10 Things I Won't Miss About 2006

This column was originally published on Street Insight and was republished on TheStreet.com

Another year has passed. I hope that you are all a year healthier, wealthier and wiser. As I have done for each of the past four years and will do again by popular demand, I would like to share with you the 10 things that I will not miss about 2006 (and do not want to see or hear about ever again). So, in no particular order, here they are:

1. Long-running network classics.

I hate to say this, but General Electric's (GE) NBC Universal has to pull the plug on Saturday Night Live. The show is simply unwatchable. I don't know if it's the feeble writing, the weak cast or both, but the show has overstayed its welcome.

NBC is not alone in needing to jettison an enduring show born in the 1970s. If Howard Cosell were still alive, Monday Night Football would send him to his grave. The broadcast team in the booth is just plain awful. We don't need some Hollywood or rock-and-roll star joining in for a quarter's worth of banter. No wonder the ratings for this weekly sporting event hit an all-time low this season. (By the way, Disney (DIS) moved Monday Night Football from ABC to ESPN, in case you didn't notice.) I will be egalitarian in my desire to never again see an oldie-but-goodie network show. CBS' (CBS) 60 Minutes has also run its course. With deference to Morley Safer and the late Ed Bradley, CBS needs to put this show to rest. I understand that the network needs a time slot for CSI: Sheboygan.

2. Microsoft (MSFT) Vista.

The coming of Vista has been as over hyped as the coming of Comet Kohoutek in 1973. Of course, as soon as Vista does get released -- wake me up when it happens -- then we will have to listen to the never-ending coverage and hype for the Yahoo! (YHOO) release of its Panama advertising system. I have the solution for all of this hype: Apple (AAPL) and Google (GOOG).

3. Celebrity babies.

I could care less about Brad and Angelina's baby, Tom and Katie's baby or Kevin and Britney's baby. Once they give a darn about my wife and five kids, then maybe I will pick up one of Time Warner's (TWX) People magazines.

4. Soft landing.

I did not know that the economy had hemorrhoids.

5. Dire consequences of an inverted yield curve.

Anyone who believes that an inverted yield curve at low levels of nominal interest rates is a sign of impending recession must still believe in the Phillips Curve. I believe that the Phillips Curve is a flawed concept. We need to understand how the yield curve is constructed. Earlier this year, I wrote the following:

"The yield curve does not worry me. The FOMC controls the short end of the curve; the marketplace controls the longer end. Now more than ever, the more expansive holding of U.S. dollars by foreign central banks is creating increasing demand on the longer-maturity U.S. government debt instruments. Thus, the yield curve is flattening out and to some extent inverting. The shape of the yield curve will no longer only be reflective of perceived economic conditions but will also include the impact of central banks on the U.S. dollar and their appetite for Treasury securities. While I hate to use the term 'new paradigm' and will not, I will say that we are going from a single variable yield curve to a multivariable model. We need to understand and respect that."

6. Monthly same-store-sales comparisons.

This is without a doubt the most overexposed metric of the year. (See No. 8 in last year's list for my rant on the subject of overused metrics.) My research indicates that while same-store sales are a factor in retail and restaurant earnings, they are not the sole determinant. Furthermore, margins are more important than same-store sales in determining profitability. Take Sears (SHLD), for example: Same-store sales were engineered to decline while the company focused on selling more profitable products. Shareholders are better off for that effort. We also need to wean the market off monthly sales data and move to quarterly sales reporting as several companies, including Men's Wearhouse (MW) and Yum! Brands (YUM), have done recently.

7. Body art.

I think that's an oxymoron. I'm disgusted whenever I see tattoos and body piercing. What really gets my goat is seeing it glorified by athletes and movie stars. This stuff is ugly and permanent. If you want to adorn your body, might I suggest a few shirts from Ralph Lauren (RL) or some jewelry from Blue Nile (NILE)? Those are far more attractive options than tattoos and body piercing.

8. Bad Starbucks (SBUX) jokes.

It seems that every two-bit stand-up wannabe comedian has some bad Starbucks joke. You know like: "Why is there a Starbucks on all four corners? So that people with Alzheimer's can find one." I don't want to hear another comedian say, "I will have a grande mocha latte capudrinko." That said, if you own Starbucks, this is great. Free advertising! So if I may suggest some new targets for comics' material in 2007, how about some McDonald's (MCD), Ruth's Chris Steak House (RUTH) or Taco Bell (a division of Yum!) jokes? Something like: I'll have a taco, hold the E. coli.

9. OTC bulletin-board solicitations.

My email and fax machines are increasingly being stuffed with stupid OTC BB ideas. The emails manage to get through spam filters, and you can't have your address taken off the distribution list. Cagey mongrels, these folks. Maybe some smart software vendor can find a solution to that problem.

Where is the SEC when we need them? How many people are losing hard-earned money by falling for the OTC BB rags-to-riches pitch? I bet many more than are being hurt by hedge funds. Instead of raising the minimum net-worth level for investment in hedge funds, how about if the SEC raises the minimum net-worth requirement for investing in OTC BB stocks? That would send those purveyors of dreck right back to the caves from which they came.

10. OPEC.

This group of nations cheats on one another more often than Tony Soprano cheats on his wife, Carmela. OPEC lies with the same alacrity as Tommy Flanagan back when SNL was quality entertainment. (See No. 1.) Yeah, that's the ticket.

My best wishes for a happy and healthy holiday and New Year season to all of you and your families. Thank you for your personal notes and professional advice during the past year. I hope our Street Insight team has made this year a profitable and enlightening one for our subscribers. Last but not least, thanks to our tireless contributors and editors who work so hard every day to produce this fine product.

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At the time of this Blog entry and the Street.com article, Scott Rothbort, his family and or clients of LakeView Asset Management, LLC were long shares of Apple Computer (AAPL), Google (GOOG), Sear’s Holdings (SHLD), Men’s Wearhouse (MW), Ralph Lauren (RL), McDonald's (MCD), Yum! Brands (YUM) and Ruth's Chris Steakhouse (RUTH) although positions can change at any time.

2006 Restaurant Year in Review and The Menu for 2007

This article was originally published including charts courtesy of CTS Trend on The Street.com’s Street Insight Long/Short Trader on Dec. 26, 2006.

So what's on your menu this week? Some left over latkes from Hanukkah? Perhaps some smoked ham cold cuts from Christmas? Looking into 2007, there are several themes in the restaurant sector that will continue to create investment and trade opportunities. So, without further ado, here is my restaurant year in review and outlook for the year ahead.

IPOs

There were several high-profile restaurant IPOs that took place in 2006. First came Chipotle Mexican Grill (CMG), which soared from the get-go and remained a Wall Street favorite for the balance of the year. The stock even caught on Friday.

The other restaurant spinoff IPO was Tim Hortons (THI). While THI had some success out of the starting gate, the stock has pretty much leveled off and has not found a strong following from analysts or investors.

Finally, Burger King (BKC) came public to join the quick-service ranks along McDonald's (MCD) and Wendy's (WEN), both of which were the source of the two above mentioned spinoffs. BKC stumbled out of the gate, but management appears to be making operational headway and also benefited from the substitution effect.

Look for continued activist shareholder activity in 2007. Don't be surprised if you see a private equity or leveraged buyout deal. CKE Restaurants (CKR) is a good trading stock that rises and falls with such speculation.

Casual Dining

It was a real up and down year for the casual dining segment. A strong start to the year was thwarted in the spring by a market correction, spiking energy prices and the fear of inflation. These companies were hit hard as traffic migrated down the food chain to the quick-service restaurants as the substitution effect took hold. Not until energy prices peaked, the market correction ended and the Fed finally pushed pause in the middle of the summer did the casual dining chains begin to rebound. OSI Restaurant Partners (OSI), which operates the Outback Steakhouse chain among others, managed to get a recent private equity buyout offer. All of the popular casual dining chains had similar chart patterns during the year. Here are some of the favorites: Applebee's (APPB), Darden Restaurants (DRI), Brinker International (EAT) and Ruby Tuesday (RI) all charted together.

Casual dining will struggle in 2007 as the concepts out there are just too homogenous. There are no new offerings that I see on the horizon. Rather, you will have to play this sub-sector as trades, looking to take a lead from economic signals. Commodity costs -- namely, energy and food -- should be watched most closely. There are some potential turnaround stories as well that could provide opportunities. One name that comes to mind is Red Robin Gourmet Burgers (RRGB), which is a great concept that has long suffered from managerial mismanagement and misdeeds. We need to watch RRGB but not rush to act.

Substitution Effect Bolsters Quick-Service Names

The quick-service restaurants were the beneficiary of the substitution effect. The stock that not only weathered the spring squall but managed to be one of the best performers of the year was McDonald's (MCD). Not far behind was Yum! Brands (YUM). I continue to like both of these stocks, especially as they both continue to expand overseas, specifically in China. YUM took a little bit of a hit in December because of an E. coli outbreak at some Taco Bell restaurants, but I believe that to be a short-term issue, and this has presented a good entry point or level at which to add to positions.

The year ahead will be all about international expansion - China, to be exact -- for quick-service names. I continue to like MCD and YUM, which are positioned for this theme. Starbucks (SBUX) is also a China play, but I am not convinced that Howard Schultz can deliver the same level of tremendous growth in 2007 as SBUX has exhibited in the past. Headwinds to SBUX include rising coffee prices and the lingering question, How long can SBUX continue to push up prices to consumers before they revolt?

Steakhouses

The steakhouses were problematic this year. The reason for this was the same woes that hurt the casual dining stocks in the spring and early summer (as I mentioned above). Adding insult to injury, these stocks could not rebound because they were hit with the double whammy of higher beef prices. I traded out of and then back into Ruth's Chris Steak House (RUTH) during the year, managing to sell just at the top and then reentering back in the fall at dramatically lower levels. I am still holding my new positions today. Here is a combined chart of RUTH and its closest high-end steakhouse rival Morton's Restaurant Group (MRT).

I really like the premium steakhouses in 2007. My favorite name remains RUTH. RUTH continues to expand not only from coast to coast but internationally in major financial center cities and high-end resort destinations. The spike in beef prices from last summer has subsided, and prices have now abated for several months. The impact of the spiked prices will have worked through the system by the first quarter of 2007. I think that estimates for 2007 are still low and that the company will grow by at least 20% in 2007 and over the next few years.

Who Wants Pizza?

The one group I played wrong this year was the quick-service pizza sector. I was long Domino's Pizza (DPZ) coming into the year and sold too early. On the other hand, I do have pizza exposure through my YUM holding, so I did not totally blow it.

When it comes to pizza, I think that this is a crowded and competitive market, and it will continue to be throughout the new year. Look for cheese prices and the economy as a gauge for trading opportunities. If you want the best of both worlds, own YUM, which has both Pizza Hut and the China growth story all wrapped up in one.

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At the time of this Blog entry and the Street.com article, Scott Rothbort, his family and or clients of LakeView Asset Management, LLC were long shares of McDonald's (MCD), Yum Brands (YUM) and Ruth's Chris Steakhouse (RUTH) although spositions can change at any time.

The 2007 Seton Hall Stillman School of Business Jim and Judy O'Brien Financial Markets and Economic Colloquium

Scott Rothbort w/Wall Street Guests (below)

Scott Rothbort w/SHU Students (above)

How much would you pay to attend a conference where you had the opportunity to listen to James Altucher, Jeff Bagley, Tony Dwyer, Doug Kass, Brian Reynolds, Cody Willard, and yours truly, Scott Rothbort, in person?

$999?

$599?

$199?

How about nothing? (Although donations to the Stillman School of Business Trading Room are greatly appreciated.)

And how far would you have to travel for that event?

South Orange, N.J.

That's right. On January 31, 2007, this collection of savvy market professionals will descend upon Seton Hall University for the Jim and Judy O'Brien 2007 Financial Markets and Economic Colloquium. Had you attended last year's event, you would have been properly positioned in 2006. Find out what everyone will be forecasting for 2007. It all starts at 3 p.m. I hope you can make it.

The Year in Derivatives: Amaranth 'Highlights' Tumultous Year

This column was originally published on theStreet.com’s Street Insight.

As we close out this year, I wanted to review some of the highlights in derivatives this year.

1. The story with the most pervasive impact on the financial markets was that of hedge fund Amaranth. However, while the headlines were concerned with Amaranth's failure, the real story was what the hedge fund did to the energy markets. The rise and fall of crude and natural gas prices can be linked to Amaranth. The fund participated in and perhaps exacerbated the massive speculation and volatility that took place in the energy futures and options markets. However, once the marginal speculator would no longer enter the market, the music stopped.

Energy volatility and prices collapsed, and Amaranth lost billions of dollars. Comparisons were made to Long Term Capital Management (LTCM). Once again, we saw that the collapse of a large derivative speculator, whether it was the Hunt Brothers, LTCM or Amaranth, did not create a systemic financial depression. The lesson was that the system works.

2. Implied volatilities in the equity spiked when the spring correction took place but returned to lower levels as the year progressed. The VXO stands at low levels on a historical basis. This reinforces my research which indicates that high levels of volatility are predictive of market bottoms and impending rallies but low levels of volatility are just low levels of volatility and have no predictive value. It is likely that the low levels of implied volatility are the result of hedge funds seeking to generate alpha as they constantly sell both put and call options.

Unfortunately this has been a losing formula as we have seen, with options selling on the S&P 500 and individual stocks like Google (GOOG) , Sears Holdings (SHLD) and Goldman Sachs (GS) . Nevertheless, as long as there are levered players out there who need to outperform but have no other edge, it is likely that volatility will be an easy target.

3. Derivatives exchanges were all the rage. Cross-town rivals the Chicago Mercantile Exchange (CME) and the Board of Trade (BOT) agreed to merge after both stocks climbed to new highs. Futures, commodity and options volumes have soared, making these highly valuable properties big moneymakers. Following in the wake of that mammoth derivative exchange merger was the IPO of the New York Mercantile Exchange (NMX) in one of the hottest debuts for a stock in many years. Looking to the future, I expect that after the NYSE (NYX) completes its acquisition of Euronext NV it will next set its sights on a derivatives/commodities exchange as well as opportunities in the Far East. Perhaps it will try to kill two birds with one stone, if possible. My advice is to stay out of Thailand except for a vacation.

4. Options backdating was the scourge for many companies, including one of my favorites, Apple Computer (AAPL), and a company that I divorced from my portfolio, United Health (UNH) . While I am upset that many companies have been embroiled in these scandals, what really irritates me is the inability of these companies to resolve the issues on a timely basis.

The U.S. has some of the finest finance, accounting and legal minds that the world has to offer. Why does it take so long to figure out the impact of the backdated options? This can easily be done with a spreadsheet and some junior accountants. It is a shame that a company needs more than one week to figure out the accounting impact of backdated options.

5. The credit derivative market continues to grow in magnitude and importance for a wide variety of users. These users include the natural hedgers like lenders, speculators (like hedge funds) and the vendors (such as the investments banks). Expect the bears to rally around credit derivatives as the next market to achieve "bubble" status in the next year or two.

At the time of this Blog entry, Scott Rothbort, his family and or clients of LakeView Asset Management, LLC were long shares of Apple Computer (AAPL), Google (GOOG), Goldman Sachs (GS), NYSE (NYX) and Sears Holdings (SHLD).

When 'Buy What You Know' Doesn't Pay

As I penned my list of the Five Worst Managed Companies in the U.S. in October, I had several other companies in mind that were being considered for the article. However, upon closer inspection, these companies had a different theme that I would now like to discuss. Today's list of five inauspicious companies has one thing in common: They are companies with great products that are bad investments. As before, my list could be longer and you may have your own favorites. Also note, that these are bad investments but could be a decent trade from time to time. Without further ado, and in no particular order, here is Scott Rothbort's list of Companies With Great Products That Are Bad Investments:

1. TiVo (TIVO): The quintessential great product bad investment company. I told my wife six years ago that we had to buy a TiVo. She had no idea what a TiVo or DVR was at the time. Six years later, we can't live without it. In fact, we still have the original box and lifetime subscription that we originally purchased. You would think that TIVO had a great concept and would be printing money. No so. By far, TIVO is the best example of how to screw up the concept of giving away razors and making customers pay for the razor blade. Since going public and now for 31 consecutive quarters, TIVO has posted a loss. The most recent quarter was the same old story for TIVO: more losses; litigation issues; fiddling with subscription packages; and, delays in collaborative agreement. Buy a TiVo but not TIVO.

2. Six Flags (SIX): What can be more fun than a day with the family at the amusement park? Well maybe a day at the ballpark, but you get my point. You have to be a real misanthrope to hate amusement parks. Disney (DIS) knows how to build and manage an amusement park. SIX, on the other hand, has managed to deliver declining returns to shareholders. In fact, a weekly chart of SIX looks like a roller coaster ride: a big climb, a rapid fall, some ups and down and then return to terra firma. SIX has been under new management for several quarters now and, frankly, they have just continued the failures of their predecessors. As an example, they managed to bungle the Great Escape in the Lake George region. The geniuses at SIX repaved the Great Escape parking lot this year (it does look good), but in doing so initiated a $10 per car parking fee for the first time ever. There is a Yiddish terms to describe this decision: chutzpah (gall, audacity, nerve). So they spent lots of cash (heavily borrowed), charged to park, and attendance declined. Spend your hard-earned cash for a day at Six Flags but not for a single share of stock.

3. Vonage (VG): Get rid of land lines, give your local telephone company the Bronx cheer and use the Internet for telephone calls. Voice Over Internet Protocol (VoIP). Sounds great. Go ahead and use it. Many people are switching. We have not switched to VoIP but would consider it some day. My sister-in-law has gone VoIP. She is satisfied. I have heard pros and cons in the VoIP debate but nevertheless, I have to say, that as a product and technology it is a great concept. VG seemed to be promoting itself for years. I call it the longest road show ever. It was also the most bungled IPO since the Wilt Chamberlain debacle back in the 1990s. If you have or plan to use VoIP be careful and don't swap your old AT&T (T) stock for VG in the process.

4. Krispy Kreme Doughnuts (KKD): If you read Jim Cramer's Confessions of A Street Addict, then you would probably know Jim as someone who lived for a Krispy Kreme and a great stock idea. Unfortunately, KKD could only deliver the former and not the latter. Those delectable delights are irresistible. Even though the "Under New Management" sign is hanging in the Krispy Kreme window, you have to wonder whether the KKD business model is or ever was viable. Sales continue to decline. The baking business has always been tough. Dunkin Donuts has been handed from owner to owner for years with relatively little success. Just look at the history of Interstate Bakeries or Tasty Baking (TSTY). Bring a dozen Krispy Kremes to your next client meeting, but don't sell them on the stock. Nothing beats McDonald's (MCD) when it comes to a food service investment.

5. Alternative Energy Stocks: Let's reduce our dependence on fossil fuels and tell OPEC to stick it where the sun doesn't shine. It's like a bad gift: It's the thought that counts. This entire asset class gets the great product bad investment nod. We can use light, water, wind, steam or bovine excrement to generate energy for all I care. But even if Earth, Wind and Fire were to sing for us, it is highly unlikely that a stand-alone company is going to make you a dime in the alternative energy sector. Maybe some big-cap companies like Archer Daniels Midland (ADP) or a utility like FPL Group (FPL) can hide their alternative energy losses under the rest of their profitable portfolios. Occasionally, a Johnny-Come-Lately alternative energy stock will go IPO and get investors all lathered up in the first few months of life only to eventually succumb to traditional valuation techniques. The pink sheets and OTC bulletin boards are littered with the carcasses of alternative energy stocks.

Here is a Web site devoted to alternative energy stocks. Go ahead, knock yourself out, and try to find a stand-alone alternative energy investment. Over the long run, these are bad investments. In the meantime, think green, and invest in Exxon Mobil (XOM).

At the time of this Blog entry, Scott Rothbort, his family and or clients of LakeView Asset Management, LLC were long shares of McDonald's (MCD) and Exxon Mobil (XOM).

The Worst-Run Companies in the U.S.

The following article was originally published on The Street.com's Street Insight website (see links to the right) on October 18, 2006. In addition, I followed up with an interview on Street.com TV the following week (the link to the video also appears on the right).

As we are now deeply entrenched in the 2006 third-quarter earnings season, the question that always pops up in my mind when we are at this juncture is, what are the worst-run companies in the U.S.?

Without further ado, and in no particular order, here is my list:

1. Industrials: Alcoa (AA) Year to year, quarter to quarter, this is The Gang that Couldn't Shoot Straight (by the way, also the name of a great book by Jimmy Breslin). When commodity prices work against it, it delivers disappointments. When commodity prices work in its favor, never fear! It will botch it up and disappoint. Competition is never a problem for Alcoa; it does a fairly good job of competing against itself.

2. Technology: Lucent (LU)). How do you destroy Bell Laboratories, once the leading edge of telecommunications innovation in the world? Answer: Spin it off from AT&T (T)), load it up with debt, put lousy management in charge and lose the creative talent to the competition. At least it will soon be Alcatel's (ALA) problem. Au revoir.

3. Media/entertainment: Cablevision (CVC). Or should I say Dolanvison? The Dolan family has managed to destroy shareholder value while increasing their own wealth for many years. In the process, they have destroyed a New York icon, the Knicks, mismanaged another, the Rangers, sabotaged an Olympic bid, delivered lousy service to customers, made a bad investment in The Wiz, failed to grab up the old Adelphia properties on the cheap, piled on debt and then tried to rip off shareholders in last year's failed privatization offer.

After a special cash payment of $10 to shareholders in April, the Dolans were finally able to grab CVC back from shareholders just this past month. Finally, shareholders will be rid of the Dolans and, if they are smart, will invest the proceeds of their sale into a better-managed company.

4. Financial services: Janus Capital (JNS). We are in the middle of the biggest asset-management boom of all time, and this company has managed to move in reverse. Assets have flowed with the accompanying management fees to the competition, and this is likely to be a unidirectional movement. Don't be fooled by the recent stock performance.

5. Retail: It's a tie. Too close to call. Sharper Image (SHRP) and Pier 1 Imports (PIR). I actually ran a five-year comparative chart of the two companies. The relative returns were as close as a pennant race between the Tampa Bay Devil Rays and the Kansas City Royals. Relatively competitive, but absolute losers.

Sharper Image reminds me of the Scotch Tape Store sketch from Saturday Night Live in the 1970s. All that the store sold was Scotch tape. All that Sharper Image seems to sell are ionic breeze air purifier machines. Have you ever gone to one of its stores? It's where the men hang out while the women spend money at the other retailers -- you know, those retailers who know how to manage a business.

As for Pier 1, that store has more junk in it than any women I know would be caught dead living in the same house with.

I am sure you have your own nominees, especially those that have cost you performance in the past. The lesson is, when you invest in a stock, you are also investing in management.

Note: Subsequent to the publication of the article above, Alcatel's acquisition of Lucent was completed. The new company is aptly named Alcatel Lucent (ALU).

2006 Holiday Shopping

On Friday, November 10, for the second straight year, I led a group of Stillman School of Business students from Seton Hall University (SHU) to the Palisades Center in West Nyack, NY for an intensive one day research project in which we surveyed and observed shoppers. The following Monday through Thursday we followed up the mall research with a nationwide survey focusing on shopping tends and preferences. Last week, SHU and LakeView Asset Management, LLC released some of our findings in the following press release:

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HOLIDAY SHOPPING SEASON ANALYSIS IS IN!

Seton Hall University Students Forecast Holiday Shopping Trends,

in the NY Metro Area and Across the Country

Flat screen TVs are still hot, but satellite radio and Direct TV are not, and holiday season sales could be flat to somewhat higher compared to last year! These are just a few of the fascinating, fact-based predictions Seton Hall University’s Stillman School of Business students have to offer, based upon their second annual grass-roots, on-the-ground survey conducted November 10 at Palisades Center in West Nyack, New York, as well as their national telephone poll conducted November 13-16 at Seton Hall’s Polling Center.

Under the guidance of Scott Rothbort, M.B.A., professor of finance at Seton Hall and president of LakeView Asset Management, LLC, Seton Hall students interviewed over 700 respondents in total, asking a wide range of questions covering personal income, shopping preferences and plans. What are the answers?

• Personal income was once again the most important factor determining how much shoppers will spend this year.
• Overall, shoppers expect to spend about the same or just slightly more in the 2006 holiday season compared to the 2005 holiday season.
• Given that personal income and employment are higher in 2006 relative to 2005, we are predicting that total 2006 holiday sales will rise in line or slightly greater than increases in US Gross Domestic Product over the same period of time.
• Consumers prefer to stay down to earth when asked about satellite entertainment. Respondents who did not have satellite television such as Direct TV (DTV) or Dish Network (DISH) or satellite radios such as Sirius (SIRI) or XM (XMSR) overwhelmingly did NOT intend to purchase such technology.
• Flat screen televisions are more likely to be purchased by current non-owners than any other technology in our survey.
• When asked about fast food, respondents almost as often named Wendy’s (WEN) and McDonald’s (MCD) as their favorite fast food restaurant handily outranking rival quick service company Burger King (BKC). When it comes to pizza, nothing satisfies as much as the local pizza parlor.
• Google is definitely the dominant internet search engine.
• In a subject that has emerged from local grass roots efforts, we asked mall shoppers at the Palisades Center in West Nyack NY if aluminum bats should be banned in favor of wood bats. It appears that there is no decisive opinion either yes, no or not sure. However, while those agreeing to the ban were fairly evenly split between men and women, those opposed to it were almost 2 to 1 male to female, while the undecided were 1.5 to 1 female to male. This could be an issue which gets solved over the kitchen table at homes across our metropolitan area.

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In addition, today, I was interviewed on TheStreet.com TV by Gregg Greenberg. We discussed our research and my thoughts on Black Friday.

At the time of this Blog entry, Scott Rothbort, his family and or clients of LakeView Asset Management, LLC were long shares of McDonald's (MCD).

Where's Mortimer and Randolph Duke?

On Monday November 6, 2006 I led a group of Stillman School of Business students on a visit to the New York Board of Trade (NYBOT). While at the exchange, the students participated in a simulated commodity futures trading session. That's me wearing my old Merrill Lynch (MER) bluish/green trading floor jacket given to me by my MER floor broker friends from the Chicago Board Options Exchange (CBOE)

The event was part of the "NYBOT Ringside Goes Schoolside" program where universities in the tri-state area are invited to the exchange. The NYBOT was founded in 1870 and was known as the New York Cotton Exchange (NYCE). It provides the world's premiere futures and options markets for several internationally traded agricultural commodities including cocoa, coffee, cotton, frozen concentrated orange juice (FCOJ) and sugar.

Remember FCOJ from the Eddie Murphy / Dan Aykroyd movie Trading Places? That movie was filmed at the exchange's old site in the World Trade Center.

At the time of this Blog entry, Scott Rothbort, his family and or clients of LakeView Asset Management, LLC were long shares and/or call options of Merrill Lynch (MER).

How To Invest By Brown Bagging It To The Game

Last Sunday I went to Giants Stadium for the New York Giants / Tampa Bay Buccaneers football game, also dubbed the Barber Bowl. Accompanying me were my wife, our oldest son and some cousins. As usual we brought along some sandwiches and soda in the car and eat them on the way to the game. Having not been to Giants Stadium since last season it was not until we passed the concession stand did I once again get stadium sticker shock. So, on my trusty Palm (symbol: PALM) Treo 650 I snapped a picture of the concession stand (which is posted above). For what you can save by eating before the game by bringing your own food, drink and snack you can buy one share of Aramark Corporation (symbol: RMK), the company that runs the concessions. So the next time you go to a game, bag your own lunch and call your broker the next morning.

Decision of the Year

Yesterday I joined my family for a viewing of the latest Robin Williams movie, Man of the Year. It was quite entertaining but not necessarily his best piece of work. The movie reminded me to check on the latest 2006 election polls when I returned home.

Right now the Democrats are clearly ahead in the race for the House. As for the Senate it is too close to call. If you count Joe Lieberman as a Democrat (though I am not so sure he will be siding with the party that just abandoned him), we could be looking at a 50/50 split, which means a 51 - 50 Republican advantage as the Vice President (President of the Senate) will cast any swing vote according to the Constitution

My own political views aside – for full disclosure I consider myself a Reagan Republican – my concern with the elections are the impact on the financial markets. Nancy Pelosi and Charles Rangel will no doubt in my mind seek to turn back or eliminate the Bush era tax policies. In danger are the dividend exclusion, low capital gains tax rate and final elimination of the “death tax”. They will also push to raise taxes though increased marginal tax rates or through other means. A totally Democratic Congress would make those politicians’ ambitions an ever greater probability.

When I look at the economy and the financial markets, I am not concerned with the Federal Reserve Open Market Committee’s monetary policy or corporate earnings or the housing market or even the consumer. The one single concern that I have that would cause the biggest and most immediate blow to the economy and the financial markets is a Democratic majority in both the House and the Senate. I am not talking from my own political perspective but from economic realities and the psychology of the stock market.

If a Democratic party sweep become a reality, it would trigger an investor rush to the exits. As for the 2008 Presidential elections, don't get me started.

Back To The Future

I recently visited the offices of CTS Trend a real-time market data technical analysis services company located in New Providence, NJ. At Seton Hall University we run the CTS suite of technical analysis solutions: Net; ViewNet; ScanNet; and, TickNet. I highly recommend the CTS http://www.ctstrend.com/roduct for both the technical based trader and the trader/investor who desires to add technical analysis to their arsenal of trading tools.

As it turns out I spent some time with CTS President and Founder, Dr. Frank Soong. CTS is an interesting enterprise. Not only does it develop and market the technical analysis products but Dr. Soong also manages money for some large banks using his own proprietary statistical based models. Here is how the day became interesting. Early in my career when I was at Morgan Stanley I worked under Nunzio Tartaglia and Gregg van Kipnis who together pioneered “Pairs Trading” and "Black Box" statistical arbitrage trading in the 1980s. From that group came David Shaw, founder of the highly successful DE Shaw hedge fund. While also at Morgan Stanley, I worked with the team of professionals who developed the global program trading business. As Dr. Soong began to describe his trading systems and ravel off some names of people who he has worked with or subscribe to his models, it was like a flashback my early days on Wall Street at Morgan Stanley. Dr. Soong did not know or know of Nunzio Tartaglia, the very gentlemen who broke ground for people such as Dr. Soong and David Shaw. After all of these years, it is quite heart warming to see that the legacy of these early pioneers lives on in a new generation of statistical arbitrage money managers.

Spamalot Was A Bargain - CSNY Was Scamalot

Recently my wife and I attended a Broadway presentation of Spamalot. Spamalot is a stage adaptation of the movie Monty Python and the Holy Grail with some bits thrown in from the movie Life of Brian and the original Monty Python's Flying Circus BBC television shows. It was delightful and I wholeheartedly recommend catching the show on Broadway, in London's Theatreland or on a road show. We sat in the orchestra in seats that cost $110 (plus the $1.25 facility fee) each. The show kept us entertained for 2 hours and as is the trademark of a successful Broadway musical, other members of the audience were heard singing or humming the tunes on the way out.

Let's contrast this with this summer's CSNY or Crosby (David), Stills (Stephen), Nash (Graham) and Young (Neil) Concert. Titled the Freedom of Speech '06 Tour which we caught this summer at SPAC (Saratoga Performing Arts Center). Let me be very clear, I am not here to discuss politics. Rather I want to discuss the poor value offered by this year's CSNY concert tour. For $176 per seat, we also sat in the orchestra for what I hoped would be an enjoyable 3 plus hour concert with some old college friends. To begin with, Stephen Stills should have stayed home. His voice was shot and frankly reminded me of the ballplayer who limps onto the field well past his prime. About 90 minutes of the concert was devoted to CSNY's politics and anti-Bush diatribes. To add insult to injury, they did not sing many of their classic tunes including, to my astonishment, Suite: Judy Blue Eyes. Anyone who paid the top dollar that CSNY was asking for this concert deserved to hear the group’s greatest hits and not a litany of political musings. If I wanted political commentary, I would turn on the television on Sunday mornings and listen to many political views for absolutely nothing. CSNY should be ashamed for charging exorbitant prices and not delivering a consummate product.

Monty Python's Spamalot or CSNY Scamalot. The choice is simple. We Won't Get Fooled Again (Sorry, that's The Who or what's left of them, who also toured this summer). As to CSNY, here's a message from Monthy Python and myself - Always Look on the Bright Side of Life. That's my Freedom of Speech.

McCarthyism comes to Major League Baseball

While I am appalled at the use of steroids in major league baseball (and all sports for that matter), the whole turn of events in the steroid investigations feel like a flashback to McCarthyism. Back in those dark days, if you were accused of being a communist you either gave up the names of other "communists" or were blacklisted. Now we are seeing the same type of activity when focused on steroid use in baseball. It all started with the Balco investigations. This led to retired baseball player Jose Conseco telling all in his book Juiced. In it Conseco points fingers at all of the "users" around him using spotty facts in the process. The intent besides selling books was to deflect attention away from Conseco to others such as Mark McGwire and Sammy Sosa. Now we get the accusatory finger from journeyman pitcher Jason Grimsley who (likely with the help of his defense attorneys) implicated sure-to-be Hall of Fame pitcher Roger Clemens and his close teammate Andy Pettitte. Grimsley's house was searched after he admitted to using human growth hormone (HGH). Grimsley then agreed to cooperate with investigators, no doubt agreeing to give up other names in exchange for his own freedom. Sounds to me like McCarthyism in the ballpark.

I hope this does not take away from the most joyous time of year for baseball fans - the playoffs and the fall classic, the World Series.

As for my picks this fall, here they go:

AMERICAN LEAGUE DIVISION SERIES

Detroit Tigers vs. New York Yankees - The Bengals had the best start in MLB under manager extraordinaire Jim Leyland. However, they also managed to stumble their way in the last half of the season losing the division title on the final day of the regular season after getting swept by the inept Kansas City Royals. The Yankees are too deep to fall victim in the best of five ALDS. Yanks in 4.

Oakland Athletics vs. Minnesota Twins - As bad as the Tigers were since the All-Star break, the Twins were one of the best teams (along with the Yankees) in the back half of the season. Oakland has a good pitching staff but their bats don't scare opposing pitchers. The veteran Frank Thomas is several years removed from his prime but could show flashes of his old self in a short series. Twinkies in 5.

AMERICAN LEAGUE CHANMPIONSHIP SERIES

Minnesota vs. NY Yankees - Both teams were hot in the second half of the season with the Yankees sporting the best record in baseball along with the cross town NL rival NY Mets. Hitting advantage goes to the Yankees. The starting pitching is even and a Johan Santana (Twins) match up with Chien-Ming Wang (Yanks) could occur twice and create some classic pitching duels. When it comes to hitting the Yankees are head and shoulders above the Twins. The Homer Dome in the Twin Cities could be a sandbox for the Yankee Hall of Fame lineup. Yanks in 6.

NATIONAL LEAGUE DIVISION SERIES

NY Mets vs. LA Dodgers - The Mets were the best team in the NL and the most consistent throughout the season. The Trolley Dodgers ended strong to capture the Wild Card. While the Mets will go without Pedro Martinez in this best of five round, I believe that the Metropolitans are still the better team without him. LA has a nice line-up of veterans players but the power in the Mets lineup will more than compensate for Martinez' absence. Willie Randolph will also out manage Grady "I Should Not Have Left Pedro Martinez In" Little. Amazins in 4.

St. Louis Cardinals vs. San Diego Padres - A very religious match up. The Pads sport the career saves leader Trevor Hoffman. That still does not make him the best reliever of all-time or at the current time for that matter. Despite the Cards late season swoon they still have the best hitter in the game, Albert Pujols. Pujols will make sure that Hoffman does not get to do his job. Red Birds in 4.

NATIONAL LEAGUE CHAMPIONSHIP SERIES

St. Louis Cardinals vs. New York Mets - In a 7 game series I believe that the starting pitching advantage swings to the Cardinals favor as: the Met's Martinez is out; Tom Glavine only has one start in his tired arm and his career in the post season is spotty at best; and, Steve Trachsel is unreliable. This leaves only the ageless El Duque to carry the starting pitching on his shoulders. The Mets bullpen will be tested. The Cards still have Pujols. I predict an upset with the Cards winning in 6.

WORLD SERIES

St. Louis Cardinals vs. New York Yankees. A rematch of the 1964 World Series in which Bob Gibson led the Cards to a victory and was well documented by David Halberstam in October 1964. Starting pitching, bullpen, hitting, manager, coaching advantage all go to the Yankees. Sure the Cardinals have Pujols but the Yanks have perhaps the most potent lineup with Damon-Jeter-Abreu-Sheffield-Matsui-Rodriguez-Giambi-Posada-Cano. Not close but I will give the Cards a game. Yanks in 5.

Mistakes Market Strategists Make, Type II Errors and Elimidate

Jeffrey Miller, PhD, a fellow academic and professional money manager discussed on his blog, A Dash of Insight, errors made by market strategists and others by looking at descriptive statistics in a simplistic manner. This was also discussed by Brett Steenbarger on Trader Feed. I discussed this in my class at Seton Hall University. Here are my thoughts:

1. Using a single variable model increases the risk of Type II or ß errors. Thus you have to increase the variables and thus degrees of freedom in your statistical study to arrive at what is considered a statistically significant model.

2. Anecdotal observations are interesting as starting points but are a mean not an end in research.

3. All too often market strategists and other individuals make the mistake of form fitting data to meet their pre-conceived bias. In other words, they are trying to prove a conclusion by finding data to support the conclusion rather than derive a conclusion from a set of observations.

4. You need to back test under various conditions with multiple queries. Failure to do so will just induce more Type II errors.

I used a very simple example with my students by asking them if they watch the Syndicated TV show Elimidate as it was something that they can relate to. Most did watch (as I admit so do I from time to time). On Elimidate, four contestants go on a date with a single member of the opposite sex. The contestants are then eliminated one at a time by the single dater until a winner is selected from the four suitors. Then I asked the students to be honest and acknowledge if they try to guess the eventual winner at the beginning of the show. Again they overwhelmingly said yes. Oh course, I explained to them that their selection was made solely on their own bias based upon their own desired result, not that of the individual who was making the determination of the four contestants. It is not until more research was done by the single dater making the selection into the personalities of the four contestants was a winner determined.

As to the impact of the Federal Open Market Committee’s decision to pause or end an interest rate tightening cycle, I discussed with the class work that I published on TheStreet.com’s Street Insight where I was able to conclude that the end of a tightening cycle was positive for certain sectors of the market, such as the broker-dealers/investment banks. I pointed out that at the same time, the end of the tightening cycle might not fare as well for other sectors and suggested that they perform more research on their own at the Seton Hall Trading Room.

Lastly, there are some excellent market strategists who are top notch in my book. I am not implying that all market strategists are in any way guilty of using slipshod methods in their analysis, so its best that you know who is the best out there. In my book and in no specific order, theses are amongst the best:

Brian Reynolds - MS Howells
Tony Dwyer - FTN Midwest Securities
Richard Bernstein - Merrill Lynch

At the time of this blog entry, Scott Rothbort, his family and or clients of LakeView Asset Management, LLC were long shares or calls or Merrill Lynch (MER).

TIme For a New Refrigerator

After 18 years our refrigerator stopped refrigerating. The freezer worked but that was no help. So first thing on Monday morning I accompanied my wife on a mission to seek out a new refrigerator/freezer. The potential list of retailers was Home Depot (HD), Best Buy (BBY) and Sears (SHLD).

We recently bought a new front and storm door to our house from Home Depot who was also contracted to install the doors. We still have a credit card dispute with HD who tried to charge us more money after the installation. I have never seen anyone shopping for home appliances at HD. Also, we do not know of anyone who bought a home appliance there. We did buy our kitchen oven at Expo but alas, HD shut that concept down several years ago. Thus, HD was crossed off the list. We have had good experiences at Best Buy recently for purchases and installation of a Pioneer HDTV plasma television and a Sony (SNE) HDTV LCD television. However, we were able to take advantage of 12% coupons and zero percent financing at BBY. This time around we had no coupon. In addition, just like HD, we have never seen nor heard of people shopping for home appliances at BBY.

So, we trudged to Sears. As it turned out we had a 10% discount coupon for Sears’s home appliances. In addition, we have bought our dishwasher, clothes washer, clothes dryer and trash compactor at Sears. I also like to shop where I invest and as many people know, SHLD is one of the top holding for my clients, family and me.

Now we had to decide on a style and model. With a family of seven (six since we have one in college) plus frequent family and guest visitors, a large sized refrigerator / freezer is necessary. Our old refrigerator was 25 cubic feet. A similar size was necessary. We took measurements at home before leaving for Sears so we could make sure that a new unit would fit in the old space. There are 3 styles of refrigerator / freezer combinations. First is the side by side. We don't like that style. Actually we have one at the lake house (not our choice, it came with the house) but for our normal lifestyle it does not work. Then there is the freezer top / refrigerator bottom style which was like the unit that just died. Finally, a newer style called the trio was also available. The trio style has a freezer on the bottom and then two French style doors for the refrigerator on top. We decided on the Black Kenmore Elite 24.7 cu. ft. TRIO (see the picture above). It also comes with a water / ice dispenser on the left door. We could not use the 10% discount coupon because the unit was already on sale for about 12% off of the normal price. In addition we received a rebate for the delivery charges and were not charged for removal of the old unit.

Hopefully we won't have to deal with this situation for another 18 years. Instead now I may have to remodel the kitchen.

At the time of this blog entry, Scott Rothbort, his family and or clients of LakeView Asset Management, LLC were long shares of Sears Holdings (SHLD).

Professor Cody Willard

Congratulations to Professor Cody Willard, the dynamic hedge fund manager, Real Money.com contributor, blogger and band leader who scaled the Ivy Tower today to begin another aspect to his life, that of Adjunct Professor at Seton Hall University.

For those of you not aware, I am a full time professor at Seton Hall University, in addition to managing my own Investment Advisory business, LakeView Asset Management, LLC. Each and every Thursday (this semester) a group of students will be joining me in the Stillman School of Business' Trading Room (see picture above) to view and discuss Jim Cramer’s Mad Money which appears from 6 to 7PM. From time to time other guests from Wall Street or TheStreet.com will join us. Feel free to came and participate.

On Average There are 2 Sneakers to a Box

While shopping at the Aviation Mall in Queensbury, NY we stopped by a shoe store to look for some back to school foot attire. I came across a box of Puma sneakers and snapped this picture on my Palm (PALM) Treo 650. While hard to read, if you look closely enough, in the lower left hand corner of the box in the picture is printed Average Contents 2. The mathematician that I am began to wonder. Does Puma sell some boxes with 1 sneaker? Does Puma then offset that with boxes of 3 sneakers? Is there an arbitrage whereby I can buy 2 boxes of 3 sneakers and sell them as 3 pair?

College Tuition

I had an interesting discussion with my graduate assistant Michael Cavallaro on the topic of fixed versus variable college tuition. As it turns out I just paid my first round of tuition for my son. It turns out that his tuition plan is fixed, that is to say you pay not by credit but by semester. This was how I paid my way through the Wharton School at the University of Pennsylvania. On the other hand Seton Hall is on a variable or pay by credit formula. That’s how I paid my MBA bill at NYU’s Stern School of Business. I don’t think that there is a right or wrong way of pricing college tuition. It really depends on the structure of the institution’s classes, faculty and endowment. Universities which rely on large class size and have large endowments can favor a fixed tuition plan. Those which focus on small class sizes and rely on adjuncts more than permanent faculty and do not sport large endowments find it best to go the variable route.

I will say that having shopped around recently; some schools are definitely overpriced relative to the quality of their academic product in many respects. Please note that Penn, Seton Hall and NYU are not amongst those overpriced versus lesser quality institution. Quite the opposite, I think those schools offer great value. However, when selecting a college keep in mind the quality of the education and outplacement versus the tuition. As with the stock market, there are always bargains, blue chips and underperformers out there.

Back to School

Welcome to the LakeView Asset Management Blog hosted by myself, Scott Rothbort. I hope to share with you some of my thoughts from the world of investments, academia and the world in general.

Today (or shall I say, this week) is back to school. So far, my observations at retail stores indicate that we have a very brisk and healthy back to school season. In particular, I saw lines and heavy shopper activity at Staples (SPLS) and Sears (SHLD). I have held SHLD for our client accounts since the stock was Kmart.

Today SHLD is up on strong volume with the stock price advancing above the level at which it closed the day before announcing earnings in August. Helping the stock today is information fresh from the SHLD 10-Q in which the company disclosed a nearly 2.3 million share buyback. More buybacks are no doubt on the way.

On the day of the earnings release, I spoke on Bloomberg TV about some of my thoughts on Sears and its ace Chairman, Eddie Lampert.

At the time of this blog entry, Scott Rothbort, his family and or clients of LakeView Asset Management, LLC were long shares of Sears Holdings (SHLD)