No replies to this topic

[TTHQ Staff]

Gene Inger's Daily Briefing. . . . for Thursday, October 26, 2006:

Good evening;

The market aviators . . . think the 'technical windsocks' are still pointing to the higher altitude flight-levels, but I think turbulence actually is showing-up on Doppler Radar. It goes without saying that the inability of 'creeping gremlins' to make their presence felt on Wednesday, was a set-up for running shorts just a bit, and in our intraday remarks we knew that might happen, and temporarily continue into Thursday if Durable Goods numbers give a little extra goose. Know what happens if a jet engine cruises to a very high altitude without having 'ramjet' capability? Eventually it goes into a stall or dives.

Therefore, it could now get pretty interesting in the hours and days after this FOMC meeting, which did exactly what we projected (no change in rates and mild posturing regarding inflation, housing and energy costs), or especially as/if the market appears to look askance at other factors over the hours immediately ahead. Caveat emptor in the short run? That's right; but longer-term nothing secular in our view has changed.

Iran's nervous about still-unreported 'expeditionary strike forces' believed moving -or already deployed into strategic positions as follow-on to the Navy's Eisenhower Battle Group arrival the prior week- nor because of excessive favorable responses to 'some' Q3 earnings reports, or faltering by several others (no surprise incidentally, especially in the tech sector where we want to see guidance of a modest nature, as may help restore attractiveness to temporarily overpriced issues). Nor are we concerned as regards a German newspaper asserting that Israeli F-16's over-flew one of their Navy frigates off-of Lebanon (must have mistaken it for French:-} ) firing defensive flares.

Israeli’s military has been properly upset by the language of the UN Resolution in that it allows Lebanon to prohibit Western naval arms interdiction in coastal waters. So it's not surprising to see gunrunning thrive between Syria and Lebanon thusly. Absent an effort by UNIFIL to counter this Israel informed the UN its Air Force would be required to carry out reconnaissance of smuggling routes, for so long as the UN fails to police them. This was not accepted. That's how last week the French president and defense minister threatened firing at Israeli planes flying off Lebanon. While nobody expected the first incident to involve a German warship, most experts thought an incident likely.

Israel says it has tapes that prove no missile was fired at the German frigate, which in this case did go to 'battle stations' (mostly because they were surprised as six F-16's came from West to East (in other words, from the Mediterranean, not towards it) and were undetected by their radar systems (once again; a Navy was not looking where a threat might come from or a perceived one at least). Israel says German overreaction is all that occurred, and nothing more. And the parties will likely sort this out quickly.

In fact, Israel wants closer coordination with Germany, as the German Defense head arrives in Jerusalem (incidentally) tomorrow. Given expectations the Bundeswehr will be more aggressive in international crisis participation, that's a welcome development we suspect, with overtones of old-time post-war worries a little over-the-top for now. It is in fact almost required that all able-bodied countries in the West cooperate against the scourge of Islamic extremist and Moslem crusades and threats against Europe, in an effort to offset an incredibly arrogant penetration of free countries by those who do not desire to not assimilate into Western culture, but have been able to perpetrate for so many years. If they (or those among them who) insist on penetrating and imposing their views on Europe; Islamic approaches to law, or any kinds of separation beyond cultural heritage thrust upon their host nations.. it's still tough to deal with, and in that regard (though not belaboring the point) we're not at all sure that the last few weeks (outside of Iraq) haven't been sort of a 'calm before the storm' that comes next, in a continuation of the quasi-world-war that the Islamists are forcing on us (Iraq to great extents is a distraction to the worldwide invasion Islamists foment or undermine). Let nobody (and most Democrats do not) believe that irrespective of the Iraqi debate, some sort of détente is possible with the terrorists and Islamists, as it basically isn't.

Tolerance of Islam sure; but to no greater extent than other religions if they make no efforts to impose their values on European or other societies at tolerance's exclusion (a simple example is women's rights; you can't be in England and say Islamic women have less rights than other British women, since nobody has a right to restrict them). Does this have much to do with the stock market? Unfortunately too much, as events and sensitivities have shown. We do not fear a centrist Democratic Congress; but do express concern about a complacency about border and immigration security, not to mention the relatively unscreened increase in Islamic immigration to the US again. It is the current Administration, emphasizing security politically, that's allowing all this. I am puzzled about that, but it is what it is; and Americans demand bipartisan security. Oh sure, the Prez will sign the 'border fence' Bill; but originally they didn't focus on it, until (Republican) Congressman Trancredo and others compelled a renewed focus.

MarketCast (intraday audio-email comments) will explore (areas), plus comment as it relates to the meaning of a semi-parabolic upthrust of the market as persists ongoing. These subjects and others, including the December S&P behavior as it relates to our forecast this week, as well as geopolitical issues in the Middle East as continue newly surfacing too, are addressed in tonight's fairly thorough audio remarks, including the reflections on 'economics' of a 'Centrist Democratic Government' alluded to briefly.

Daily action . . . conveyed our view of a 'correction Alert' after what's been the long and persistent climb likely, as not being excessive for us to call for. Nothing changed by virtue of ongoing superficial Dow rallies or today's dubious less robust extension.

Again; though my audio explores all this, we emphasize that barring calamity, even if we're right about a 'correction alert' for the DJI and S&P, we have in mind intervening rather than long-lasting. If of course something more interesting comes along; well an interesting time to protect rather than extend, in the face of incredible cheerleading that tries to convince all that the market will simply broaden-out and advance. It will, eventually (barring fiasco) in our view, but now -even if it does slightly- risk/reward ratios don't impress us now. So we'll prepare for failing efforts to extend, then decline.

In tonight's comments, special remarks about laser weaponry and new devices we're thinking may relate to one or more companies that we tend to cover in the DEW field (Directed Energy Weapons), which will proliferate, irrespective of an Iraqi war fading.

Bits & Bytes . . . provide investors ideas in a few stocks, often special-situations, but also covers an assortment of major technology issues (as needed for assessment of general factors in techs overall, or as compelling developments call for) that are key movers in NDX, SOX or S&P plus ideas ingerletter.com thinks merit further reflection.

Broadwing (BWNG); Intel (INTC); Texas Instruments (TXN) Motorola (MOT); plus
Microsoft (MSFT); InkSure (INKS); Essex Corporation (KEYW); Ionatron (IOTN); PURE Bioscience (PURE); and QPC Lasers (QPCI) are commented upon in audio.

Today Northrop Grumman (NOC) issued a release about 'Vesta'; another new laser weapon this time developed (as noted). Yesterday it was revealed that 'Thor'; another solid-state laser implementation by General Dynamics (GD) together with significant Israeli defense contractor, Rafael, is in the US for specialized testing (discussion). (It cannot be confirmed yet that small speculative and unknown QPC Lasers (QPCI) is a contractor in either project, though we've discussed which 'primes' are partnering.

As to Ionatron (IOTN); (reserved for ingerletter.com members), though IOTN does have a key partnering deal with General Dynamics (through their recently-acquired Aneteon subsidiary). Suspect Ionatron's efforts somewhat are in the same 'space' if you will; but differently (that's what the military should be considering for now at least as relates to tactical and strategic weaponry, versus interim spin-off products). We envision a number of roles for (certain) core technologies (additional discussion).

Finally; as is always the case with technology, nobody knows what company will be the ultimate beneficiary of a transition to new technology. Sometimes multiple firms of course; sometimes not. Occasionally what starts out 'militarily', becomes commercial, and that will be the greatest revenue producer (the space race illustrated that vividly).

In this case we are presuming that no single company has a universal solution in the increasingly contested DEW field; but several may prevail with various products for varying implementations. For instance, a high-power laser will (reserved for members of ingerletter.com), as we explore. We suspect enlightenment as to some benefiting key players (both platform integrators and also subcontractors) beyond that noted.
Also today, as ruminated by a newspaper/magazine in Israel a week or two ago, as we mentioned at the time; we hear more from InkSure (INKS) about 'chipless RFID'. While the 'proof of concept' still targets late 2007 for implementation (if successful in tests), the implication is that the company is continuing to find interest in the product. Here is (more discussion, reserved for members; this is to give prospective readers an idea of some of our discussion arenas as relates to speculative stocks beyond of course continued following of our primary and traditional big-cap tech-stock issues.

Last night's remarks about PURE contained one typo; which related to referenced the 'powered by SDC' incorrectly in one reference. SDC and other terms, refer to PURE's proprietary additive used in several products anticipated emerging to market soon. It is also of interest that several reports referencing comments from established college or university researchers have circulated this year, about ionic silver uses in general.

It is noted that researchers at a University in Arizona, Washington Univ. (St. Louis), and even NY University, have been quoted about the efficacy of silver ion formulation approaches. We suspect this relates to an indirect (if not indirectly sanctioned) easing on the part of the healthcare industry (and FDA?) towards re-introducing a hundred or more year-old approach in American medicine that was commonplace prior to the introduction of antibiotics. While we won't belabor the history going back to Egyptian times (when silver coins were tossed into water to purify it), and aren't considered by any means to be part of the 'almost cult-like' enthusiasts, we are curious if the barrier to 'silver' use -as an antimicrobial- is slowly being eroded if for no other reason than it is increasingly clear that conventional antibiotic resistance profiles are of concern to a large part of the healthcare industry. That's why we suspect fairly robust adoption of such products in the institutional sanitation area (particularly hospitals to ward-off the rising risk of staph and other pathogenic infections of patients who didn't present with anything like the infections they encountered) to ward-off these numerous pathogens. (Last night's Daily Briefing had an extensive discussion and graphic of new products thought likely coming to market in the near future.)

```
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.

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.

Though few generally concurred for three years, our consistent view has been slow but persistent American growth isn't negative, allowing the protracted gradual growth without ancillary significantly high interest rate pressures. There's no truly-restrictive monetary policy; nor is there likely to be one, irrespective of oil-induced inflationary pressures. This is a continuing saga. Often we get a speculative (more is reserved).

McClellan Oscillator finds NY 'Mac' narrowly mixed, at +68; NASDAQ flattish at +3; fairly unimpressive readings for runs widely perceived exceeding new high ground.

Issues continue including oil, terror; Iraq; Iran; Kurdistan, Korea, and elsewhere. This week shuffles, followed by limited follow-through efforts following a 'brass ring' achievement (perceived for the market); as suspected. Increasing risk is brewing, for big-cap Senior Averages, in terms of near-term behavior, after excess enthusiasm. Consider that we may rebound early Thursday but probably not hold a move; then newly ease considerably; rebound, and ideally fade again thereafter.

Enjoy the evening,

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)