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[TTHQ Staff]

Gene Inger's Daily Briefing. . . . for Monday, January 8, 2007: Happy New Year! Commodity plunges and war storms . . . can be economy killers as we've noted in recent remarks. And because both are no longer merely lurking in the bushes, but have been slithering a bit more forward, having commenced initially with the housing slide from which the economy can't easily totally sidestep (as it was or is such a huge engine in relation to domestic activity, as well as a much-castigated consumer source of consumption), we see increasing evidence that this market remains in trouble. Our call was for the market to try to surge ahead after New Year's, but run into a 'brickwall of resistance', from which it would crumble, interspersed by failing flailing brief rallies. We'll discuss much of this, in audio tonight as well as 'weekly-basis' chart reviews via the 'technical corner', as will include fundamental and geopolitical discussions too. I will also elaborate on the significance of the White Housing appointing an Admiral vs. a General, to take the helm of the CenCom and Iraqi/Persian Gulf operating theater. In the short-run, we're honored to have not only doubled the last pick of Broadwing, even before the Level 3 (LVLT) acquisition; and importantly determining to retain all our holdings in LVLT for several reasons: a) because our entire cost was retrieved via the cash and stock offer, giving us; B) essentially a 'zero-cost' basis for Level 3, which makes the Street's newfound fascination with the stock a welcome hilarity; as, c) the capability of the now-acquired Broadwing National optically-switched backbone has been discussed by us for ages, especially after the 'blackout' a couple years ago, and more recently the adoption by CNN, ABC Sports or others (today NBC joins the networks figuring out that HDTV and digital low-latency carriage due to optical switch capabilities is unique in the industry and thus a natural for two-way communications), such as Microsoft (via a vendor providing instant online gaming through a takeover I discussed earlier this past week); and that means that, d) the decision to retain LVLT at the cost of essentially nothing (investment retrieved by the cash spin-off) is low risk and probably a smart hold. In audio I'll suggest where LVLT may be heading next as we welcome latecomers finally figuring-out what we've addressed about broadband, or the evolving bandwidth shortfalls facing most providers in years ahead, all along. MarketCast (intraday audio-email) comments observed efforts at faltering reprieves from Wednesday's outside-down-day in the S&P, after we correctly forecast that the stock market's big-caps would run into a 'brickwall of resistance' at the year's start. In the weekend Daily Briefing we'll focus on market technicals via our usual remarks, and relate this to the CES premiers (tidbits were provided all week ahead of CES in the days ahead), as well as Strategic National policy changes, as may impact Oil and other factors, including (such as the Chinese story or European issues we note) and the forecast strength in the Dollar, which basically nobody else concurred with. Daily action . . . recently addressed some of the changes in Washington, and rather than reiterate these, we'll refer new ingerletter.com members to the posted archieves for the last several issues, which outlined the politics, economics and new technology developments (revolutionary and evolutionary), as we anticipate ahead of CES. We'll provide just a snippet summary of some of these primary points to keep an eye on as the coming week features a heated engagement vis-à-vis the Presidents Iraqi policy. Strategic National policy . . shifts have President Bush deciding to shortly shift John Negroponte out of his job of National Intelligence Director after 20 months, to appoint him Deputy Secretary of State, becoming an experienced backup for Condoleezza Rice; Sec'y. of State. (More has been extrapolated the other night and via our audio). In recent weeks we shared ruminations regarding positioning of Naval Battle Groups in the 'neighborhood' near the Persian Gulf / Indian Ocean area. Today we again are hearing that the (nuclear carrier) USS John C. Stennis and Battle Group, this month join the USS Dwight Eisenhower carrier group and USS Boxer strike forces near or in the Persian Gulf 'as warnings to Syria or Iran' in the face of acts seen provocative, and to give American commanders more flexibility in the region overall. Continuation of Iran’s banned nuclear activities clearly do come under the heading of 'provocative'. Note this is the second or third (if you include the buildup near Lebanon) of US Naval, Air and Marine strength in the region and Persian Gulf strategic waterway during four months. Deployment of the Stennis group puts about 16,000 Sailors in the region, as well as another nuclear carrier, plus their 7 escort warships, 10 or so air squadrons, 2 attack submarines and (mine sweeping) helicopters to support amphibious landings on enemy soil if necessary, as well as defend the Fleet from mines or repel attacks. Military experts will debate the new deployments, but generally likely see them as the generally suspected evidence that President Bush has rejected the controversial key Baker-Hamilton Iraq Study Group's recommendations to engage Iran and Syria for an exit strategy on Iraq. Bush has instead opted for his own fundamental conviction that the Iraq war is winnable and Iran can be simultaneously confronted. Our concern will be that the sectarian violence cannot be contained unless the Shiite militias are really confronted, and something down to compel the Iraqi 'Government' to represent more than just the Shiite's, while purporting to represent all their people, which they appear unwilling to. That's a potential problem that no interjection of US Forces can resolve. On Tuesday The New York Times reported that the commander of US forces in Iraq, Gen. John Casey was on his way out, accused of placing interim withdrawal policies ahead of winning the war. This 'charge' is tantamount to flouting the Commander in Chief’s directives; but is interesting in that the President isn't listening to commander input, or is listening to who says what he wants to hear (what occurred with shakeups at the start of his Administration). Reports of Gen. Casey coming dismissal evidence Bush’s resolve to pursue a proactive policy on Iraq / Iran rather than accept defeat in the former, with the latter in limbo. We worry that focusing on trying to win the former, may retard the tactical and strategic ability to defeat the latter, if it comes to that, with so many Americans essentially immersed in Iraq and surround by Iranian supporters. (Rumors that London's Sunday Times will reveal plans for tactical nuclear strikes on Iran's enrichment and missile manufacturing facilities are not confirmed, even though few would dispute the right of Iran's neighbors, Israel, and the West, to take actions, or least drive-home to the crazy demagogue leadership in Teheran why it's normal if not a requirement, to protect the civilized world, so long as they threaten a rampage.) While we're not forecasting a diem bien phu scenario; the analogy isn't totally foreign. For those too young to remember, or not having studied it, that was a French enclave in the north of Vietnam, where Legionnaires and French Forces were entrapped by a surrounding force of communist troops. It was the seminal moment (when the U.S. at the time refused to 'nuke' Hanoi at the request of Paris to President Eisenhower) that defined the French defeat in Indochina and the commencement of American 'advisor' forces that followed initially (mostly under President Kennedy) to buttress the South. It is our real fear that the so-called Green Zone in Baghdad not be a Diem Bien Phu. We are not saying that Baghdad is such a bastion, but we are basically surrounded in a sense by a hostile society of Shiites, while the Sunni's are mostly not pro al Qaeda. As to the tech rally that we have called for to start in some issues modestly late last Summer and/or later, the pundits generally expect it to begin here. We thought rather it would give an illusion of short-term strength ahead of or into certain CES premiers, (Consumer Electronics Show in Las Vegas) and then sell-off. That's the opposite of those who want to buy tech into strength and then sell on a rally after Vista appears, which would be uncharacteristic based on the history of most new operating system introductions, which are typically accommodated by the discounting of good news via preceding price rallies; then profit-taking in the wake of a premier's actuality. Sure we expect related stocks will have an enormous (cycle as we explored in the past issue). In our next Daily Briefing we'll share what we think all of this does to consumer retail stocks, and who the primary beneficiaries will be in the evolutionary broadband cycle. This week, we focused on the new BMW HD audio and USB input link, which I joked might become known as the bPOD or the iCAR. (I look forward to details upcoming.) (As to BMW and the preceding discussion); combine the retractable hardtop (a 4-seat first for them, and most powerful thus far in that popular genre) feature; we think it becomes one of the hottest 'affordable' new cars (premiers at Detroit Auto Show). Lexus, Infiniti, Mercedes etc., have nothing like it yet; except in 2-passenger, 'tight' or more-pricey vehicles. Volvo and Volkswagen do; but only in small-engine low-power renditions thus far. Further, since we talk about technology, that particular BMW 335i premiers 'reflective leather'; said to reduce solar heat by 20 degrees (not percent) through 'nanno reflective' particles. I suspect we'll see reflective nanno-tech in fabric materials and military uniforms soon. Overall market pressure partially reflects retailers disclosing generally disappointing same-store-sales growth in December, with Wal-Mart again being a laggard. Target a tad stronger, but the low end of its projected range. Gap cut its earnings outlook as it indicated reviews of Gap and Old Navy strategies. Costco handily beat estimates, as it often does, as Limited fell well short. Basically this was all middling as forecast, and (members) know our outlook as relates to consumer electronics in the short-run. Cellular update: look for Sony to introduce the Ai as a 'CyberShot' phone; combining the names of their camera or digital line with SE (Sony Erickkson) product. Autofocus is important because competition typically is fixed-focus; a primary reason photos are blurry. With autofocus lenses, red-eye reduction plus image stabilization; all primary features of a normal digital stand-alone camera are present; hence obviating a need to carry both to get decent pictures or short-burst video. As to phone parts; well quad-band, UMTS/HSDPA, will support the new AT&T (Cingular) fast Broadband Connect 3G, as larger screens assist. Look for Cingular to fade fast as AT&T phone systems are introduced including 'video conferencing' capable phones this year. (First off the block will be an LG revision and Motorola's 2-cam Razr; but the Razr Maxx will be a more advanced -quad-band version device- as Motorola responds to issues we've outlined for months, which is why we sold our MOT bought under 8 at 26 previously, and forewarned of precisely this decline, for the very reasons others belatedly grasp. HD video . . . makes progress with 'surprise' introductions of the combined 'blue-ray / HD-DVD' player that will do justice to either format, though neither is that popular yet, given the high price point. Even the (inexpensive for 'blue-ray', expensive for gamers) PlayStation 3 from Sony isn't selling that great, though it so far is the most affordable of the 'blue-ray' players, though LG will have their 'Generation 2' at 20% price drop as is rumored, but doesn't have internet surfing capabilities as well as wireless like Sony PS 3 does. The 'surprise' combo-player will come from LG (Korea); lower pricepoint. Mini PC's . . . will outdo the Mini-MAC this year, and our recent reports showed how an HDTV tuner can be incorporated into a small-form, while it also has HD radio (see last night's remarks for a thorough explanation of what that does, without subscription fees) and more-potent wireless connectivity capability. Look for Sony units to feature HDTV for a replacement of 'Gigapocket', and emphasize transmission to a number of screens (monitors or TV's) in a household, as well as 'blueray' playback (though that will almost automatically add around $500 to a unit; not 1000 as seen at the outset last year, when nobody we know would have gone near it yet, but will later this year). Also; in laptops we may see first LCD-backlit laptops, which is to say that fluorescent tubes will no longer be used in high-end modes; so increasing lifespan or brightness along with lighter weight will be notable factors. For those not familiar with this; LCD laptops are backlit, with transistors on-screen opening and closing rapidly (that's why lag nanoseconds matter), but color quality is enhanced by using LCD backlighting, as is also the case in at least some DLP TV sets (or LCD or SXRD projection sets for that matter) to achieve the same goal, and eliminate the use of typically Xenon bulbs with their relatively limited (couple years typically) lifespan. Also; no color 'wheels' are needed, and cooling capacity (fans) can be reduced, quieting sets and thinning them a bit. We'll see more of that from almost all rear-projection makers, or in some 1080p flat-panel screens too as noted, whether for TV or PC monitor purposes. Margins low so we would not invest in this sector, unless looking for a personal-use bargain soon. Smart Cell-phone Memory . . . Samsung at CES will be showing new memory we'd noted this week; it expects gadget makers to incorporate this in newly announced cell phones. This 'fusion' memory chip, branded OneDRAM should show-up in Q3-4 2007 or so. They will because the technology "sharply increases" data throughput speeds, and that may be deleterious to a couple cell-chip makers as we observed previously. Of course those are the type of detailed questions future Daily Briefing's will focus on. At MacWorld . . . the day after CES starts, we will learn mroe about the 'ModBook'; new tablet-laptop hybrid from Apple, or something similar. Having endorsed Apple at 12 per share; we were quite negative over 91 recently; nothing has changed on that. It may do well, but the move up was the reward for those owning it previously, not a signal to start initiating interest; as would be ridiculous even if it moved a bit higher. By the way 'Office 2007' has and will be selected as the innovative product of 2007 in our thinking; not Vista, which is getting most of the hyperbole from the techie crowds. And yes as mentioned, Apple will be months behind Office 2007 in the new file format capability, and all using PC's will be able to download conversion software to read all the new file formats in their existing Office and Word software systems. This will drive everyone a bit batty, but over time most users will gravitate to the new Office method (do know that there will be a 'Home and Student' version that's affordable but sans an Outlook inclusion, if you find that essential; but you won't have to have a student ID). In Summary: We do think the new year and beyond will be hardy technology cycles; just too bad that it will have to initiate in the midst of an economic slowdown masked by a psyche that tells Americans to keep borrowing or shopping, and ignores a reality that the (expanded economic analysis is reserved for ingerletter.com members). And with all the talk about Iraq; it's Iran plus terrorist threats elsewhere that are a real strategic concern (North Korea included) that the Nation must increasingly focus on. Bits & Bytes . . . provide investors ideas in a few stocks, often special-situations, but also covers an assortment of technology issues (needed for assessment of general factors in tech overall, or as compelling developments call for) that are key movers in the NDX, SOX or S&P, plus ideas ingerletter.com thinks might merit further reflection. Level 3 (LVLT); Intel (INTC); Texas Instruments (TXN), Microsoft (MSFT); plus Motorola (MOT); InkSure (INKS); Essex Corporation (KEYW); Ionatron (IOTN); PURE Bioscience (PURE); QPC Lasers (QPCI); and LightPath (LPTH); the latest addition to the small group we monitor are commented upon in accompanying audio. ``` We can't answer detailed questions for you (how could we; companies release what they will when they do; ditto for the Departments of Defense or Homeland Security); but these are topics previously explored as part of our assessment of advanced tech stocks; notably for key reasons: we view Directed Energy Weapons and all related or sector products, of any 'pure play' or high-power solid-state laser-related companies, as new potentially important 'disruptive technologies' to benefit the U.S. defense; they're important as anything else able to shift the world into 21st Century technology. If you do quote excerpts of our remarks anywhere on the internet, please respect our work; as we request mentioning it came from www.ingerletter.com . At the same time, please realize sending or posting our entire Daily to another investor isn't fair to us or members, unless done rarely only, so as to help enlighten an investor as to our work (that courtesy graciously appreciated). No web site is permitted to repost any Daily Briefing in it's entirety, in any routine way. A financial web site may request to receive a once-weekly partial excerpt of a Daily; frequently available on most Wednesdays. Members please note: we have no association with any publicly traded firm (never have had; never will), other than as shareholders, while trading from time to time as deemed necessary for personal reasons; especially once initial targets are reached. We may be right or wrong on a stock, but are not financial PR or IR, and have never, and will never, been compensated by a company, or their representatives, directly or indirectly, for coverage. Our opinions may be valid or invalid, but reflect our own view. Comments are interpretative speculative postulations, provided 'as is with all faults', and all risks, with no assurance about future performance of anything (markets or for stocks) in any way whatsoever. Personal necessity, irrespective of opinion on stocks, may periodically require buys or sells deemed appropriate or required, without notice. In summary . . events continue reminding us of risks Allied fighting forces face, given continued attacks on free peoples, by elements including organized terrorist forces in various countries. A world addressing terror threats continues, as domestic issues absorb us less as we focus on the Middle East crisis and World War III avoidance. McClellan Oscillator finds NY 'Mac' softening in initial year's action: -160; NASDAQ defensive at -23; with complacency here still the idea of a sustainable new move up. Issues continue including oil, terror; the whole Middle East, Korea, and economics. As assessed for a couple weeks, extended rebounds were showing just exhaustion syndromes, and now without interpretation or forecast, increasingly negative action. Remember Wednesday was the ideal outside-down day, with false rallies thereafter. All of this remains ammunition that disputes the Goldilocks scenario, as we projected. Enjoy the weekend! Gene Gene Inger, Publisher ~Gene Inger’s Daily Briefing™ (The Inger Letter daily analysis on www.ingerletter.com) ~Gene Inger’s MarketCast™ (Intraday audio updates emphasizing S&P futures and market action) Updates about 10 minutes after: the opening bell, 10 a.m. ET, noon, 3 p.m., with a nightly final issued at approximately 8 p.m. In times of volatility, an additional interim report update is frequently provided.