Boston

First impression of Boston is how tranquil the town is—calm, nice with people being thoughtful. Interestingly, Boston lacks the level of intensity that is perpetually pushing people to the limits of sanity as in New York. The presence of having to attack, having to compete, having to work together, having to be paranoid that is part of New York is devoid in the Bostonian as I walked through Copley Square and Beacon Hill.

What is quite surprising is how much private high-school permeates Boston life. The world of private school in New Jersey is really for those who suffer from a severe case of inferiority. New Jersey invest heavily in its public schools and boasts the best in the nation, with little reason for a family living in a good town to pay the added expense.

However, that is not the case in Boston. A street is called Exeter; another called Dartmouth, a beneficiary of the private schools that dot the states from Connecticut heading northward.

Overtime, one has to question if this pervasiveness is a breakdown between the citizenry and local government that has now gone on for generations--the pride of being from Exeter and heading on to one of the schools that makes up such an important part of Boston life. The preppy clothes--some wearing new and neat, others wearing Polo shirts hanging sloppily around their overly wide waists, a sign of inactivity. And the whiteness, Oh! the whiteness. Not of the clothes, but of the skin. Pale white faces; paler white legs. And the look, Oh! the look. That pale white face with the look of inbreeding. America’s version of the royal family. A person so pale and so soft that a simple look from someone from South Boston or from an area like Bensonhurst would make this soft, fleshy boy in his twenties collapse due to his sheltered, shallow existence having lived a life in walled gardens.

The softness is distant from the lives most Americans and others around the world live. The coarseness that one builds up from watching their parents struggle to makes ends meet--the lack of money for your mom to look as pretty as she wants; the stress dad feels from always having his job threaten in this American system build around business. The white, pale soft skin of the Bostonian, descending from a father that works for the private equity firm that bought the company your dad who used to work for, then fired so they could afford to pay down the debt piled on to purchase it.

The southy driving the tour bus demanding his paying customers to listen: “If you listen, you’ll learn something.” Or, the other southy, owner of a liquor store, forcing the pale college student to dig deep into his pockets to find the final penny to pay his tab. The elder statements of the liquor store with a reddened face followed the pale student, he was not required to dig deep into his pockets to find his last penny.

The softness at first can be nice. The parents, now empty nesters, together, having wine in an French Bistro on Newbury Street. But, after a few minutes, there is no conversation. She has wine and her crossword puzzle. Always an ideal spot to do a crossword puzzle--a happening bistro in one of the trendiest cities in the country. This couple likely said goodbye to their last child. The husband, to have some conversation, turned to the early twenty-something barmaid. Her ambitions were not to be barmaid—to no one’s surprise—but to help her boyfriend turn his streaming radio station into a success. At least the barmaid still had hope. The wife, suffering the numbness associated with her daily in-take of wine and lack of physical exertion, turned back to her crossword puzzle.

What was not picked up in my first day of Boston was what made Boston great—the intelligence that comes from attracting many of the best minds in the world. The philosophy that helped drive the creation of laws that this nation was built on and the men and women of science who continually come up with the new ways to approach life that allow human beings to move forward. Well, tomorrow is another day.

Paulson's Crash

US Treasury Secretary Seriously Messes Up

Blaming Friday's mini crash on the 20th anniversary of the 1987 stock market collapse and a few earnings misses is not even close to being on target.

The blame for Friday's collapse can be squarely placed on the shoulders of US Treasury Secretary Hank Paulson. Paulson hosted his G-7 contemporaries last week in Washington to discuss exchange rates and other policies, however, while publicly stating the US supports a strong dollar, there did not appear to be much conviction behind his statements. Word has it, the US did little to support a reversal in the weak dollar--particularly against the euro--and this left the other treasury secretaries not very happy. Rather than direct their statements of rejection at the US, they chose to blame China instead with further calls for yuan appreciation. As the news leaked out, the US market began to tank.

Paulson's move not to support a reversal of the US dollar against the euro follows the formation of the SIV fund to provide financial support for off-balance sheet debt held by the major money-center banks. SIVs are not very different from what Enron did and in certain ways is worse since these institutions have decades of experience at knowing what is and what is not on- or off-balance sheet financing. Paulson still has not clearly detailed the reasoning behind the move.

Mr. Paulson also had few good things to say about housing this week. While many of the seeds for the housing collapse were put in place prior to his tenure at the Treasury, why he felt the need to remind the markets of what it already knows, leaves one to ponder. Paulson was pretty much stating the obvious.

Friday's stock market mini-crash should be called Paulson's Crash. He is bailing out his pals on Wall Street with the SIVs fund and he will not help the Europeans get out of their difficult position of too strong of a currency who now have decided to turn their blame for the US' incompetence to China. Forcing appreciation of the yuan when Chinese officials are working very hard to slowdown their economy and stop their run away stock market is a recipe for disaster and unfair for the Chinese. As the yuan appreciates, this will only bring more money into China and drive an overly inflated stock market even higher.

Paulson falls into a long line of Bush Administration appointees who are charismatic, are excellent at articulating a thought and are willing to express their views to the world. However, there is only one problem--whether it is Cheney, Rumsfeld, Wolfowitz or Paulson--it is that they are always wrong.

Unlike Rubin and Corzine, former Goldman Sachs partners who have demonstrated some serious success after leaving the investment firm, it looks like Paulson is not following the same path.

Fox Business Channel

Tarzan Meets Bambi

Fox Business Channel, in its long-awaited debut, launched its new post-trading show called Happy Hour.

For those who missed the show, it is set in a New York bar and hosted by Cody Willard, a Wall Street investor with a Johnny Weissmuller haircut but without the physique, and Bambi, a well-endowed actress on loan from a small San Fernando Valley film company. When asked why she took the Fox anchor position, Bambi responded: "It was the first job offer I ever got that did not require taking an AIDS test."

This blogger has since learned that John Holmes and Tracy Lords will be hosting tomorrow's show.

Soon after the launching of the show, it was said that the ground above long-time Wall Street Journal editor Robert Bartlett moved as he was rolling over in his grave. This blogger was also informed from a well-connected source at Craigslist that the job-placement website got a record number of hits as jounalists for the Journal sought to find new employment following the shows' debute.

A lawyer, who negotiated the terms and conditions of Rupert Murdoch's acquisiton of Dow Jones, said the parties negotiated every possible detail ensuring the editorial integrity of the Journal. Even prohibiting the global-media magnate from posting a Page 3 Girl in the 100-plus-year-old business paper.

However, it has since been learned that Murdoch found an out in the contract that will allow him to post the Page 3 Girl on the cover of the newspaper. It is our understanding that the first girl to grace the cover of the Journal will be Bambi, the host of today's Happy Hour. And on her breast will be written: "Fox: America's Business Channel." And yes, her endowment is such that it will be able to display the entire slogan.

As a final note, the Tarzan & Bambi hour followed an interview with Alan Greenspan.

Corporate Credit Crunch

Saving The Economy or Saving Their Ass?

US banks are going to set up an $80 billion fund to limit the credit crunch, Reuters reports. The fund will buy ailing mortgage securities and other assets in a bid to prevent the credit crunch from further hurting the global economy, anonymous sources said who were too embarrassed to disclose their identity for the newswire's story.

How noble for these titans of industry to perform such a task for the masses.

The source neglected to say that it was the lack of controls and self-discipline of management at these money-center banks that created the crunch in the first place. Enticed by huge bonuses, there was little concern for the well being of the US economy when no-money-down mortgages and leveraging transactions at 8x EBITDA were being committed to ad-infinitum.

The Reuters report goes on to say representatives from the U.S. Treasury have organized conversations among top global banks, as financial institutions grow increasingly concerned that a certain type of investment fund linked to banks may have to dump billions of dollars of repackaged loans onto financial markets. The reason why Treasury officials have to speak to global banks is due to the outstanding job US bankers did selling this junk to investors from around the world.

Further, US bankers are saying that a fire-sale of assets could lift borrowing costs globally, trigger big losses from investors and force banks to further write down some holdings on their balance sheets. No kidding! That is what is supposed to happen after you make bad loans.

This news report shows that the depth and duration of this debt problem is coming home to roost. The credit evaluation process for many of these loans has moved away from the investment banking departments to the CFO's department at many of the major money-center banks.

A month ago bankers were claiming it would take three to six months to work through the $300 billion pipeline of private equity transactions. But, after having some success with financing the First Data transaction, it is not going so well for the other deals. Banks have to write the checks for the commitments they have made with limited interest by lenders to scoop up the debt in other transactions. Supposedly, private transactions are being negotiated to place this debt with big discounts being suggested--meaning the writedowns that big money-center banks took in this recent quarter will continue in upcoming quarters.

The bankers' plea to suggest that they are attempting to help the US economy by setting up this fund is pure hogwash. The fact of the matter is that regulators and CFOs are now running the show. And they are concluding that these masters-of-universe investment bankers did some real dumb things and have a big hole to climb out of.

The U.S. Dollar

Negative Sentiment of the Dollar Continues To Build

Gold, the Canadian dollar, the euro and the lowering of short-term interest rates does not bode well for the U.S. dollar. Or at least that is what conventional wisdom is saying. You will be hard pressed to find a financial TV show or publication saying anything positive about the greenback these days.

Arguments are a plenty: the dollar is weak because the Fed added to much liquidity to U.S. economy in 2001 and 2002, the dollar is weak because of our huge trade and budget deficits, the dollar is weak because we are a people who are undisciplined and cannot save. The arguments go on and on. Someone in Barron's actually wrote that the dollar is weak because inflation is high. Outside of housing there does not seem to be a lot of price deflation, but taking the leap to suggest inflation is pervasive enough to cause the dollar to weaken is somewhat of a stretch.

As we have blogged a few times this past month, the U.S. dollar is weak because currency traders have a trend-is-your-friend mentality. They will lever up and follow that trend until they get spanked by central banks. Currency reversals are driven by Treasury secretaries working with central bankers to change the direction of a currency. Expect that to soon happen particularly with the U.S. dollar reversing against the euro. The seeds are already being sown to spank those currency traders good and to drive the U.S. dollar higher. The U.S. economy remains the place to be and the global leader in new business creation. Do not sell the dollar short, go long the greenback.

Financial Stocks

Is It Time To Jump Into Financial Stocks?

Historically, when the Fed has started cutting rates, investing in financial stocks has proven profitable for investors. Will the same hold true in today's easing cycle? Probably not.

The Bear Stearns (BSC) model for its mortgage business might point to problems ahead for the financial industry in general. The financial services industry has done an outstanding job during the past twenty years developing new products and marketing them to institutions who specialize in buying these new instruments -- primarily hedge funds. With mortgage hedge funds, publicly traded vehicles such as mortgage REITs and other investors now shutting their doors to these products, who gets stuck with them? You guessed it! The investment firms and large commercial banks.

Now let's go to $300 billion of private equity debt that needs to be placed. Who is buying that up? While some institutions are, much of it is staying on the books of the investment firms and banks. Will funds be formed to invest in this debt? Yes, but it will take time.

Also, a point worth noting is that much of the debt for private equity deals is in the form of leveraged loans -- meaning floating rate debt. If a series of events unfold where these interest rates have to be set higher, many companies that have gone private will have a tough time making their interest payments. Not too different than what is currently happening to homebuyers who purchased homes with adjustable rate mortgages.

Further, as the Fed starts priming the pump to keep the economy going, the liquidity will not flow into the sector that just went bust. Following the tech and telecom bubble of the late 1990s, when the Fed dropped rates, money went into real estate, not back into tech and telecom. As this current easing cycle unfolds, money is unlikely to flow back into the mortgage market and PE deals.

While the investment firms and commercial banks are not going bust like many did in the earlier 1980s and early 1990s, they will have trouble growing earnings for the next few years. Also, it appears the Fed's easing cycle may not create the steep yield curve for financial firms to make easy money. All totaled, earnings growth in the financial sector will be hard to come by during the next few years and the stocks' performance will mirror the companies' inconsistent earnings performance.

AT&T and Verizon

Don't Forget About The Large Telcos

While investors are focusing on the ensuing battle between AT&T (T) and the big cable companies over providing voice, video and data to the home, many might need to be reminded that the telco giants have a massive enterprise business that is ripe to benefit from improved pricing.

Remember there are few companies that can provide high-level enterprise service on a nationwide basis -- AT&T and Verizon Communications (VZ) are pretty much it. You would be hard pressed to name another.

Qwest Communications (Q) has not said much about what it wants to do with its fiber network and although Level 3 Communications (LVLT) is picking up its business, it will not be enough to threaten the positions of the two behemoths.AT&T and Verizon's stock performance, while doing well recently, has been held back by investors wondering where the revenue growth is.

Now it appears that growth might be ready to return. Jim Crowe, Level 3's CEO, said a few months back that one issue the industry no longer has is pricing, a big change from a few years ago.Verizon and AT&T have been written about more positively over the past few days, as Bear Stearns and Citigroup are both recommending the stocks. Sometimes the best stocks are in the most obvious places. AT&T and Verizon are two large companies that are worth looking at again.

Newmont Mining

Gold Up Big: Stay With Newmont Mining

Yesterday, gold was up over $23 in trading, hitting a seven month high. A CPI report of 2.7% helped send gold flying.

The concern is that with energy and home prices having declined since the spring of 2006, that the CPI would be close to zero or even negative by now. Yesterday's data show there is still plenty of liquidity in the economy to keep it going and rate decreases are going to be pushed out for a while. The possibility of an increase or two exists if growth ticks up a bit too much.

We blogged in October about the merits of investing in Newmont Mining (NEM). Our rationale was the huge correction in its stock price and the discount it sold for relative to the value of its gold reserves. The value of its gold reserves are estimated to be 20% to 50% higher than its stock price.

Newmont reports earnings today, not that it really matters since it trades relative to the price of gold price. But it would be worth a listen.

There are a number of factors which favor the outlook for gold. Most countries have floating currencies or have their currencies backed by floating currencies. Central banking mistakes will lead to higher levels of inflation--and we know that central banks will make mistakes.

Newmont is a good hedge in a world of floating currencies and awash with cash.

Whole Foods

Holy Clarity

This Fly has never read an earnings release from Whole Foods Market (WFMI) prior to last night. I recommend those who have read plenty of them to read this one. The clarity and transparency is refreshing.

In particular is the table which breaks down the age of stores, their comp growth rate and the return on invested capital. For example, for stores open for 11 years, Whole Foods stores show a same-store-sales growth rate of 3.8%, which is pretty good for a store open that long.

More impressive, however, is the ROIC for stores open eleven years is 77%.

Whole Foods' stock peaked at $78 in December 2005. It is now around $46, a big correction. Despite increased competition in the organic food space, Whole Foods has built a powerful brand name. In addition, its acquisition of Wild Oats is not a bad idea. Wild Oats has been restructuring the past few years and should not require too much work to integrate these stores.

It is time to do more work on Whole Foods. This looks like a good growth stock selling at a low valuation.

Hewlett-Packard

Hewlett-Packard may Pull Back

Cost discipline and revenue growth go hand in hand, said CEO Mark Hurd during Hewlett-Packard's (HPQ) conference call last night. HP emphasized its unit volume growth for the quarter.

* Notebook units up 57%; 40% revenue growth
* Printer hardware units up 18%; revenue up 7%
* Personal system group, in total, was up 19% in units, with revenue up 17%

HP was able to gain market share gains while improving margins. The margin improvement in such a competitive market was impressive, as GAAP operating margin increased to 7.3% up from 6.6%.

However, the balance sheet and cash flow statement metrics showed signs which historically preceded difficult times for the PC business. Guidance was a bit weak and inventory has jumped up. In addition, there was concern about the apples to apples comparisons of gross margin due to the Mercury acquisition. In addition, there was some concern about sources and uses of cash. Particularly about $1.48 billion cash outflow for rebates and other uses--also a signal of a weakening PC business.

HP is a stock you do not have to rush into. There are warning signs that this stock might run into a couple of quarters of weak results. Stay on the sidelines for now.

Home Depot

Home Depot Holds Up Despite Awful Results

The Home Depot (HD) declined a mere $0.37 in trading yesterday despite reporting awful results. Same store sales were down 6.6% for the quarter and in one month were down 11%--that is pretty bad.

However, despite these tough results, management appeared to be confident that the weakness is manageable and measurable. It appears the worst might be hitting Home Depot currently and the poor operating performance could bottom in the first half of 2007.

While Home Depot's supply business rolled over, the real concern appears to be its decision to enter the electronics appliance business. Home Depot mentioned this business was very disappointing. This could be a business line they exit.

Due to the relatively good stock performance following such awful results, investors need to start looking at this stock again. Home Depot will most likely be a Fed stock -- meaning when there is enough evidence that the Fed might start dropping rates, Home Depot stock might be off to the races.

The other thing to look for is a bottoming in its same store sales decline.

JetBlue Airways

Oddity Of The Airline Industry Comes Home To Roost

If you invest in turn around situations, you will have spent a lot of time focused on airline stocks during the last five years.

When interviewing airline executives, they universally say the same thing: the airline industry is different than other industries, as you grow there is point at which your costs substantially increase as a percent of sales. The old concept of economies of scale does not work the same way in the airline industry.

This appears to be happening at JetBlue (JBLU). When asking airline executives about JetBlue as a competitor, many said that at some point its costs are going to have to go up.

The JetBlue irony is that the start-up airline is having trouble when legacy airlines are actually raising prices. There is no price war going on.

What are the reasons cited for JetBlue's blues? Regulation, as pilots need to follow federally established rest rules; poor communications -- a big expense; failed reservation systems -- very expensive; employees are in locations where they are unable to provide a helping hand -- more expenses.

JetBlue appears to have reached a size where it needs massive infrastructure investment. It will be interesting to hear if management comes clean on how much all the investments will cost.

The airline had scheduled 600 flights for Presidents Day, more than the 550 to 575 flights on a typical Monday. So far, 139 flights have been canceled.

Agilent Technologies

Solid Quarter For A Solid Company

Agilent (A), the tech equipment company that was spun-off from Hewlett-Packard (HPQ), reported solid results yesterday. While they might not drive the stock higher, it is a good stock to keep up to date with and buy on a market correction.

• Handset test measurement business was weak, which should not be a surprise since we have been blogging about weakness in the handset market for the past three or four months.
• Bio-analytical business is doing very well, having a "blow-out" quarter. Revenue was up 22% year-over-year. Operating profit in this business was up 69%. Sales to China and India were up 33% and 38%, respectively.

Many of the people who made HP into a great company decade after decade are with Agilent. The company is a strong product innovator and also is run increase shareholder value.

Keep an eye on Agilent and jump in during market sell-offs. Agilent has a strong balance sheet and good product innovation to be around for a long time.

Chipotle Mexican Grill

The McDonald's Of 2007

What Ray Kroc was to hamburgers, Steve Ells is to Mexican food. Ells, Chipotle Mexican Grill's (CMG) founder, has created a stock to buy and put away. This company is too early in its growth phase to be ignored. There is a long way to go with this stock.

Highlights for full year 2006 as compared to full year 2005 include:

• Revenue increased 31.1% to $822.9 million
• Comparable restaurant sales increased 13.7%, compared to 10.2% in 2005
• Restaurant level operating margins increased 240 basis points to 20.9%
• Income from operations approximately doubled to $62.0 million
• Diluted earnings per share were $1.28, compared to $0.66 in 2005

There could be some negatives. Chipotle needs to invest heavily to get employees. Growing rapidly in a tight labor environment is extremely difficult. It will also have to deal with higher food costs and higher costs to open up new stores as it enters more expensive markets.

Getting Cheaper, But Not There Yet

Coca Cola (KO) has been dead money for years. After reporting solid results yesterday, the stock may be due for a good 15% rally.

Coke had a great 10-year run which ended 1998, when a bear market in value stocks began. When Warren Buffett built his position in the late 1980s, the stock sold for $4.50 per share, according to Yahoo's new charts. By 1998, the stock peaked at $89, an almost twenty-fold gain.

Since peaking in price in 1998, the stock has declined almost 50%. By 1998, the P/E on Coke exceeded 40 x earnings, a high-tech type valuation. Today, the P/E is at 19x. Getting cheap, but not very cheap.

Coke grew revenue 7% for the most recent quarter and its operating profit improved 10%, very solid for this $112 billion company. With the market rallying, these results will force large institutions to own this stock. Coke most likely has a good 10% to 15% rally ahead. But after that, take profits. Coke's valuation is not cheap enough to be a big winner yet.

February 15

Newell Rubbermaid

Newell Gets Across-The-Board Upgrades

Newell Rubbermaid (NYSE:NWL) held its analyst day with the investment community Tuesday. Today, Newell is getting across-the-board upgrades.

We began blogging about the merits of Newell's turnaround back in April when the stock was trading at $26, today the stock is around $31, up 19%. Merrill Lynch, Smith Barney and Oppenheimer have raised their targets to the $34-to-$35 price range.

In this Fly's opinion, the analysts’ price targets are too low. Estimates are for Newell to earn $1.95 per share, but Newell will most likely earn over $2.00. Also, as the company exceeds earnings expectations, the P/E investors are willing to pay will go from 18x to 20x. Look for Newell's target and stock price to approach $40 by 2007 year-end.

February 14

Applied Materials: Results OK; Semiconductor Equip Cycle Appears To Be Bottoming

Applied Materials (NASDAQ:AMAT), the semiconductor equipment powerhouse, appeared to show signs that the semiconductor equipment market is close to bottoming during its quarterly conference call. Equipment orders were guided to be up 2%-7%, a good sign for the industry.

Michael Splinter, AMAT's CEO said the logic, foundry and display businesses should be bottoming during the next few quarters. Splinter sees strong memory purchases as some 20 memory fabs are due to be constructed to meet the growing demand for new products, such as NAND, which are being used more often as a substitute for disk drives.

What is becoming more and more clear as you listen to AMAT's conference calls and meetings with the investment community is just how powerful a company this is: 90% of orders are 300-millimeter, as semiconductor equipment buyers continue to push toward using newer technologies. This allows AMAT to build a bigger and bigger moat to fend-off competition.

AMAT generated free cash flow of $322 million, which is at the lower end of its free-cash-flow generation cycle. AMAT expects free cash flow generation to move higher from here. The stock buyback is large and dividend increases are also up ahead. AMAT is a very powerful company in a very important industry. It is time to start chipping away at this company.

Feburary 15

Venezuela

Chavez Pays Market Price For Verizon Stake

Hugo Chavez, the socialist Venezuela leader, agreed on Monday to buy Verizon Communications' (VZ) 28.5% stake in the country's CANTV, the country's leading telecommunications provider.

Chavez offered $17.85 per CANTV ADR versus the $16.08 per share Monday trading price, an 11% premium. Last year, Carlos Slim, the Mexican billionaire offered $21 per share.

The CANTV offer follows the government's agreement to pay $740 million for AES's 82% stake in Electricidad de Caracas which was again close to the current trading value.

Anyway you look at it, Venzeula is a country that simply cannot get out of trouble. If its run by capitalists, the rich keep all the money and the poor get poorer and poorer. If the country is run by an extreme reformist, like Chavez, the state runs the businesses into the ground. If you even have an opportunity to go to Venezuela to evaluate investment opportunities, don't go. It is too tough of a place to make money whether a capitalist or communist is running the country.

February 13

Wireless Software

A War In The Wireless Software Business Is About To Begin

Today, Nokia (NOK) and Vodafone (VOD) announced their collaboration on the development of S60 software on Symbian OS, with the release of the first Vodafone specific software package to all S60 licensees.

Comverse yesterday announced the expansion of its Converged Messaging portfolio with the launch of Comverse Instant SMS, which combines the worlds of SMS and Mobile Instant Messaging, or MIM.

Additionally, Openwave (OPWV) is launching a whole line of new products.

2007 and 2008 will be the battle between handsets and smartphones, those with the best software will win out. Wireless service providers have been slow to bring PC functionality to handset devices for fear of losing control of the handset. In the PC business, Microsoft (MSFT) and Intel (INTC) make all the money, with little left over for anyone else.

This means industry consolidation in the wireless software market is about to begin. Look for everyone to start making wireless software acquisitions, either acquiring or partnering, with Openwave, Comverse (CMVT) and Symbian. Also look for the big software companies like Microsoft and Sun Microsystems (SUNW), with its Java platform, to get into the M&A activity.

IP Phone

Looking To Invest In IP Voice: Stay Away From Vonage, Look At eBay

Vonage's (VG) woes continue as detailed in Barron's Follow-Up column this weekend. The stock is currently trading at $5 per share down from its $17 offering price.

The article cites the lack of triple-play offering -- voice video and data -- that the cables can offer and that the baby bells most likely are heading towards offering. However, from this Fly's perspective, the real play in voice over IP could be with Skype, which is owned by eBay (EBAY).

eBay completed the acquisition of Skype during the past year which is now part of its Power of 3 strategy -- marketplaces, payments and communications.

While the cable companies are adding hundreds of thousands or millions of customers, eBay has over 171 million customers around the world. Skype now offers phone numbers that work through your PC. In addition, there is, although it is still expensive, a Skype USB port phone that is wireless so you can walk around with your Skype device in your home.

Skype will be charging for services that go into public-switched networks, but the cost is virtually nothing when compared to cable and the baby bells.

eBay said in its year-end conference call that it is still figuring out the best way to monetize Skype. Any way it does it, it will be a lot cheaper and more profitable than any of its competitors.

February 13, 2007