Yang was elected CEO in June 2007, his second go-around at that post. Since then, Yahoo’s market value has fallen by more than $20 billion, according to Bloomberg.

To be fair, Yahoo was already losing its market share to Google Inc. (GOOG) and a healthy percent of its share value as a result.

But Yang was brought back to fix that.

There was a deep feeling within Yahoo’s ranks that Yang wasn’t fit to continue leading the company out of the mire – or least into a profitable merger/acquisition situation – because he had burned too many bridges trying to get what he felt was the fair value of Yahoo’s shares.

In the year and a half he ran the show, Yang sternly rejected several takeover offers from Microsoft, including a $47.5 billion bid that amounted to $33 a share. The offer valued Yahoo’s share at a 62% premium at the time.

This led to a proxy battle instigated by board member Carl Icahn, who wanted to oust Yahoo’s board of directors and replace it with candidates of his choosing. Icahn – it should be noted – favored a Yahoo partnership with Microsoft over Google.

Earlier this month, Google walked away from a plan announced in June to sell advertisements on Yahoo’s pages after the Justice Department threatened to block the deal on antitrust grounds.

Google already has more than 70% of the search-engine driven advertising market. Yahoo has about 10%, according to BusinessWeek. For Yang, it was a chance to revive falling sales, as profit has dropped in 10 of the last 11 quarters.

And that’s caused the company to shed a lot of dead weight.

Last month, it announced 1,500 job cuts. And, Scott Moore, the senior vice president in charge of the company’s media group, recently announced he, too, is leaving.

In addition to Moore, Yahoo shed five top executives this past summer: Jeff Weiner (executive V.P. of the network division), Brad Garlinghouse (who oversees e-mail and instant messaging), Vish Makhijani (general manager of web search), Qi Lu (top engineer for search marketing) and Joshua Schachter (founder of social bookmarking site, delicious).

So Now What?

Instead of first saying that Yang is stepping down, Yahoo’s news release begins by announcing it has begun a search for a new CEO.

Yahoo Chairman Roy Bostock said the company is searching internally and externally for candidates, and is being aided by executive search firm Heidrick & Struggles.

“Jerry and the Board have had an ongoing dialogue about succession timing, and we all agree that now is the right time to make the transition to a new CEO who can take the company to the next level,” Boystock said in the release.

Some of those candidates include Yahoo President Susan Decker. Other names floated include Jonathan Miller, the former chairman of AOL; Dan Rosensweig, once Yahoo’s operations chief; and Meg Whitman the former chief of Internet auctioneer EBay Inc., Bloomberg reported citing UBS analyst Ben Schachter.

Whoever gets the job is getting a difficult one with high expectations.

But one could argue that Yang’s follies lowered expectations. At this point, it’s understood that Yahoo can’t unseat Google as the world’s top search-engine advertiser – at least on its own.

Many board members and shareholders wanted Yang to sell Yahoo to Microsoft. If not that, then find another partnership to gain at least some traction against Google.

Before Yang’s departure, Yahoo’s shares dipped to $9.75, their lowest level since 2003. And on top of all of Yahoo’s problems, the global stock market is bracing for a cold year.

There’s a good chance that the role of Yahoo’s next CEO won’t be leading the company out of its mess, but instead wave the white flag in front of a company that can.

Source: Yang Steps Down, Yahoo CEO Search Commences

But our other big national deficit is creating a different problem, as well as the potential for one low-risk, high-return investment opportunity. Here’s the bottom line…

Because the United States has run such a large and persistent trade deficit for so many years, other countries – like China – have been able to run up large current account surpluses. These surpluses, in turn, have enabled them to accumulate substantial foreign exchange reserves.

For years, this money was invested in the world’s safest securities: U.S. Treasuries. But the returns from these securities haven’t been so hot lately. Especially when you’re a foreign investor watching the greenback wilt like last week’s roses.

Many world governments are now putting their money to work elsewhere. (Can you blame them?) Sovereign Wealth Funds are their vehicle.

Sovereign Wealth Funds are the financial assets of a country – usually part of the national savings – that are owned and organized into a state-controlled fund. These funds are increasingly moving money into global equity markets. And the sums involved are fairly staggering.

Current assets controlled by Sovereign Wealth Funds are estimated to be $3 trillion. They are expected to reach at least three times this amount over the next five years.

This is a bit scary to some investors, because these funds are entirely secretive. There is no world body to which they have to disclose what they are buying or when.

But here’s a common sense insight. They aren’t buying small or mid-cap companies. There isn’t enough liquidity in these to allow them to enter or exit their positions efficiently.

No, these funds must invest in the world’s biggest companies. As an individual investor, you might benefit from picking up giant companies like General Electric or British Petroleum or HSBC.

Or you can do it the easy way, by plunking for a few shares of the Dow Jones Global Titans Fund (AMEX: DGT).

This exchange-traded fund (ETF) holds 30 of the world’s largest publicly traded companies. It also pays a 2.5% dividend, 25% more than the average money market is paying right now.

Its major holdings include the companies I mentioned above, plus other market bellwethers like AT&T, Johnson & Johnson, Nestle, Microsoft and Proctor & Gamble.

The Global Titans Fund has several advantages. It is well diversified, liquid, and gives you instant foreign currency diversification. (60% of the holdings are in the United States, the rest are in international markets.)

It also uses a passive indexing approach, so it is both cost-effective and highly tax-efficient. Annual expenses are only one half of one percent.

This fund was originally brought to my attention by Eric Roseman, the Sovereign Society’s savvy Investment Director. (To read Eric’s views and learn more about international money flows, global investing and financial privacy, I suggest you check out the Sovereign Society’s Off Shore A-Letter. It’s quite good – and it’s free.)

In sum, the Dow Jones Global Titans Fund is holding exactly the mega-cap global companies that Sovereign Wealth Funds are likely to plow money into for many years to come.

My suggestion? Pick up a few shares now. And let the world’s most powerful creditors push your shares higher in the weeks and months ahead.

Good investing,

Alex

Source: How to Turn Sovereign Wealth Into Personal Wealth

One hundred ninety-five dollars is the “live-out allowance” here in Fort McMurray. This place is ground zero for the Athabasca tar-sand boom. That money amounts to hardship pay, and the miners here need it.

Fort McMurray isn’t a big town. It has just three exits on the only highway within 100 miles. Forty years ago, there wasn’t much here at all. Now it’s one of the fastest-growing towns in Canada… and the extra $50,000 or so a year those miners earn puts a lot of juice into the local economy.

I spoke to a mortgage broker here yesterday afternoon. She told me they did a billion dollars in mortgages in Fort McMurray in 2007. You’d have to sell three beachfront condos a day for a year to make that kind of money in Florida. In Fort McMurray, they did it selling mobile homes.

A typical doublewide mobile home costs around $450,000 here. A modest two-bedroom with a garage, under 1,600 square feet, will set you back nearly $700,000.

That isn’t likely to decline anytime soon. Everyone is spending money up here, and the population will continue to increase. In 1963, one company mined the tar sands. Now, more than 60 companies are falling over one another for acreage. With oil over $100 a barrel, mining this trillion-barrel deposit is just too profitable, and too safe to ignore.

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I see three important factors that set the tar sands apart from nearly every other large petroleum deposit in the world… factors that continue to justify your investments in the area.

1. Canada’s oil sector is private. Last week, I talked about the increasing power of state-owned oil companies. In places like Saudi Arabia and Venezuela, huge government-run companies control all aspects of oil production. Canada’s government stays out of the oil-production business.

2. Canada operates under the rule of law. I love Canadian and Australian natural resource investments. These countries have long histories of being investor friendly. Russia and Venezuela have a tendency to screw companies and individual investors.

3. Canada has a short, safe, efficient transportation route to its largest consumer – the United States. Saudi Arabia can’t say this. Its oil production is threatened by instability… and the transportation route is half the world.

These three reasons will drive an explosion in Canadian oil sands. Production will climb from 1.1 million barrels per day in 2006 to 3.8 million barrels per day in 2020… That’s 250% growth in just 14 years.

Alberta has 857 projects on the books worth $169 billion. Those projects include everything: mines, electrical generation, parks, biodiesel plants, and roads.

However, the bulk of that money comes from oil-sand development. This is one of the greatest growth stories on the planet right now. And there are lots of ways to get in…

You can buy Suncor Energy and make decent gains, but it’s like the Microsoft of the oil sands. Everybody knows about it. I prefer sticking to smaller producers and infrastructure ideas.

I still like Husky Energy for a refining infrastructure play. It’s one of Canada’s largest and most powerful oil companies… and it counts the brilliant Li Ka-shing (China’s richest man) as a big investor. Its early investments in heavy oil refining have made it one of the largest refiners in the region. S&A Oil Report readers are up about 55% on the stock… and I see bigger gains ahead.

You can also buy natural gas for a play on Canadian oil sand development. Mining and processing the oil sand consumes huge amounts of natural gas. More and more of Canada’s natural gas exports to the U.S. will be diverted to the oil sands, which should support North American natural gas prices.

Whichever route you choose, I recommend you choose it soon. I believe a long era of high oil prices is ahead… and buying into Athabasca is the safe way to profit.

Good investing,

Matt Badiali

P.S. Most investors have no idea that the development of Athabasca is also a tremendous opportunity to collect some of the highest income payments in the world.

Source: Three Reasons You Need to Invest in Tar Sands Today

Two weeks ago, Yahoo Chairman of the Board and co-founder Jerry Yang rebuffed Microsoft’ $47.5 billion (or $33 a share) bid, sending shares down $4.43 (or 15%) to $24.24. That of course didn’t bode well for Icahn, who said he owns 59 million Yahoo shares.

“The board of directors of Yahoo has acted irrationally and lost the faith of shareholders and Microsoft,” Icahn said in his letter. “I sincerely hope you heed the wishes of your shareholders and move expeditiously to negotiate a merger with Microsoft, thereby making a proxy fight unnecessary.”

If necessary, Icahn’ strategy is to seek antitrust clearance from the Federal Trade Commission to purchase up to $2.5 billion worth of shares – about a 6% stake. Also, with all of Yahoo’ 10 board members up for re-election on July 3, Icahn will move to nominate his own list of board candidates, one being Mark Cuban.

Reviving talks with Microsoft won’t be easy, as rhetoric increasingly intensified between Yang and Microsoft CEO Steve Ballmer during takeover negotiations.

But if anyone has the experience and moxie to push talks further, it’ Icahn, who has used his clout to push action at struggling mobile phone pioneer Motorola Inc. (MOT) and drugmaker ImClone Systems Inc. (IMCL).

Most recently, Icahn has been at the forefront of Blockbuster Inc.’ (BBI) up-to $1.35 billion bid for Circuit City Stores Inc. (CC). If that deal falls through, Icahn said he would acquire the struggling electronics retailer.

In his letter to Yahoo, Icahn said the board “completely botched” a successful merger with Microsoft and that he is acting on shareholders’ behalf to establish a new board.

Icahn also penciled his name in as one of the nominees for Yahoo’ board.
“I think he’ playing his cards pretty smart here,” Troy Mastin, an analyst at William Blair & Co., told Bloomberg Television. “I wouldn’t be surprised to see Microsoft and Yahoo together in the next few months.”

Source: Yahoo ‘Completely Botched’ Microsoft Merger 

“Give me a chance to get my coat off!” came the reply.

One de-coating and a cup of tea later, and Theo was buzzing.

“Jerry Yang just pushed his luck,” he said, referring to Yahoo’s chief executive. “Microsoft were bidding $33 a share; Yang and his board wanted $37. No dice!”

Let’s not forget, before the bid started Yahoo’s share price was below $20. The troubled courtship with Microsoft has served Yahoo shareholders well.

But yesterday the share price took a tumble when the deal looked to be dead. There’s an important lesson investors can draw from all this. It shows how a cantankerous CEO can sometimes turn down a good deal on your behalf.

Now the deal looks like it might go ahead after all. Yang is under pressure from his ultimate bosses – the shareholders. They want to know what plans he has to get the shares from where they currently are – around $25 – to the $33 they would have pocketed from Microsoft.

Theo also points out the contrast with the M&A frenzy of the last few years. When credit was cheap, speculative investors would load up on potential merger and acquisition targets, hoping to bag a nice premium from the predator firm. It was risky, but the potential rewards were worth it (witness the huge premium Royal Bank of Scotland paid for ABN Amro).

If one deal fell through, there was always a reasonable chance someone else would take the suitor’s place. But that was all pre-credit crunch. Yahoo’s share price tumble yesterday showed that such optimism has evaporated from the markets.

“This sort of M&A play is too risky now,” says Theo. “And that goes for Yahoo as well. Stay away!”

I would have gotten away with it if it wasn’t for that pesky Frank Field!

Labour rebelmeister, Frank Field, is brandishing his trouble-making stick again. Get ready for round two of the 10p tax fight!

Gordon Brown must just wish this issue would go away. It was Brown who, as Chancellor last year, got rid of the rate (a move he must surely now rue). Now, as Prime Minister, he’s presiding over the farcical consequences.

It’s estimated that the change will leave 5.3 million people worse-off (incidentally Gordon the Stubborn is disputing this figure, even though both the Treasury and the Institute for Fiscal Studies have confirmed it).

The Government faced down a backbench revolt by promising to ensure the worst-affected were compensated. Alistair Darling promised to make it all good again. This placated the rebels… for about a week. Now they’ve returned to ask the inevitable question: “Hang on… what are you actually going to do?”

Ah, there’s the rub. Brown says precise measures have been announced. But the message doesn’t seem to have reached his own party. Field and other MPs are baffled by the assertion.

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And how bad will it look if the Treasury refuses to publish this data.

Brown and Darling are like schoolboys who haven’t done their homework (though, as noted above, Brown insists he has). Now they’re being asked to show teacher their sums…

It’s all just so embarrassing, isn’t it?

No active discussions have been held between the two companies, but Microsoft has been on the prowl since withdrawing its bid for Yahoo Inc. (YHOO).

Last year, Microsoft bought a 1.6% stake in Facebook Inc. for $240 million, has expressed an interest in buying the site over the past three years. But Facebook’s Chief Executive, Mark Zuckerberg, has been reluctant to sell, opting instead to work towards an initial public offering.

Facebook, with more than 70 million users, drew 109.2 million visitors in March, according to comScore Inc., an improvement of 240% from a year ago. The company expects between $300 million and $350 million in revenue this year, up from $150 million last year, the Journal reported.

A tie-up with Facebook is one of the options Money Morning previously identified as an avenue Microsoft could pursue as a means of drawing consumer traffic and advertisers to its online services.

The company may also look to Time Warner Inc.’s (TWX) AOL or News Corp.’s (NWS) Fox Interactive Media business units. Many analysts have also suggested Yahoo and Microsoft might return to the bargaining table. Legg Mason Inc. (LM) fund manager Bill Miller is one of those analysts.

“I’m more puzzled by Microsoft’s not going up to $37 than Yahoo’s wanting to walk away,” Miller said told Bloomberg News. “If they want to be a viable competitor, I would expect them to come back.”

Microsoft withdrew its bid for Yahoo Saturday after the country’s second largest web portal turned down its $33 a share, $47.5 billion offer.

Recently, at a party in New York, I mentioned that I had been talking to various groups in the United States and Europe about investment opportunities in the commodities market. Before I could get out one more word, a woman interrupted me. “Commodities!” she exclaimed, with the kind of incredulity in her voice that Manhattanites reserve for people moving to Los Angeles. “But my brother invested in pork bellies and lost his shirt. And he’s an economist!”

Everyone seems to have a relative who took a beating in the commodities market, and this fact (or fiction) is considered sufficient reason that no sane person would ever risk playing around with such dangerous things. That this particular victim was also a professional economist makes the warning seem even more ominous. I, however, couldn’t help laughing.

Billions of dollars are invested in the commodities market every day. Without the commodity futures markets, many of the things that you depend on in life, from that first cup of coffee in the morning to the aluminum in your storm door to the wool in your new suit, would be either scarce or nonexistent, and certainly more expensive.

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There are several other bromides out there for why “ordinary people” should not invest in commodities, and I want to lay these myths to rest, once and for all, so that we can get on with the more interesting business of how you can begin to make some money investing in the next-generation asset class.

About That Relative of Yours Who Got Wiped Out — He was inexperienced. You can learn. Most likely, he was buying on thin margin — the minimum deposit a broker requires to take a position in a particular commodity — and when the market went against him he lost big-time.

Here’s how it happens: Like stocks, commodities can be bought on margin. Unlike stocks, however, where by law you have to put up at least 50 percent of the price of the shares, the margins on commodities can be even lower than 5 percent: You can buy $100 worth of soybeans for $5. If soybeans go up to $105, you’ve doubled your money. Beautiful. But if soybeans go down $5, you’re wiped out. Not so beautiful.

Experienced, smart speculators can make tons of money buying on margin. They also know that they can lose tons, too. But they can usually afford it. Your relative was in over his head. If he had bought $100 worth of soybeans in the same way that he can buy IBM — for $100 (or maybe even $50) — he would be happy when it goes up $5 and a lot less sad should it go down $5.

Whenever I mention commodities in public, someone always points out that we now live in a high-tech world where natural resources will never be as valuable as they were when we had a smokestack economy. But if you read your history you’ll discover that technological advances are as old as history itself: The introduction of the sleek and beautiful Yankee clipper ship dazzled the world in the mid-nineteenth century, loaded with cargo, sailing down the trade winds at 20 knots and more, averaging more than 400 miles in 24 hours and able to make it from U.S. ports around Cape Horn to Hong Kong in 80 days; within a decade, the clippers had been replaced by the steamship, no faster but not dependent on wind power; and before long the next big thing in transport had taken over, the railroad, which, of course, was the original Internet — and prices in the commodities market still went up.

In the twentieth century came electricity, the telephone, and radio (three more Internets) and then television (a fourth Internet). There was also the automobile, the airplane, the semiconductor — and in the midst of all of these truly revolutionary technological breakthroughs came periodic, multiyear commodity bull markets.

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When the supply and demand in raw materials is seriously out of whack, the emergence of new technology will not necessarily restore the balance quickly. To be sure, changes in technology, for example, have made the economy less dependent on oil. But we still use plenty of it, and whenever there isn’t enough prices will rise. Computers or robots may do amazing things, but they cannot find oil or copper where there is none or make sugar, cotton, coffee, or livestock grow faster than nature allows. We can put in orders all day long on our computers for lead, but all that Internet technology will be in vain if there are no new lead mines. Technology can neither feed us nor keep us warm, and the demand for commodities will never disappear.

“But My Stock Broker Tells Me That Investing in Commodities Is Risky.”

Tell me again about all those Cisco shares you owned back in 2000. Or JDS Uniphase, or Global Crossing? So many risky stocks made the turning of the new millennium a not so happy time for many, who watched their portfolios evaporate.

If you do your homework and remain rational and responsible, you can invest in commodities with perhaps less risk than playing the stock market. You don’t need me to emphasize that investing in anything is a risky business. But let me point out something that you might not have realized: There has been more volatility in the NASDAQ in recent years than in any commodities index. Cisco, Yahoo! and even Microsoft have been much more volatile than soybeans, sugar, or metals. Compared with the risk record of most tech stocks, commodities look safe enough to be part of any organization’s “widows and orphans fund.”

And let me remind you of one more important difference between commodities and stocks: Commodities cannot go to zero, while shares in Enron can (and did).

Regards,
Jim Rogers

But the tough times are just beginning for Yahoo, which must now prove why it is worth more than the lofty price Microsoft was offering.

“Yahoo is going to be under a lot of pressure,” Peter Falvey, managing director at technology-merger adviser Revolution Partners, told Bloomberg News. “A lot of shareholders are going to say, ‘Hmm, maybe we overreached.’”

Microsoft originally offered $31 per share in either cash or Microsoft stock, a 62% premium to Yahoo’s Feb. 3 closing price. It boosted the bid to $33 a share, appraising Yahoo at approximately $47.5 billion, but Yahoo refused to accept anything less than $37.

Now, at $24 a share, Yahoo as a company is only worth about $33.5 billion.

That means Jerry Yang, Yahoo’s co-founder and chief executive, has the unenviable task of delivering better performance after Yahoo’s bold reprisal. In short, he’ll have to add at least $14 billion in market value to the company if he’s going to justify his decision and prove that rejecting Microsoft’s offer was the right move.

And one doesn’t have to take a very long look at Yahoo to see Yang has his work cut out for him.

Why Yahoo! Isn’t Worth $37 a Share

Last month, Yahoo reported a first-quarter profit of $542 million, or 37 cents per share, up from $142 million, or 10 cents per share last year. It was the company’s first profit increase in nine straight quarters (more than two years). But a big reason for the jump was a one-time gain of $401 million – a windfall from the sale of Yahoo’s stake in Alibaba.com Ltd.’s (PINK:ALBCF), which came from the Asian Internet company’s initial public offering (IPO).

Excluding one-time items, Yahoo reported earnings of 11 cents a share.

Even with the profit increase, the company continued to lose market share to nemesis Google Inc. (GOOG), the leader in Internet search. Yahoo accounts for 21.3 % of all U.S. searches according to comScore Inc.

That compares with a near 60% sway for its rival, Google, which defied Wall Street’s first-quarter expectations by expanding its revenue nearly four times faster than Yahoo. While Yahoo’s sales climbed 14% last quarter, Google posted a 46% jump in revenue. In April, Yahoo all but acknowledged Google’s victory by outsourcing a small portion of its search advertising to its competitor on a two-week trial basis. If Yahoo continues using Google’s search advertising system, it will be abandoning its own “Panama” ad system. Launched in February, the Panama initiative set the company back millions of dollars. Even so, it continues to lag behind Google’s AdSense in terms of revenue per search query.

As it worked to bulk up its search capabilities, Yahoo had earlier shelled out $1.63 billion for Overture Services and $235 million for Inktomi. That’s close to $2 billion for search engine service specialists that would for, all intents and purposes, be rendered moot should Yahoo ultimately outsource even more of its search-related business.

While some analysts believe a bigger deal with Google may already be in the works, any serious collaboration between the United States’ two largest web portals would very likely run afoul of U.S. antitrust restrictions. Google already places ads on more than 67% of searches. The addition of Yahoo would expand its influence to 89% of searches, according to statistics from Hitwise. Microsoft said last month that Google would command more than 90% of the search advertising market.

“While Yahoo may pursue a Google search partnership as a way to appease shareholders through enhanced cash flow, we believe such a deal would face intense anti-trust scrutiny,” Clayton Moran, an analyst with Stanford Group Company, told IDG News Service. “In addition it would cede control of search to Google.”

Moran does not believe Yahoo’s stock will reach the $37 a share value over the next 12 to 18 months.

There have also been rumors that Yahoo will join forces with Time Warner Inc.’s (TWX) AOL or News Corp.’s (NWS) Fox Interactive Media business units. According to the details that have emerged so far, Time Warner would merge a large portion of AOL’s operations with Yahoo and make a cash investment in exchange for a 20% stake in the resulting company. Yahoo would use that cash infusion to buy back some of its own stock.

However, when it comes to Web-search market share, AOL currently ranks fourth, behind Google, Yahoo and Microsoft. So the company that emerged from that combination would be more of a content player than it would be a competitive Web-search firm.

Regardless of what Yahoo does to try to validate its decision to rebuff Microsoft, investors are already working themselves into an apoplectic frenzy over the move. Some Yahoo shareholders had already sued the company’s directors even before Microsoft decided to walk.

Enraged Yahoo shareholder Eric Jackson said Sunday that he planned to rally shareholders to withhold their votes from all Yahoo directors at the company’s annual meeting, which has not yet been scheduled. Jackson leads a group of about 140 shareholders who together own 2 million Yahoo shares.

“Significant value was left on the table,” said Jackson, who heads a group of irate investors who together own about two million Yahoo shares.

Microsoft’s Next Move

In an ironic twist, Microsoft – like Yahoo – must now answer to a less-than-thrilled constituency.

Microsoft Chief Executive Steve Ballmer said April 24 that his company was willing and able to walk away from its bid for Yahoo.

“We’re prepared to move forward without a merger with Yahoo,” Ballmer said at a technology conference in Italy. “We think the best way to move forward quickly is to come together with Yahoo. Hopefully that works. But if it doesn’t, we go forward. Time is money.”

He lived up to his word Saturday, scrapping his company’s a $47.5 billion offer that valued Yahoo shares at a 70% premium to their January value after three agonizing months.

But now the man in charge of Microsoft must explain how the company plans to improve its eroding Internet business – which lost $228 million in the first quarter alone – without Yahoo.

Instead of the stock-price rally that many companies enjoy when they walk away from costly deals, Microsoft’s shares closed the day yesterday at $29.08, down 16 cents – hardly the vote of confidence the company would have wanted to see.

Since the company obviously has plenty of cash on hand, it may be a good idea to seek out a more agreeable partner.

“I’m looking for Microsoft to get aggressive with a buying spree,” Gartner analyst Allen Weiner told IDG. “I think Microsoft should do something quickly to show the world that [the] Yahoo bid wasn’t a setback.”

The company could try to strike a deal of its own with Time Warner or News Corp., or perhaps even with the trendy Facebook.com. Other analysts suspect Microsoft may be beckoned back to Yahoo’s rescue if the company fails to right its course by year’s end.

“Should Yahoo miss expectations in 2008, we would not be surprised to see MSFT come back to the table,” RBC Captial analyst Ross Sandler said in a report yesterday morning.

Ever since the market bounced back from GE’s nasty earnings miss, there’s been a sense that the buyers have more mojo than the sellers. That bullish mojo seemed to dry up Wednesday, suggesting angst over the Fed’s next move. But then came Thursday, and the bulls went all out. Friday was so-so, but the optimism endures.

Trades that have been working for a long time — energy, metals and so on — have temporarily reversed. Stuff that was beaten down — tech, financials, home builders and so on — have caught a strong bid.

So does that mean it’s time to reverse last week’s call for more pain in the financials? Is it time to embrace new upside there and change the game plan around?

Nope. Not unless the key facts have changed. The bottom line is, there’s a new hope jag in town… but the question is how long it will stick around.

Of course, you can make some good coin being long selective names. My friend Cash’s Blackstone pick, for example, is up about 20% from his recommended entry point as of this writing. (See previous Taipan Daily episode, “Cash Makes a Controversial Call.”) But on the whole, I’d still rather be on the sidelines in financials (waiting for a reversal) than long them.

It’s also interesting to note that financial stocks, in rally mode, are approaching their 50-week moving average from below. Meanwhile gold and silver, in correction mode, are approaching their 50-week MA from above.

The 50-week MA could act like a ceiling in regard to the financials. For gold and silver, it could act like a floor. I suspect that, at some point soon, these markets will trade places and revert back to longer-term trend.

Why? Because underlying conditions haven’t changed all that much… and as Jesse Livermore once noted, the speculator’s greatest and truest allies are underlying conditions. Inflation is still a growing (and global) threat. Western banks are still coughing up hairballs. Consumer pain is still an early stage problem, in both the U.S. and Europe; the printing press still looms. Evidence on the ground hasn’t truly improved. The only thing that has, really, is Wall Street’s mood.

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Speaking of Jesse Livermore there. Hopefully you’ve heard of him.

Livermore was a great trader in the early years of the 20th century. The book that tells his story, Reminiscences of a Stock Operator, is widely agreed to be the best trading book of all time. There are gems of insight on nearly every page. And though Reminiscences was first published in 1923, its wisdom applies today more than ever. (Technology has advanced since then, but human nature not a whit.)

If you haven’t read Reminiscences and have no interest in trading, then that’s fine. If you do have an interest in trading, however — or even just the least bit of curiosity — then by all means run, do not walk, to get your hands on a copy of this book.

The author of the book is a man named Edwin Lefevre. (Livermore told his story to Lefevre, a professional writer, who then turned it into a first-person narrative. The narrator in the book gives his name as “Larry Livingston.”) You can find a copy in your local bookstore, or on Amazon.com… or even free on the Internet. (The font isn’t all that appealing, but the book is available in PDF form here: http://www.scribd.com/doc/7923/Reminiscences-of-a-Stock-Operator)

For those not inclined to read the whole thing, I have a list of the top trading quotes and stories from the book. (I’ve read it multiple times, and compiled the list years ago.) It’s a pretty long list, but not as long as the 250 or so pages.

Since the text has passed into public domain, I imagine it would be okay to post that list on the Taipan Web site — but only if enough folks are interested. (If that sounds good to you, send an e-mail to (taipan@taipanpublishinggroup.com) with something like “Livermore quotes” in the subject line.)

This is the quote that came to mind most recently:

[The successful trader] must not only observe accurately but remember at all times what he has observed. He cannot bet on the unreasonable or the unexpected, however strong his personal convictions may be about man’s unreasonableness or however certain he may feel that the unexpected happens very frequently. He must bet always on probabilities — that is, try to anticipate them.

I call this “playing the odds game.” It means being aware of reward to risk, being aware of the chances (or “odds”) of an event happening, and combining those two things in an effort to make good trading decisions.

Oftentimes, playing the odds game means passing up a trading opportunity — even if it looks tempting in the short term. A healthy respect for probability means thinking about risk as much as reward; that in turn means thinking how a trade might play out if it were reenacted not just once or twice, but a hundred or even a thousand times.

But with Yahoo! stock tanking and rival search engine company Google continuing to out pace Yahoo! the question is whether Yang’s “what doesn’t kill you makes you stronger” is enough to revive the flagging internet giant.

Jerry Yang, who co-founded Yahoo! with David Filo, did at least say something about the failed Microsoft bid. He said:

The last 13 weeks have been a remarkable time here at Yahoo!. We’ve been living under the microscope in a way we never have before. There has been greater attention than ever on our strategy and our ability to execute against it. Some even questioned whether Microsoft’s unsolicited proposal would distract us from our mission, just as we were beginning to really push the pedal on our strategy.

Those people underestimated the determination of Yahoo!’s incredible people, spirit and culture.

But Yahoo! watchers note that “spirit doesn’t keep your stock around $30.”

The bottom line is that Jerry Yang and Yahoo! are facing some painful realities this morning after spurning Microsoft CEO Steve Ballmer.

According to Bloomberg, “Citigroup Inc. and ThinkPanmure LLC analysts cut their ratings on Yahoo’s stock to “sell” after Microsoft withdrew its offer. Microsoft said this weekend it walked away when Yahoo demanded $37 a share after the $44.6 billion bid was raised by about $5 billion to $33 a share.”

It’s important to remember that Yahoo’s troubles didn’t start with the failed Microsoft bid. Yahoo! shares fell 32% on the Nasdaq in the year before Microsoft’s offer. And rival Google expanded revenue more than three times faster than Yahoo last quarter.

Click here for a in-depth analysis of Microsoft’s bid for Yahoo!