The market keeps falling, they say, because of sub-prime,
But don’t worry, keep buying, what was worth a dollar is now worth just a dime;
People with no money to pay, getting a mortgage is no crime,
“Be patient” we tell our nervous clients, your time horizon is for a long-time.

It’s Greenspan’s fault, the experts say,
No, says Cramer, it’s Bernanke’s fault all the way;
With no sub-prime exposure, everyone says Large Tech is the magic play,
“Be patient” we tell our nervous clients, don’t look at your portfolio each day.

My screen is all red from stocks across the land,
The phones keep ringing, noise like a marching band;
Just give me some suntan lotion and I’ll lie in the sand,
“Be patient” we tell our nervous clients, at least you’re diversified and own some South African Rand.

A bounce is due, it’s in sight,
Dow-theory sell signals you will live in fright;
How many more articles do we need to read about selling in hindsight,
“Be patient” we tell our nervous clients, at the end of the tunnel there is sure to be light.

“So, what should we do” is what I hear,
With hedge fund selling we are all overcome with fear;
Abby Joseph says forget about losses we are in the clear,
“Be patient” we tell our nervous clients, it’s summer: just sit back, relax and drink some beer.

Bargains abound the analysts hopefully wish,
For Icahn, Kraft is just Delish;
For Sonics fans Durant finally made a swish,
“Be patient” we tell our nervous clients, the king salmon are running — forget the market, it’s time to fish.

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Please see our Disclaimer HERE.

Disclosure: Author owns Kraft (KFT) personally.

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Aaron Katsman is the lead portfolio manager for the Israel Growth Portfolio and Managing Director of America Israel Investment Associates, LLC. For more information, go to www.israelnewsletter.com or call 1-888-327-6179, or email aaron@profile-financial.com.

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Are we having fun yet?  Tough trading out there but Israeli companies continue to make news.

Answers (ANSW) getting nailed after predicting further widening losses next quarter.

Orckit (ORCT) wins $12 million in damages from Conexant (CNXT) covering damages incurred in the period from 2001 through 2003 from a supplier of semiconductor chips that was acquired by Conexant. The semiconductor chips were used in Orckit’s legacy DSL products.

Remember Backweb Technologies (BWEBF.OB)? They reported yesterday.

Internet Gold (IGLD) reports earnings.

The Street liked Cellcom’s (CEL) earnings report. See our recent coverage of Cellcom and the issues they face given Israel’s 120% cellular penetration.

Zoran (ZRAN), the maker of software and chips for digital media products, rose off an article in Barron’s. In the article, a Jefferies & Co. analyst said the stock may jump 50% in the coming year.

Still on the lam, Comverse’s (CMVT.PK) founder and previous CEO, Kobi Alexander still eludes extradition from Namibia to the U.S. for his connection in an alleged options backdating scheme. See why IsraelNewsletter may not agree with all the politicking going on but we do like the stock. Click here to read our previous coverage on Comverse.

Ness Technologies (NSTC) buying Italian software house, Selesta SpA.

Ormat Technologies (ORA) picks up an RBC upgrade to outperform.

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Aaron Katsman
www.IsraelNewsletter.com

Cellcom(CEL), a leading Israeli cellular provider today announced Q2 ‘07 results. The numbers looked quite impressive, with net income increasing 48% over Q2 ‘06. It’s when you take a look at the statement from the CEO that things get a bit dicey.

As my esteemed colleague and Facebook master, Zack Miller asked about a month ago, the question is: where is future growth in the Israeli cellular market going to come from, given such high levels of saturation? Current penetration levels are more than 120%.

Amos Shapira, CEO of Cellcom said, “Our continued growth in all parameters is especially significant given the increasing competition in the market and airtime price erosion, due to the additional mandated decline in interconnect tariffs, and the new regulatory regime regarding calls ending in voicemail, implemented in the first quarter this year.”

Therein lies the problem. With falling airtime prices, stiff competition, and new Ministry of Communication regulation, it sure seems to me that it’s going to be a tough road to continued growth in the future. How many services can they cram down consumers’ throats?

Another issue: In December, number portability will take effect; meaning, that customers will be free to take their phone numbers with them to any carrier they choose. I would expect a large jump in marketing expenses from Cellcom, as well as Partner (PTNR), as they will have to fight tooth and nail to 1) retain current customers and 2) tempt potential customers away from the other carriers.

This all is great news for the Israeli consumer, but doesn’t seem to me like a recipe for investors to profit in the long-run.

Please see our Disclaimer HERE.

Disclosure: Author’s fund has no position in any of the companies mentioned as of 8/14/07.

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Aaron Katsman is the lead portfolio manager for the Israel Growth Portfolio and Managing Director of America Israel Investment Associates, LLC. For more information, go to www.israelnewsletter.com or call 1-888-327-6179, or email aaron@profile-financial.com.

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InformationWeek’s Stephen Wellman is a smart guy. I like his stuff — I really do.

As editor of InformationWeek’s Over the Air blog, Stephen has covered the iPhone and rumor-mill surrounding Google’s phone launch with professionalism, insight, and good scoop.

But he’s got a bone to pick with Google (GOOG).

Not necessarily with Google, the Company — he’s set his sights on Google, the Search Engine which powers Google, the Company.

Stephen asserts that Google Search is assailable by the throngs of vertical and niche search engines sprouting up all over the web. His assertion, that big General Search Engine, Google, will face competition, not from Yahoo or Microsoft, but by the numerous Technorati-esque niche providers who can perform their niche better than Google can perform in certain niches.

While I agree that from a functionality standpoint — yes, Technorati may perform better blog search than Google — these smaller search engines may provide better results for a certain task, but that doesn’t mean Google’s business is assailable.

That’s the equivalent of saying that since Segway’s self-balancing mechanism is so much better than other transportation technology out there, Segway is poised to eat the Auto Industry’s lunch. OK, this assertion was made by Dean Kamen when he was building up to launch of the device, but reality has set in. It’s a great device to use instead of a bike or a scooter or walking, but it’s not ready to replace my Honda just yet and certainly not poised to revolutionize urban transportation (ever hear of the subway or city bus??).

It no longer makes sense to view Google as just a search engine. Google, the Company, is more than just a search engine for the following 4 reasons:

1) Google as Web User Interface: Remember back when everything was portals? I used my ISP to dial-in to the Internet and was dropped off into an environment designed by the ISP with numerous outbound links to begin my surfing. Now, I only use Google (OK, I use iGoogle which is stickier given that fact that I’ve taken the time to personalize it). The revolution that Google kicked off was that I now view Google as my interface to the web. I go to my search engine to surf — not a portal. This is something that Technorati and the hordes of smaller engines can never provide me. I’m locked-in.

2) Suite of properties: As we’ve seen Google evolve from just a search engine into a more Yah00-like web experience, we’ve gotten hooked on various Google properties as part of an overarching web experience. I don’t really care that Gmail isn’t making serious money on Gmail — I love it. I use it not only for my web mail but I route some of my business email through it for spam detection and even for better indexing (admit it, some of you do this as well). I’m also using Google Apps to manage email from some of the blogs I manage. With Google Desktop, the boundaries between my PC (actually, it’s a mac baby!) and the internet have blurred and I use Google to search them both. This is incredible lock-in and not something a niche search provider can provide me or will usurp from Google.

3) Buy vs. Build to Compete: Even if these niche providers have better technology for vertical search, Google is competing on every front. Google Coop is an emerging platform that allows users to tweak search results, refine searches, and create their own search engines on Google technologies. It’s been slow but I’ve played around with this and with Google’s API, this thing is set for future bling-dom. Also, Google can always purchase some of the smaller players if the technology is really that outperforming.

4) SEARCH vs. search: I dunno, maybe it’s just me, but I like using Google for everything. It’s actually great to give them all my business because in return I get adequate results for most everything I search for on and off the Internet AND it’s integrated into other apps that I’m running (Google Docs, Gmail for instance).

So, I guess Stephen is right and he isn’t right (my kids try to convince me that the same is true of me). There will always be startup companies developing cutting-edge search to compete against Google not head-on, but in verticals and niches in which they can compete. But, ultimately, Google wins.

Checkmate.

Disclosure: Author owns Google personally but his fund does not as of 8/13/2007.

Please see our Disclaimer HERE.

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Zack Miller is the lead equity analyst for America Israel Investment Associates, LLC. and a former equity analyst for a leading multinational hedge fund. For more information, go to www.israelnewsletter.com or call 1-888-327-6179, or email zack@profile-financial.com

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