Chris Edmonds and Eric Gillin Martini Chat on Yahoo!

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Chris Edmonds and Eric Gillin chatted on Yahoo! Thursday, October 18 at 5 p.m. EDT. To hear 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.

Eric Gillin:

I'm your host, Eric Gillin, live from the

TheStreet.com

newsroom on Wall Street. Joining me from

TheStreet.com

Atlanta bureau is my co-host, TSC Contributing Editor, Chris Edmonds.

Eric Gillin:

Hey, Chris, another week. . .and, good news for you, the Braves are still standing. . .

Chris Edmonds:

Hey, Eric, nice to leave Phoenix tied at one. Have to admit, Randy Johnson pitched maybe the game of his life in game one. But, big bats last night from the Braves and a solid pitching outing. Game 3 in Atlanta tomorrow night, I'll be there.

Interesting week in the markets, we'll talk more about that shortly. Clearly, though, there is a real tug-of-war between bulls and bears and it's hard for investors to focus between earnings and all the geo-political news out there..

Eric Gillin:

Indeed. We have a packed show. First, we'll tackle current geo-political affairs and what they mean for the economy and markets with a very special guest, Dr. Marvin Zonis of the University of Chicago Graduate School of Business.

Eric Gillin:

Later in the show, we'll smell, swirl and spit as we raise a glass to the fruit on the vine grapes and wine with Rich Cartiere of the Wine Market Report. Rich will not only give us his take on the impact of September 11 on wine consumption but, more important and a heck of a lot more fun, give us his insider tips on tasting, touring and consuming.

We'll wrap up with our markets Roundtable, including your questions, this week with three market pundits. Joining us for his Martini Chat debut will be Scott Preston of Research Capital, the Canadian investment firm. Joining Scott will be two veterans, Ted Bridges of Bridges Investment Capital in Omaha and our own Tony Dwyer, Chief Market Strategist at Kirlin Securities.

And, as always, Yi Ping Ho and the latest Wall Street headlines

But first, its time for the toast.

Eric Gillin:

Here's to deception. Here's to creative accounting. Here's to telling half the truth and insisting that it's the whole story.

I'm toasting companies who use smoke and mirrors to hide the fact that their businesses aren't growing. I'm toasting the hype machinery that relentlessly pounds rosy outlooks into investor psyches. I'm toasting the work needed to turn bitter realities into sweet nothings.

Need an example?

Check out the October 8 earnings release from First Data, America's largest credit card processor. In it, the company claims its earnings per share increased 19% from the previous year. That claim is the headline. It's reiterated first paragraph. The CEO comments on it in the second paragraph. And, hey, there it is again in the third paragraph. And it's all over the tables of earnings data at the end of the release.

I was impressed. But I shouldn't have been. Not in the slightest.

First Data is not lying about earnings per share this quarter gaining 19% over the same period last year. But they're not telling the truth, either. Ask yourself this question -- what kind of earnings per share is the company actually talking about?

First Data's EPS number is pro forma. As many of you know, pro forma is a Latin phrase that means "a number created by people who care more about saying a company is profitable than the truth."

Amazing language, that Latin.

In other words, pro forma earnings excludes charges and extraordinary items. But what companies define as a charge or an extraordinary item is usually up to them. So the definition of pro forma earnings often varies from company to company.

Under the financial tables that report the First Data's results, there are "earnings per common share before nonrecurring items and discontinued businesses" -- earnings of 69 cents a share -- which is the magical 19% gainer. Below that, the company shows you "earnings per common share before nonrecurring items" -- 68 cents -- which drops that year-over-year gain to 17%. And below that, is an unlabeled figure -- 38 cents -- which shows a year-over-year drop of 49% in earnings per share.

What EPS should you believe? What number reflects the company's true condition? And what do all those numbers and definitions mean?

Any ordinary person wouldn't really be able to understand that the 38-cent number is the one you should look at. The company did not even label it! Instead, everything points you to the "earnings per common share before nonrecurring items and discontinued businesses." You know what you want?

Diluted earnings per common share -- no charges, no anything. And if you can scan through the rest of the release, past all the footnotes and additions and subtractions and hype about 19% gains and somehow get all the way to the last table, you will see it. First Data's diluted earnings per share came in at 38 cents, down 49% from the 75 cents logged in the same quarter a year ago -- the very number without a label.

The world of accounting is not black and white. You'd think that numbers wouldn't lie. But that's not the case. Accounting is no longer a science of counting, but rather an art of massaging. And that's exactly what First Data did.

The funny thing is -- this doesn't even come close to the alleged "accounting irregularities" we've seen with AremiSoft, Xerox, Rite-Aid, Clarent, ConAgra Foods, Safety-Kleen, Dollar General, Duke Power, Lernout & Hauspie, Cendant, Lucent, NESCO, Computer Associates, IBP, Critical Path, KeySpan...

In First Data's case, it's just a company touting a number that would mislead people who aren't savvy with earnings releases.

And First Data ain't alone. Many companies work hard to accentuate only the positive and eliminate traces of anything negative from the balance sheet.

As this earnings season continues you will see a plethora of misleading information and numbers that makes no sense. You're gonna get five, six, eight different definitions of earnings per share. There's basic EPS, diluted EPS and pro forma EPS. Then those definitions will be broken down further, including all charges, no charges, some charges, but not other charges. Then those numbers will have a footnote, some confusing bit of information that will usually involve the affects of a merger or a one-time charge or something completely unusual.

Cross multiply, carry the one and finish up the math and you may or may not have the correct number. And that's if you can see past all the hype.

Therefore, I salute First Data. It took a lot of hard work to put a shine on that ugly quarter. So, cheers to optimistic accounting. Cheers to First Data's attempt to educate investors the hard way. Cheers to the flaks who wrote that tripe and the hacks who supplied the numbers.

Eric Gillin:

Smell that, Chris. THAT my friend, was sarcasm. Seriously, can't believe how terrible some of those earnings releases are. Totally unethical. Not illegal, sadly.

Chris Edmonds:

You make a solid argument. I'd say two things: In this economic landscape, you have to really dig through the quarterly reports to understand them. Look at the rhetoric, but focus on the numbers. Frankly, I'm all for removing extraordinary items if they are truly extraordinary but there's a fine line.

Second, and as important, this is where analysts can add value. The guys on the street who really do their homework and know the history are really good at flagging these shenanigans and putting them in context. Seek out the good ones and read their stuff. Here is an example where they can add value.

Eric Gillin:

Exactly, speaking of adding value, Chris, how about our first guest.

Chris Edmonds:

No question, Eric, our first guest adds significant value to any discussion regarding the geo-political landscape and, especially to any discussion regarding the politics and business of the Middle East.

Dr. Marvin Zonis is Professor at the University of Chicago Graduate School of Business, focusing on U.S. foreign policy, global politics and economic development and Middle Eastern and Russian politics and economics. He also is also the principal an international risk consulting firm that bears his name.

Dr. Zonis is widely published in matters of Middle Eastern affairs and has previously focused research on Iran and the Israel-Palestinian peace process. He as served as a consultant to the Policy Planning Council, U.S. Department of State, and the National Security Council, not to mention a consultant on the implications of geo-political events on investments and the energy markets to a number of investment firms.

Dr. Zonis, welcome to

TheStreet.com

"Martini Chat."

Dr. Marvin Zonis:

Chris, nice to be with you.

Chris Edmonds:

Let me begin with a very general question. How do you gauge the progress of our military campaign in Afghanistan to date and, at the end of the day, what do you expect to see next from U.S. and coalitions forces in the region as we advance this new war against terrorism?

Dr. Marvin Zonis:

From what I can tell, it seems that the military campaign is a success. We are first destroying the command structure of the Taliban. Second, we are destroying its anti-aircraft capabilities, giving us control of the skies. Now we are moving in to destroy the morale of the Taliban troops.

Part of the service is not to make it possible for the northern alliance to move in on Kabul and capture that city. It's to have the Taliban regime disintegrate from demoralization and have its other allies withdraw their support. It's going quite well.

Chris Edmonds:

You have opined recently that this offensive isn't likely to end in Afghanistan. You have spent a lot of time thinking and speaking about the implications of our strategy in the Middle East. What are the implications of U.S. action, say against Iraq or others, on the global economy and, specifically, on the energy markets?

Dr. Marvin Zonis:

This is a very important issue. There is speculation growing in the press that Iraq may have been the source of the anthrax, which is now being visited upon the U.S.

Former Secretary of State George Schultz has called Iraq "The K-Mart of weapons for terrorists." There is a real drum beat building up for an attack on Iraq. It's very difficult to think what the U.S. government could do in Iraq that would be useful that would not kill tens of thousands of Iraqi people. Since most of Saddam's important political installations are in Bahgdad or highly populated places.

If there is military action in Iraq, that would lead to a spike in oil prices and a possible interruption in supply. Very different from the Afghan campaign outright.

Dr. Marvin Zonis:

President Putin signing in on the international coalition was in the service of Russia's eventual replacement of Saudi Arabia as the chief pillar of global oil supply. And they'd be America's essential oil supplier as we distance ourselves away from the Saudi rulers.

If there is a disruption with Russia because of the campaign with Iraq, that new relationship would be in jeopardy. If there is credible evidence that anthrax comes from Iraq we'd have to convince the Russians to come along. In my opinion, the Antrhax is coming from the U.S. I wouldn't be surprised if there was a small amount of it stolen from our own programs. This remains to be seen.

Chris Edmonds:

One very interesting development in the current war is the overtures that Vladimir Putin has made to the U.S. You think current Russian diplomacy is economically motivated. What are and how high are the stakes for Putin?

Dr. Marvin Zonis:

It is tough. I believe that President Putin has gone way beyond what his military and political elites really thought was appropriate for Russia. He's way out in front of the people he's trying to bring along. If we were to now go and bomb Iraq, he'd have a real hard time trying to bring them along. We'd have to demonstrate to them that he's right. The future of Russia's economy and its democracy depends on them throwing their lot with the West, not on them forming a coalition of States to stand up to the U.S.

Eric Gillin:

Professor, Eric Gillin here. I'm curious about the stability of many of our partners in the region, especially Pakistan. How stable are the third-world nations in our coalition and what are the risks of aligning with say Uzbekistan? And what are the chances of a power struggle in Pakistan and the possibility that India might seize the opportunity to make a move? It could be a global jump-ball at any minute.

Dr. Marvin Zonis:

Those are important points. Most of the countries surrounding Afghanistan are not politically stable places. The ruler of Uzbekistan, Islam Kharimov is one of the all-time bad guys of the world. He's had a ruthless dictator. He's killed lots of Muslims in Uzbekistan fearing that they would become fundamentalists and challenge him. He's had a ruthless regime and it's not stable there.

Dr. Marvin Zonis:

Pakistan is not a stable coherent country. General Musharraf is ruling by military dictatorship, but there are lots of elements in the military that are sympathetic to Islamic fundamentalist. There is a vast number of Afghan refugees who are disrupting Pakistan in the service of Anti American work. Karachi, the largest city in the country is the murder capital of the world it's full of instability. The danger is that Pakistan has nuclear weapons. It's very threatening. If the terrorist had weapons of mass destruction, they would have used them.

Eric Gillin:

How important is stability between Israel and Palestine to ending the war against terrorism? Is such stability even possible at this point?

Dr. Marvin Zonis:

The Israeli/Palestinian relationship is a central piece in the war on terrorism. People are right when people say Osama bin Laden does not really care about Palestine and Israel. His issue is about the issue of Islamic fundamentalism.

The point is there are 600 million Muslims from Morocco through Pakistan who care desperately about the Israel and the Palestinians. It's their hatred of the U.S. for our unmitigated support of Israel, which provides the fertile ground, the cultural background for the hatred and for the emergence of terrorism sympathetic to Osama bin Laden. We have to move on the matter of Israel and Palestine. With this cast of characters, Ariel Sharon and Yasser Arafat, it's going to be very difficult to make any progress.

When we get the current action in Afghanistan behind us, it will be time to go both to end the violence and make accommodations. Both these parties have to be moved to peace process, which will lead to an independent Palestinian State. There is no alternative to that outcome.

Chris Edmonds:

I'd also like your take on China. There are reports of troop build-ups along the Afghan border, speculation they have provided aid to the Taliban and even some concern about possible action against Taiwan. What is China's strategy and is that country a real wildcard here?

Dr. Marvin Zonis:

It's an important day to talk about this. President Bush is in Beijing China meeting with President Jiang Zemin and with President Putin for the Asia Pacific economic meeting. China has always been opposed to the Taliban. They've been seen as a wild card stirring up Islamic fundamentalist in the northwest of China. The northwest province of Xinjiang is where the Chinese Muslims live. They've been stirred up by the Taliban.

President Jiang Zemin and the Chinese political leaders have decided that standing up to the West is fruitless. They made huge concessions to the World Trade organization. They need trade and foreign investment. We have an historic opportunity to bring China and Russia into a coalition with the U.S. and build a new globalization.

Chris Edmonds:

Returning to the energy markets for a moment, what is OPEC to do here? It appears Saudi Arabia is very reluctant to cut production at the moment, although prices are well below OPEC's price band. Will OPEC make a move in November? And will the cartel become fragmented if we expand our campaign to an OPEC nation like Iraq or Libya?

Dr. Marvin Zonis:

Let me take the 2nd question first. There are 5 countries on the U.S. terrorist list Afghanistan, Iraq, Iran Sudan and Libya. The National commission on terrorism recommended to President Bush to remove Libya and Sudan. They've enacted very significant efforts to clamp down on organizations in their countries that promote terrorism.

They've acted properly. If we strike at Iraq, that would lead to disruptions. We'd mobilize Islamic public opinion. Saudi Arabia would have to distance themselves from America. They'd have to start withholding oil. They've done it before and they'll do it again.

Dr. Marvin Zonis:

Absent an attack on Iraq, the bad guy is President Hugo Chavez of Venezuela. If you go back to the 1973 it was Venezuela that was one of the instigators of the oil embargo. They didn't care about the middle east, but they used it as an occasion to hold oil back to drive up the prices.

Chavez is getting desperate because he promised the Venezuelan people prosperity. Venezuela is not a rich country, even with prices rising. He's in the gulf middle east now trying to slow down production. He's not likely to succeed. The pressure from the U.S. is immense. Global demand is falling. These countries will not take that risk. Other states will produce more as a way to gain market share.

Eric Gillin:

What about Libya? Muammar Gaddafi and has condemned Osama bin Laden and bio-terrorism as evil and cowardly. How much can we count on him? Would he help find a "Benedict Arnold" that would actually turn on bin Laden and indicate where he is?

Dr. Marvin Zonis:

I hadn't heard that. He's had quite a turnaround. He tried to bring about a greater association of the Islamic States of the Arab world. He failed. He was so fed up that he cut his ties with Arab countries. He's instead focused Libya's efforts to bring about economic development to sub Saharan Africa. He's been condemning terrorism.

The only reason President Bush didn't take him off the list is because he wanted him to put up money to pay the families of the victims of Lockerbie. Libya was found to be involved in that in the trial in Amsterdam.

Chris Edmonds:

I want to get to one question from our readers.

Reader Question:

Bin Laden needs provisions. How difficult is it to follow the trail of food and necessities to the cave where he is hiding?

Dr. Marvin Zonis:

Great question. The image of bin Laden sitting alone in a cave is a false one. They've put their finger on how we'll locate and kill Osama bin Laden. He's surrounded by a couple of 100 troops. Those people need supplies. They communicate. They are not as security conscious as bin Laden himself. Afghan is covered with pilotless drones will enable us to follow the movement of goods and supplies. It won't be quick, they are quiet and know how to lay low, but you can't keep that quiet indefinitely.

Chris Edmonds:

Marvin, thank you for being here. Our guest has been Marvin Zonis, Professor at the University of Chicago Graduate School of Business and, very clearly, an expert on Middle Eastern policy and the global economy. Eric?

Eric Gillin:

Chris, thanks. Now, with a look at all of today's news from Wall Street, our News Editor Yi-Ping Ho. Good afternoon Yi-Ping.

Yi Ping Ho

Blue chips weakened from the potent mix of anthrax scares and poor earnings reports, but the Nasdaqheld its ground thanks to a strong showing by software stocks.

Yi Ping Ho

The Dow Jones Industrial Average lost 69.40 points, or 0.8%, to 9163.57. The Nasdaq was up 6.56 points, or0.4%, to 1652.90, and the S&P 500, falling for the fourth day out of five, was off 8.45 points, or 0.8%, to 1068.64.

Yi Ping Ho

Sellers emerged in oil, oil service, natural gas, utility and gold segments while buyers stuck only to the biotechand transportation arena. Among tech, only software outfits rose while all other sectors -- including the chip and hardwaregroups fell.

Yi Ping Ho

New reports of anthrax exposure hurt stocks for a second day. An employee in CBS News anchorman DanRather's office and two postal workers in Trenton, New Jersey, tested positive for anthrax infection. And earnings forecastscompeted for attention, and added to the overall nervousness.

Yi Ping Ho

Automaker General Motors posted third-quarter earnings that beat consensus estimates by 3 cents a share. Butthe company guided lower for the fourth quarter, and shares of GM finished off 1.75% on the New York Stock Exchange.

Yi Ping Ho

Meanwhile, Boeing reported a third-quarter profit that inched past expectations but said revenue would beimpacted going forward by the dramatic slowdown in commercial jet orders.

Yi Ping Ho

Texas Instruments reported a third-quarter loss of 3 cents a share, beating analysts' estimates by a penny onhigher-than-expected revenue. But the company lowered its fourth-quarter revenue forecast and offered little guidance aboutwhen it would turn a profit.

Yi Ping Ho

And after the bell, Microsoft posted fiscal first-quarter results that appeared to be well-below analysts'expectations, as its results were weighed down by $1.2 billion in investment losses.

Yi Ping Ho

However the company's latest report also reflected the strength of the company's core business. Looking ahead,Microsoft sees business improving during the second quarter. It also said it expected revenues to climb to between $7.1 billionand $7.3 billion for its second fiscal quarter, up from $6.5 billion last year as the company rolls out its new Windows XPoperating system and Xbox video game console.

Yi Ping Ho

And U.S. Treasuries rose slightly today as reports showing rising jobless claims and persistent weakness in themanufacturing sector, bolstered expectations for more rate cuts by the Federal Reserve.

Eric Gillin:

Yi-Ping, thanks. Well, Chris let's turn from war to wine, the kind you drink that is. I know you are a collector, but I don't know a damn thing about the stuff so help me out. Does the screw-top open to the left or to the right. And, more importantly, if I happen to get a bottle with a cork and don't have a cork-screw does it damage the flavor if I push the cork into the bottle with a knife?

Chris Edmonds:

Very cute. I recommend you avoid the corks altogether. Maybe that new Strawberry Chardonnay offering from your friends at Inglenook.

Anyway, enough talk about the markets and earnings, at least for the moment. With us to talk about grapes and products that flow from the fruit is Rich Cartiere. Rich is a longtime wine industry trade journalist.

He currently publishes Rich Cartiere's Wine Market Report and the Global Wine News e-Monitor. He is a veteran of several key wine publications, including a stint as West Coast editor of Wine Enthusiast magazine. His career in journalism spans 25 years, including stints at the San Francisco office of The Associated Press and as an assistant business editor at the New York Times Regional Newspaper Group's wine country newspaper in Santa Rosa, Calif.

He has also been a key player in WineVision: American Wine in the 21st Century and a sought after speaker at wine industry gatherings around the country.

Rich, welcome to

TheStreet.com's

"Martini Chat."

Rich Cartiere:

Thanks, Chris, nice to be with you.

Chris Edmonds:

I want to spend most of our time talking about the lighter, enjoyable side of wine, but first, I do want to get your take on the impact of recent events on the wine industry. How has the wine industry changed since the September 11th terror?

Rich Cartiere:

The terror has had an impact. The wine industry, people in the business suggest, has become schizophrenic. On-premise sales purchases in restaurants and bars have declined precipitously in the past month. Yet, drinking at home is increasing. You are seeing more drinking among friends in social environments outside of the bar scene.

Sales in grocery stores and liquor stores are actually increasing, which reverses a recent trend where off-premise sales have been stagnant or even declining.

Chris Edmonds:

I know we have investors who are looking for an angle. How can you play wine in the public markets and what should investors do now?

Rich Cartiere:

Robert Mondavi (MOND:Nasdaq) is the clear way to play wine in the public markets. Mondavi's stock price has felt the pressure of the recent attacks, the stock down over 25% since September 11. The impact of restaurant sales is part of the problem. Mondavi sells about a quarter of its wine in restaurants and the on-premise business provides nearly 30% of their profits.

The impact of lower restaurant sales is being seen in the stock. Short-term, that is an issue and analysts have downgraded the stock as a result. Yet, even as investors are skittish short-term, it is a solid long-term stock for investors who want to invest in the wine business.

If you are looking at the public markets, Mondavi is really the only significant play. Yet, through limited partnership units and shares in Limited Liability Corporations, a record number of vineyards are selling stakes. It could be because owners feel like they need to sell while prices are close to a top.

From that perspective, Mondavi can provide a good "tell" regarding the state of the industry.

Eric Gillin:

Rich, Eric Gillin here. Could recent events actually be a positive for domestic producers if we see more restrictions place on imports?

Rich Cartiere:

Answer: I really don't think there will be much impact on wine importation. The trade is already tightly controlled and I don't see how additional restrictions would have a major impact on foreign wine flowing into the United States.

Rich Cartiere:

That said, there has been a "Buy American" trend that has surfaced since the attacks and that has had a positive impact on the domestic wine trade. The patriotic American sentiment is a positive and, frankly, there has never been a better time in my life to buy an American wine.

Eric Gillin:

What about security around wineries? Is there any concern over tampering given the wide-ranging threats from terrorists?

Rich Cartiere:

That has always been a concern. Food tampering is nothing new and has always been a concern in the wine industry.

Sure, now it is very much in the mind of any producer. Remember, however, due to the nature of the product and federal and state restrictions on access and transport, wineries keep their wine production areas secure. Interestingly, a lot of that is the result of revenue and tax rules.

Very few wineries given open tank access to consumers. And, once it's bottled, wines are pretty much protected from tampering. And, as a result of tax laws, warehousing is tightly controlled.

Chris Edmonds:

Every year brings a new harvest and this year's crop maybe with the exception of late harvest grapes is off the vines. What's the early take on California grapes?

Rich Cartiere:

It looks like both a great crop and a very large crop. It will be very high quality as it's been a very slow and steady all summer. Good development and slow ripening. That helps sugars and anti-oxidants develop, which adds fullness and flavor. It was a great summer.

Harvest season has been almost perfect no rain and very cool. If anything, it was almost too slow in the final weeks to put on the final ripeness. But, that doesn't look to be a problem.

The quality is going to be outstanding, even for the wines from the "cheap" wine capital Fresno and Modesto. The price of grapes has fallen there because there is so much supply, but the quality there will be better than ever.

Eric Gillin:

That's very interesting Chris, for sophisticated collectors like you. But what about people like me who know very little about wine? I'm sure I don't even drink it right I know nothing about swirling, smelling or spitting. And, frankly, I'm not even very interested in becoming a high-end connoisseur or evening really learning how to taste properly. But I do want to appreciate it. So how about a one-minute primer on how to get started: what to look for, what varieties to begin with, and the like.

Rich Cartiere:

That's a great question. You couldn't find a better time to start learning about wine because you really can't go wrong buying a bottle of wine between $7-12. Between technology and great harvest, even the inexpensive wines are looking really good. Remember, wine tasting and learning is all about experimentation. Make it fun.

The two hottest wines right now are Syrah and Pinot Grigio. Pinot Grigio is blowing off the shelves and you can't buy a bad bottle of domestically bottled Pinto Grigio.

And, of course, Syrah is the great wine from Australia that has now found its way to California. Production has nearly doubled in the last year and it is really a good wine. And, if you like golf, Greg Norman's vineyard has a 1998 Syrah for about $15. That is a fantastic wine.

One of my favorite wines in the $8-10 range is Centine from Castello Banfi. It is a Sangiovese, really a Chianti without the designation. It is delicious.

Chris Edmonds:

Sophisticated is a bit strong, Eric. I don't think I have a dozen bottles out of about 600 that we paid more than $50 for. In fact, I bet we were the only house in the world that was able to have a Super Bowl part two years ago that featured wines from the two states battling on the gridiron Missouri and Tennessee.

Eric Gillin:

Hey, a few key facts about my wine experience. My first 18 years were spent with the fine folks at Robitussi-- I mean Manichiewitz. College was mostly screw top wines, and personally, I'd say that Thunderbird 1997 was a far superior vintage to Night Train 1996. But now, I'm a grown up. I drink only wines from a box and I always drink it from a glass. Face it pal. You're sophisticated.

Chris Edmonds:

Like Rich said, you're living proof there is no such thing as a bad wine... At least to some... Which, Rich, leads me to a question about domestic appellations outside of California. What are your favorites?

Rich Cartiere:

In terms of appellations, you can't find much better than the Yakima Valley in Washington State. And, for Pinots Oregon is the place to buy Pinot Noir.

That said, there are a number of states that are producing great wine. In fact, 49 of the 50 states now have at least one vineyard.

Some of my favorites include Virginia where a number of nice vineyards have established themselves. New York both on Long Island and in the Finger Lakes region are producing good wines. In New Mexico, Gruet is a great sparkling wine. And, in North Carolina, the state is paying tobacco farmers to pull-up tobacco and plant grapes.

Finally, if you can get your hands on a Texas Sauvignon Blanc, do. It is a big wine with a real Texas taste. And that is what wine is really all about: being able to taste the region and appreciating the adventure. Texas wine has Texas all over it.

Chris Edmonds:

Let's focus on California for a moment. If you are a first time traveler to the California wine country - lets say Napa and Sonoma for starters - how can you best plan for and enjoy a trip?

Rich Cartiere:

If I were staying in the Bay Area, I would find one winery to visit in Napa. And I'd spend a half-day or so at the vineyard. It really doesn't matter if it is large or small. Find out how to take an extended tour, get into the cellar room so you can taste the older wines and have a chance to try flights of various varietals. Regardless of where you go, get to know the grapes, the winemaking process and how they are finished.

Then, go to lunch somewhere in the Napa area. It will be like having lunch in Tuscany. Then go back to your hotel relax and plan a nice dinner.

The next day and I would pick another region maybe the Carmel or Monterrey area. Take a drive down the main road through Carmel Valley experience the restaurants, cafes and pick another vineyard for the same type of experience.

That won't rush you. You won't be confused with so many wines and you'll have a good time. And, you'll want to return. For a big vineyard in Napa, I would take a look at Berringer. Very busy, but a great tour.

Chris Edmonds:

So, give us some of your favorite big vineyards and smaller names to consider when in Northern California.

Rich Cartiere:

Personal favorites are just that, personal favorites. Wine is very personal so tastes are very subjective.

Berringer is probably my favorite big brand. Only vineyard to have both a red and a white names top wine. On the small end, Golden Creek in Sonoma is super. It is a winery basically in a garage, but they win awards like crazy. Out of Napa, I also like Raymond, especially their higher quality wins.

Small end: Golden Creek Sonoma - out of a guys garage but wine awards like crazy. Really good wine out of Napa Raymond - higher quality.

Chris Edmonds:

We've got a few reader questions.What percent of annual wine sales occur during the holidays Nov/Dec?

Rich Cartiere:

It ranges from 30 to 40 percent.The most over the holiday session is over 50 percent

Chris Edmonds:

Rich, thanks for being with us. We'll definitely have you back soon.

Our guest, Rich Cariere, Publisher of the Wine Market report, joining today from his office in lovely Sonoma County, California.

Ah, Eric, to be sitting in a vineyard, sipping a nice Syrah and enjoying a nice baguette and Edam. I'm outta here.

Eric Gillin:

Not so fast, pal. You can take a swig from that box on your desk and stay put. After all, our very special Market Roundtable today contains some of your favorite guys.

In fact, it's time right now for that Roundtable. With us to dissect the markets are three market pros. Making his debut appearance on the Martini Chat is Scott Preston, a trader with Research Capital, a Toronto-based investment firm. He joins us today from San Francisco.

With Scott are two familiar voices: Ted Bridges, portfolio manager at Bridges Investment Counsel in Omaha and our own Tony Dwyer, Chief Market Strategist at Kirlin Holdings. Tony joins us from, well, the Brooklyn Bridge perhaps.

Welcome all.

Eric Gillin:

Scott, let me begin with you. A solid beginning to the week and now it looks like we are fighting to hold our ground. What's your outlook here?

Scott Preston:

We've come a long way fast. So, I wouldn't be surprised to see some retrenchment, maybe half-way or so. Then I think we tread water until we see what the December quarter is going to look like.

Eric Gillin:

Ted, given my comments at the top of the show about earnings, I'm not sure what you can make of some of these numbers that seem to be doctored up with all sorts of charges and gains. But, so far, what's your impression of third-quarter earnings?

Ted Bridges:

It's interesting. I've been amazed at the variability. Some companies have used the quarter as a free pass to throw a whole bunch of stuff in so they can set the stage for better earnings going forward.

That said, Capital One (COF:NYSE) comes in with a big number in a tough environment at the same time its brethren like Providian (PVN:NYSE) say they stunk up the quarter. That variance is incredible. We own Capital One and are impressed but have to wonder how real that number is given what everyone else is saying. Yet, we trust these guys and maybe that's the bottom-line.

However, there are a lot of very average numbers coming forward here and we can expect that to continue. You have to be skeptical at really great numbers given the environment everyone is operating in.

Chris Edmonds:

Hey, Tony. You and I talked earlier today and you think the charts are looking a lot like April. Are you looking for a pullback in the near-term?

Tony Dwyer:

Over the course of this treacherous year, there have been many extremes in the equity markets. The current trading pattern now seems similar to the activity in the market after the early April lows and the ensuing rally. If this pattern continues to hold true, we should get a 5-10% pullback in the NASDAQ Composite Index (COMPQ) from Tuesday's high, followed by another rally.

It is very likely that the markets first correction since the lows of September 21st will be accompanied by talk of how the market must retest the lows before it can make a meaningful advance. That may not be the case now, any more than it was the case after the first rally off the lows in April.

Over the course of this year, I have tracked the percentage of stocks in the NASDAQ 100 (NDX) that are in overbought or oversold territory on a daily basis. The indicator is not generally useful until certain extreme measures are reached.

On April 19th, 80% of the stocks in the NDX were in extreme overbought condition using a 14-period stochastic (commonly used overbought/oversold indicator). That reading coincided with the beginning of a 7.6% correction that brought out commentary about a pending decline to the early April lows.

The correction only lasted three days and presented a solid trading opportunity for the coming weeks. The reading as of Tuesday's close was that 83% of the NDX components were in extreme overbought condition - a very similar reading to April. That suggests yesterday may have kicked off a correction that should be brief in time and limited in losses. I would guess that it should be nothing more that 5-10% from Tuesday's levels.

What should one do then given the nearly 5% loss yesterday? The answer seems to be that if we did indeed make a classic low on September 21st, then one should become more aggressive in buying this first pullback as it enters the 5-10% correction area. As the chart of the COMP shows, after an important low is hit, like the one in early April, the market does not necessarily have to become oversold before it can work its way higher. The point is that all the market needs is to work off its overbought condition.

Even with the backdrop of bombs and anthrax, the truth is that the market is acting like it should after a climactic decline. You get an initial short-covering/value driven buying spree that gets the markets into extreme overbought condition, which would be followed by a brief bout of profit taking before moving higher.

The surprise may be that we don't retest the lows and continued buying drives stocks higher. It is also important to remember that the bear market has already been 18 months and has taken the average NASDAQ stock down 80% from its peak. That type of decline certainly discounts the poor earnings picture we are currently viewing. There is over $2 trillion on the sidelines that is waiting to come in because fund managers don't like to chase stocks after a 20%, three-week rally.

The odds are that they would rather wait for a pullback. They are getting that opportunity and should limit the depth of any pullback as they put money to work.

Chris Edmonds:

Ted, I bet you generally agree with Tony. What are you doing in here?

Ted Bridges:

We are pretty long-term and so we have been buying. In the very short-run, people have to be cognizant of the big upside move in a short-time. You have to respect the NASDAQ is up about 20% in the last 3 weeks. We've said we want to use the general weakness in the last several months but over the next week or two the going should be a little tougher.

So, short-term, probably a little weaker but, like Tony, longer-term, we want to put capital to work.

We've been buying Flextronics (FLEX:Nasdaq) because we like the outsourcing in the technology, CSG Systems (CSGS:Nasdaq), the largest cable billing company, again focused on the outsourcing theme. We also continue to like Westel Services (WSTL:NYSE), a stock really trading off its highs, but that continues to perform well in this environment.

We are warming to AES (AES:NYSE), the independent power generator that had a huge pre-announced miss. Nothing there short-term, but the long-term value is interesting.

Also, State Street Boston (SST:NYSE) had a pretty good quarter, the stock has come way down and we like the company's franchise, especially its depository business. Steady earnings stream gives it some protection here versus other financials.

Chris Edmonds:

Scott, you have been focused on some paired-trades. What's your best idea today?

Scott Preston:

Interesting trade where we are long RF Micro Devices (RFMD:Nasdaq) and short Motorola (MOT:NYSE).

Chris Edmonds:

Great insight. Thanks to Scott Preston of Research Capital, Ted Bridges of Bridges Investment Counsel and Tony Dwyer of Kirlin Securities. Eric, what's ahead next week.

Eric Gillin:

Chris, "Videogames and Horror Stories" -- The market has been through some tough times before. The 1970s were no cakewalk and 1987 was downright terrifying. A special collection of guests will tell us about their worst investments ever and how they cope with the pressures of investing in a tough environment.

And to lighten the load a bit, we'll look at Microsoft, Sony and Nintendo, three titans who will have their latest videogame systems on the market in the next few weeks. Which system is the best for you? In addition to answering those, we'll still be taking your questions.

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

Chris Edmonds:

Look forward to it. By then the Braves should be in the World Series.

Eric Gillin:

Yeah, right. We'll see about that next week.

Until next week, cheers.