We believe that is a new world, it is a new economy. We take that very seriously. And we think the paradigm, in the old economy model, the valuation-based model, you're basically treating a stock as though it were a bond. And the only profit you're going to be able to make is if somebody else makes a mistake and misvalues it.

But all those rules are gone. This is a world where you can start valuing stocks like options. And so you want to see, is this a business model? Is this a management team than can push that into the money?

GREENBERG:

Ooooh...

BUTTNER:

Well, why does that scare Herb?

CRAMER:

Did you just do something bad?

GREENBERG:

No, no, I just feel so irrelevant. I mean anything you want to think about is -- you're just -- and I am, you know, irrelevant right now.

BUTTNER:

Never Mr. Irrelevant.

All right, topic two, watching a money manager's every move may not be quite the same as studying Dennis Rodman's evening activities, but thanks to our guest you can now be a voyeur on the Web to everything that a fund manager does.

Take a look. This is from our guest's Web site, Donald Luskin's OpenFund bears all, letting shareholders see the trading desk live. It shows you all of the holdings, updated in real time, when and what traders buy and sell and at what price.

Informative, yes, but do you really need a minute-by-minute look at your mutual fund, or do you go the pros just so you don't have to worry about those things?

Jim, what do you think about this kind of really open disclosure?

CRAMER:

This man is a hero of mine because I believe that our whole industry has buffaloed the client. That's what this industry has done systematically is said you send us a blank check, we will do a good job. You try to find out what your money is in. Forget it. You want recent updates. No way. You're trying to figure out whether you have a lot of risk in your fund. The fund family will protect you.

Well, I have been gaffed. My family has been gaffed by fund managers who have said they were doing conservative things that weren't.

I think this is the way it should be done.

GREENBERG:

And I agree with you, one of these rare times...

BUTTNER:

Oh, my God.

CRAMER:

Really?

BUTTNER:

But just because you can watch your fund minute by minute, should you, though? I mean isn't part of this understanding what fund fits into your portfolio and then letting the pro do his job for a little while?

LUSKIN:

Well, how do you understand it? They won't let you look. All they let you look at is past performance and then out of the other side of their mouths, they tell you that's no guarantee of anything.

BUTTNER:

Right. Well, literally the funds only have to give their holdings twice a year now.

LUSKIN:

That's right.

BUTTNER:

What you are doing is revolutionary, I have to say that. Absolutely.

LUSKIN:

We treat the investor like a intelligent, responsive adult. We don't treat them like a dependent patient.

BUTTNER:

OK, well I admit that I have been checking in our your fund and one thing that has really struck me is that

Qualcomm

(QCOM:Nasdaq) is your top holding. And you bought that, what, in September, early September?

LUSKIN:

Yes, we bought it the day the fund started, on Aug. 31.

BUTTNER:

Do you think that there is -- it's had an incredible run-up. This week was a little tough but do you think there is more upside?

LUSKIN:

Yes, I do. We're -- that's a long-term position for us. We also take a lot of short-term trading positions. That's a long-term position. We think that the wireless revolution is going to absolutely transform the world beyond anything that anybody expects and Qualcomm controls the operating system, just like

Microsoft

(MSFT:Nasdaq) does with the PC operating system.

BUTTNER:

Jim, what do you think?

CRAMER:

Well, I happen to have sold the stock this week. And the main reason why I sold...

LUSKIN:

Oh, that was you.

(LAUGHTER)

CRAMER:

That was me. Seven points after a 1,000% move. Look, I just happen to think that there's so much good news priced in the stock that frankly I got a little nervous. That happens. There have been a lot of winners in this market.

I just felt this was a little win too far, and took it off the table.

BUTTNER:

Now, Don, you also actively short, and you're short

AT&T

(T:NYSE). Why?

LUSKIN:

Well, AT&T is America's most unnecessary company.

(LAUGHTER)

It is -- back, back in the '80s when you had a bank that had problem looms, they would create a good and a bad bank, and they would let the bad bank kind of go away.

Well, AT&T keeps trying that. So, they spun off

Lucent

(LU:NYSE). That's good AT&T. The problem is bad AT&T doesn't have what it takes to just roll over and die.

CRAMER:

But, Don, if you're going to open your fund up and let everybody know, now do you get any information about AT&T if you reveal that you're short it? This has always been my problem as an open fund manager. Once I reveal I'm short of stock, nobody wants to take my call or return my call.

LUSKIN:

Well, I'm not all that interested in what AT&T has to say about AT&T. So, that doesn't worry me.

BUTTNER:

Are you long or short AT&T?

CRAMER:

Neither. I think that AT&T has a very aggressive guy who is running the company, and he's doing attracting (ph) stock and I see a lot of good things and a lot of bad things in AT&T. I think that there's an unnecessary component and a very necessary rapidly growing component and this guy, if he can bring out of the value -- this is Armstrong we're talking about...

BUTTNER:

Right.

CRAMER:

... I think there could be a win here.

KANSAS:

What about the wireless? You're so excited about wireless with Qualcomm, but AT&T big wireless play too.

LUSKIN:

Well, AT&T is going to have to absolutely tear its system down and build it back up from the roots to use the CDMA standard that Qualcomm is transforming the world with. That's going to cost them billions and billions of dollars.

BUTTNER:

OK, that has to be the last "Word on TheStreet" for now. Thanks to Donald Luskin from MetaMarkets.com.

And if you're interested in learning more about Donald's OpenFund, you can go to our

TV page on

TheStreet.com

Web site. You will find a

link to a story by

Alison Moore

called "An Inside Look at the OpenFund."

But up next, the last time

Ryan Jacob

managed money, he returned more than 500% in a year and a half. That's not a typo -- 500%. So when his new fund starts trading Monday, should you get in?

That's next on "TheStreet.com."

BUTTNER:

Welcome back. It's time now for our "Mutual Fund Face Off." With us, our mutual fund reporters

Dagen McDowell

and

Joe Bousquin

. Today's topic -- Ryan Jacob. Last year he was the hottest fund manager around. In 18 months, he guided the

Internet Fund

to a spectacular return.

Jacob has since departed that fund and is now out on his own. Come Monday morning, the

Jacob Internet Fund

is expected to begin trading. The big question -- can he do it again? And should you trust your money with him?

Was Jacob just lucky, or is he really that good? Dagen?

DAGEN MCDOWELL, THESTREET.COM:

Ryan Jacob ran the Internet Fund for a scant 18 months, and a year and a half is not long enough for you to know if Ryan Jacob is a good manager or just lucky.

BUTTNER:

It's an eternity in Internet time, Joe.

JOE BOUSQUIN, THESTREET.COM:

Eighteen months on the Internet is decades in the old investing world. I mean, this guy was best at what he did against his peers. He was better than them in the up markets. And didn't go down any worse in the down markets.

BUTTNER:

And in fact, if you're going to have a Net strategy, if you're going to put Internet stocks in your portfolio, isn't this better than the rest?

MCDOWELL:

Not necessarily. There are a lot more competitors in this market than when Ryan Jacob was -- left the Internet Fund earlier this year. I mean you've got a guy like

David Alger

(ph) who runs the

Enterprise Internet Fund

. And he has a massive amount of experience running aggressive tech stocks and technology stocks.

BOUSQUIN:

This guy has been in the space since 1996. Before he was running the Internet fund, he was at the

IPO Value Monitor

...

MCDOWELL:

But he wasn't running money.

BOUSQUIN:

He was analyzing these companies. He knows these companies from the ground up and he knows what their histories are. He can spot a good company in this sector.

BUTTNER:

OK, Joe, but isn't he biting off more than he can chew? He's not just a fund manager. He's a marketer. He's an advertiser. What, is there one guy in this shop and it's Ryan Jacob?

BOUSQUIN:

This, this should give investors some concern about the fund, because you know, if he takes off to Tahiti, or you know, God forbid something happens to him, then you know, who's going to take his place?

MCDOWELL:

And he has to worry about selling this fund too and invariably he's going to have less time to pick stocks.

BUTTNER:

He did, however, just -- it was a very kind of low market operation at the Internet Fund as well. He started out with not many people.

MCDOWELL:

That's true, but he's starting out on his own and he's got to worry...

BOUSQUIN:

That's right.

MCDOWELL:

... about how much money is coming into that fund.

BUTTNER:

OK, guys, now boil it all down on a scale of one to five dollar signs, what's this fund worth? Dagen.

MCDOWELL:

Two dollar signs. The track record is not long enough, and if you want to invest based on luck, take your money to Vegas because it's a lot more fun.

BUTTNER:

OK, Joe, what do you say?

BOUSQUIN:

Brenda, four dollar signs. This guy is better than anyone else in this space, but only four because of the institutional risk associated with going with a one-man shop.

BUTTNER:

OK, Dagen and Joe thanks for being here. And for more information on the Jacob Internet Fund, visit us at

TheStreet.com

. You can go to

TV page where there are links to related stories and, in fact, Joe will be with Ryan his first day of trading and have the story on that on Monday.

But after this short break, is it time to rub the bunions? Or should you -- let's see Stuart, light this candle? The TV ads for the online brokers are funny, no question, but will their stocks leave you laughing or crying?

Find out what the Chartman has to say next.

BUTTNER:

Welcome back.

No doubt some of the most clever commercials on TV these days are for online brokers. But should you be trading the stocks that let you trade online?

Let's find out what the Chartman has to say.

That's

Gary B. Smith

. And he joins us from Washington, D.C., where he trades for a living from his home using charts and graphs to decide when to buy and sell stocks.

And in San Francisco, our Silicon Valley columnist

Adam Lashinsky

. He looks at the same stocks as Gary, but does it from fundamental approach, you know earnings, management, things that don't mean so much to Gary.

(LAUGHTER)

BUTTNER:

Neither Gary nor...

GARY B. SMITH, THESTREET.COM:

They don't mean anything to anyone.

ADAM LASHINSKY, THESTREET.COM:

Or anyone else, yes.

BUTTNER:

Not yet. Hold on guys. All right, neither Gary nor Adam owns any of the stocks in this segment.

OK, so let's take on the online brokers. Gary, I know you must have some servant rubbing your bunions like in that

E*Trade

(EGRP:Nasdaq) commercial. So you likely don't laugh at it, but what does the chart tell you about the stock? It had a rough run for a while there.

SMITH:

Yes, well, I tell you, EGRP is B-A-C-K. In fact, let's just say all the online brokers are back, at least the ones we're going to look at today. Look, there's two great things about this E*Trade chart. One, that long-term downtrend is broken. That was bullish sign No. 1.

Bullish sign No. 2 is that it's given you a chance to get in this stock. All it's done is move sideways. Going through a little congestion right now. It is poised to buy E*Trade right now.

I would be a buyer right now and I would probably put a stop in probably in the mid-20s or so. But I am very bullish on this stock right now.

BUTTNER:

Adam, online trading volume was way up across the board this quarter. Fundamentally, how much does that help E*Trade?

LASHINSKY:

Well, it helps it a lot. That's why the stocks are up. There's been a market explosion. That's good for E*Trade and for all the other online brokerages. But E*Trade is facing some real issues right now. Its acquisition of the Internet bank

Telebanc

is being slowed down by regulators. And that causes some uncertainty for the stock.

And lastly, with E*Trade, it's really going to have to continue to spend a lot of money to improve its services so that it can be more than a brokerage. That means spending more money, delaying profitability, and we're going to talk about why these are stocks that will be valued on a fundamental basis increasingly because they're in a mature industry.

BUTTNER:

OK.

Ameritrade

, (AMTD:Nasdaq) whose chart has a lot in common with competitor E*Trade. Gary, is it the same story here?

SMITH:

Yes. Look, forget about the fundamentals. You know, no one is looking at the fundamentals and do you know why? Because these charts look exactly the same. If fundamentals mattered, they wouldn't look the same. They look exactly the same.

So, everything I said with E*Trade, ditto with Ameritrade except for one thing. I would probably put my stop in about the high teens. This is another one I would go out and buy.

BUTTNER:

Yes, but how do you distinguish among them if they're all the same?

SMITH:

You don't.

BUTTNER:

Buy them all?

SMITH:

You could buy all three.

BUTTNER:

All right, Adam, another discount online broker Ameritrade, is the story the same here as for E*Trade or are you a bit cautious here?

LASHINSKY:

It's similar. I am cautious similar, but different. But you can. Actually the chart does tell a story, Gary. The story that it tells about fundamentals is that Wall Street was losing confidence as time went on. Now there's more enthusiasm. That's good for Internet stocks. It'll hurt it again.

The Stuart factor definitely is a help for Ameritrade. These darling commercials about the 20-something office boy who is teaching everyone how to trade online, helps volume and helps the stock.

But Ameritrade, because it's cheap, really thrives on hyper traders. Those people already are in the market.

My sources tell me the future for online brokerage is in the more mature investors, not just traders.

Also, this is kind of the Jan Brady of online brokerages. It's the middle child.

(LAUGHTER)

Its low prices impede...

SMITH:

You're dating yourself, Adam.

(LAUGHTER)

LASHINSKY:

And you -- impede fat profit margins, and its limited services impede the kind of growth that we will be talking about in our next stock.

BUTTNER:

All right, third chart,

Schwab

(SCH:NYSE) -- probably the Marcia, then, of this group.

(LAUGHTER)

Did you chose these stocks so you would only have to draw one chart? It's a very familiar picture here.

SMITH:

Well, yes, I mean, here's the thing. Adam says the fundamentals matter. I say they don't matter. And you know why? Because here's another chart you could overlay it with Ameritrade and E-Group and come up with the same exact story. The only thing that's changed on this one is your stop. If you're going to buy Monday morning, and that I would put in at about the mid-30s. But it's identical to the other two.

BUTTNER:

Adam, largest Internet broker, but under attack from both ends. What do you say?

LASHINSKY:

Well actually quick data point, Schwab is going to release important figures for their trading in November before the market opens. If it's good, meaning over 200,000, this will be good for everybody. Near term, that will vindicate Gary.

Now this already has the branches and services. It benefits from having more mature clients, which means it gets fees from its assets in addition to its trades.

Warning, this one is really expensive, too, at 16 times book value, compared with say four to five for

Goldman

(GS:NYSE) and

Morgan Stanley

(MWD:NYSE), or two for average -- that's scary.

BUTTNER:

Gary and Adam, good stuff as always.

SMITH:

Thanks, Brenda.

LASHINSKY:

Thanks, Brenda.

BUTTNER:

See you both next week.

Thanks again.

But when we return, we hold ourselves accountable. A look back at some past predictions made on this show. We're going to find out how they panned out.

Also, new predictions. So, don't go away.

BUTTNER:

Welcome back. Well, predictions are coming up, but first let's get a check of the

TSC

scoreboard and look back on some that were made on past shows.

Back with us from

TheStreet.com

Jim Cramer, Dave Kansas and Herb Greenberg. Welcome back, guys.

Well, Jim, here's a winner for you. Back on Nov. 20 on our show then you said that

Hewlett-Packard

(HWP:NYSE) was heading to an all-time high. Since then it's seen a big climb, closing at Friday at about 109, only about 9 points shy of that high. Is it still on its way up?

CRAMER:

You bet it is. Now Friday we saw

Xerox

(XRX:NYSE) blow up. So, it's probably going to hurt Hewlett-Packard on Monday morning. One is a much better company than the other.

Stay long Hewlett-Packard.

BUTTNER:

All right, your turn. On our Nov. 13 show you said that stock in

Ancor Communications

(ANCR:Nasdaq) would sink. In fact you said it would be spelled A-N-C-H-O-R.

GREENBERG:

Ooooh...

BUTTNER:

But since then -- well, let's just say it's gone above sea level. What happened and are you still down on Ancor?

GREENBERG:

My sources think this company is going to miss its earnings estimates going forward. There is no really big news, new news here, other than they got a deal with

Intel

(INTC:Nasdaq) that they may get a product from in two years.

CRAMER:

This was your chance...

BUTTNER:

It doesn't...

CRAMER:

This was your chance to say that this was Ancor Savings Bank of Wisconsin...

(LAUGHTER)

... which is of course -- the only course I would take given how rocking (ph) when Intel invests in this company, and

Sun Micro

(SUNW:Nasdaq), come on.

GREENBERG:

Come on. There is no real news here right now, Jim. This is news...

BUTTNER:

It doesn't take news to drive this market...

GREENBERG:

... this is speculation, Jim.

BUTTNER:

OK. All right. Dave, time to take your medicine. When

Toy Story 2

opened, you said it would be a smash hit and help

Pixar

(PIXR:Nasdaq) stock. Well, it's been a huge box-office hit, but Pixar stock has been a box-office flop. How does the stock get hit when its movie makes over $200 million in a couple of weeks?

This seems like an easy call.

KANSAS:

Well, I think a lot of that was in the stock already, but the reason that Pixar should be going up is because this stock -- this company is going to make more good films. And I think that people are making a mistake if they're selling the stock.

BUTTNER:

I have single-handedly been supporting that. I think that I've seen it four times already.

OK, wipe the slate clean and get new predictions. Jim.

CRAMER:

OK, Business-to-Business, which is this very fast-growing dot-com area, that's where you've got to be between here and your end. That's where all the money is going to be made. Get long Business-to-Business.

BUTTNER:

All right, you can track the new -- Herb what's your prediction?

GREENBERG:

The

Garbage Stock Index

, which is a new index which I started up, these are yesterday's no-hit wonders. Went in the Dumpster. They came back. This index was down 5% on Friday. When this market goes up, but man, when it falls, they're going to fall harder than ever.

BUTTNER:

And including such stocks as? Name one or two.

GREENBERG:

Some stock --

Corel

(CORL:Nasdaq) and the old

Presstek

(PRST:Nasdaq).

BUTTNER:

Presstek -- OK. All right, Dave.

KANSAS:

Yahoo!

(YHOO:Nasdaq), Yahtzee -- everyday for Yahoo! -- 355 going to 400 before the end of the year.

CRAMER:

Yeeesss.

KANSAS:

Yahtzee every day.

BUTTNER:

OK, we will see you next week. Same time and you can check out the site every day, all day next week. Thanks again.

END

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