Monster Worldwide (MNST), which suddenly saw the light at the end of last year and decided it would no longer issue guidance, "corrected" analysts yesterday on what number they should plug into their models for Q1 operating expenses. This "correction" should have the result of reducing the non-GAAP EPS by about half of what analysts currently projected for the quarter. Below are a rough snapshot of consensus estimates before the announcement.

Revenue: $369

Alternative investments have, over the past 3 years, attracted record attention from investors, the public markets, and business students eager to cash in on the boom. Over the past several months, as the financial markets have been rocked by credit issues and declining valuations, the fairy tale, in many cases, has begun to turn dark.

GLG Partners (GLG) is one of the leading hedge funds in Europe, with a strong investment track record, diversified assets across strategies, and a solid investor base. At the same time, the company's unsustainable FY07 results (driven largely by gains in emerging markets), and its uncertain use of leverage, provide substantial catalysts for a sharp decline in revenue and earnings in FY08. If past performance is any indication, it is possible that a large chunk of GLG's performance revenue will dry up in 2008, resulting in a strong drop in revenue, margins, and profit.

I have written at length on Monster Worldwide (MNST), Korn Ferry (KFY), and Heidrick & Struggles (HSII) in the past few months, arguing that the upcoming turmoil in the economy and, eventually, the job markets will reveal the underlying cyclicality of these businesses, resulting in massive decreases in earnings, earnings estimates, and share price.

So far, my thesis has begun to play out nicely with MNST, which has seen pressure in both US and international MEI (a good proxy for business going forward). In the US, MNST has not only seen the MEI fall, but has also seen its pricing fall as well, due primarily to fewer sales to small and medium size businesses, which on average pay more per listing.

In keeping with my recent theme of finding cyclical companies trading at peak earnings, enter Evercore Partners (EVR): a near pure-play investment back specializing in advising US M&As on behalf of corporate clients. Currently trading at 13x what I believe are peak earnings, and with a pipeline that is in the process of drying up, I believe the company's cyclicality will reveal its full force in the financials as soon as next quarter.

Despite clearly slowing M&A trends in Evercore's main market, analyst estimates are still nowhere near reflecting likely trough earnings in this business. Current estimates are counting on a H2 rebound above and beyond the peak M&A activity experienced this year, which I believe will not materialize. For regular readers, the argument below will share a striking resemblance to the argument I laid out for shorting staff stocks several months ago. As earnings are revised downward to become in line with likely future results, EVR should fall even more than it has already as the true trough earnings emerge.

Editor's Note: This article was updated with author's changes on Feb 5.

Over the past week, a series of events have occurred related to Monster Worldwide (MNST) that I believe continue to support the bear thesis I outlined previously.

With recession fears rising, and evidence continuing to emerge that sentiment has truly shifted towards a bear market scenario, it is prudent to review your portfolio and take steps to ensure that you are well protected in this environment.

Bull markets make everyone look like a genius, especially those who invest in high beta stocks, which typically tend to exhibit strong growth, lofty expectations, unreasonable valuations, and a variety of other poor fundamental qualities. None of this matters in bull markets, as these stocks ride the sentiment higher and higher.

Smith Micro (SMSI) is a former-high flying tech stock that has been beaten down over the last few months on concerns of slowing growth in one of their product divisions, customer concentration issues, and declining GAPP earnings.

Trading now at about $6.70 and with a $200M market cap, SMSI should provide a very favorable risk reward in the near and long-term, as the company continues to benefit from its market leading position in a nascent, high growth, and incredibly profitable (70%+ GM) market. Currently trading at a proforma FY07 PE of about 8, I believe an investment in SMSI could offer upside of 100-300% in a reasonable scenario over the next 2-3 years, with relatively limited downside risk.

Buyout speculation has surrounded Orient Express for the good part of this year, despite management's fairly clear intent to have no interest in selling the company, and the skewed class share structure that gives management over 80% of voting rights. Buyout speculation began with a UK article in late March, and has been further amped by a failed buyout offer by Dubai holdings ($60), and more recently increased overtures by Taj. Management has rebuked both these suitors, and has stated clearly, on multiple occasions, that they intend to operate as an independent entity. Given the voting structure and the very blunt intentions of management, I view a buyout as highly improbable.

The more I study staffing stocks tied closely to the economic cycle, the more I continue to believe that the market--despite giving lip-service to cyclical concerns, has not realized how bad things really get for these companies when the economy heads downhill. The only analyst report I found that even took a cursory look at Korn Ferry (KFY) and Heidrick & Struggles International (HSII)'s financials prior to 2003 was Credit Suisse First Boston. And is it surprising, then, that they were also the only company I could find that had conveniently not included FY09 or FY10 revenue estimates?

Nearly every analyst cites cyclical concerns in these names, but none of the ones I could find actually models a true recession scenario. Even Goldman, which has probably been the most bearish of all analysts on the permanent staffing companies, does not model anything close to a recession scenario. Let's take a look at implied revenue growth estimates for KFY:

Given that both these stocks have moved against me in recent weeks, I thought I would post an update. I previously gave arguments for a short position on both stocks, and each has rallied on short term positive news: Korn Ferry (KFY) had an excellent quarter, and maintained better then expected guidance. Maguire Properties (MPG) announced it is looking to put itself up for sale (again), which was one of the main risks I'd mentioned in my short thesis. So, what does this news mean for each company? See my prior write-ups on KFY and MPG.

In KFY's case, I consider short term earnings to be largely irrelevant, except that they generate a bit more cash for a quarter or two. My thesis remains clear: if hiring in the US slows down, KFY's business will deteriorate, as it has in the past. That said, I should note that there are reasons to believe that this downturn may not be quite as bad as in years past. KFY's sector exposure is buoyed by a healthy basic materials and other significant non-cyclical focus, which could potentially help them weather a storm a bit more.

Continuing my series on looking for stocks likely to suffer from macro themes, I've recently been doing some work on REITs. I have been short DJ Wilshire REIT ETF (RWR) since early in 2007, a play that has finally started to pay off, but was hesitant to choose individual companies due to my lack of ability to distinguish one REIT from another.

As I write this now, I still am far from an expert, but believe I have a better understanding of the underlying REIT dynamics due to work I've done educating myself these last couple months, and am confident enough that I plan to begin to make some specific REIT bets. With that disclaimer out of the way, lets dig in.

In my prior post, I outlined the logic behind a short in Korn Ferry (KFY) and how it is likely to see its value erode as unemployment rises and demand for its permanent placement services decline.

In looking for shorts that benefit this macro theme, I have tried to focus on pure-play permanent search companies, notably Heidrick & Struggles International (HSII) and KFY, with strong US exposure, as I believe these are the stocks most likely to be punished by an oncoming downturn in hiring.

With the recent market turmoil in the financials, I have closed out many of my short positions in the space: most notably Ambac Financial Group (ABK) and MBIA (MBI), and have been looking to other, more overvalued sectors to hedge my long positions.

The staffing sector has already taken a hit, but if history is any indication, there could be a lot more room to fall. If you believe we are at the onset of a recession that will eventually manifest itself in a considerably weaker jobs market, then several staffing companies look particularly attractive as a way to profit off the upcoming job market turmoil.

1) Several insiders sold shares around the $1.40 level
2) Announcement of a small faceplate deal
3) More details released on the InAir products
4) No GTA or other major faceplate deal announced

Overall, I have been a bit disappointed with the recent developments. I trimmed my position after the insiders sold, as this has been a typically bearish sign for this stock in particular. Take a look at the insider selling in 2005, and you'll see that management has done a pretty good job timing opportunistic points to sell. I don't think this is a long term bearish signal, but I do believe that it, at the very least, signals some short term pessimism.

For a variety of reasons, I believe these growth avenues are overblown, and that AMZN is more likely than not a leading online retailer with a strong online marketplace, low operating margins, and moderate but not spectacular growth going into the foreseeable future. I will argue that even if AMZN overnight became a leader in all areas they hope to grow into, the company would still be overvalued and likely to disappoint given current expectations. AMZN is overpriced on both an absolute basis, as well as relative to peers, and could see a upwards of a 30% drop based solely on a return to its prior lofty valuation levels, or upwards of a 50% drop if valuations were more in line with comps (which, arguably, are overvalued themselves), and potentially see further decreases as new ventures fail and their core retailing business receives continued pressure from offline and other online retailers, as well as the inevitable levy of an internet sales tax, which could wreak havoc on already tiny margins. Given the low PEG, as well as revenue and earnings growth going forward, I believe the risk of multiple expansion or multiples staying the same is relatively low, and that AMZN is an attractive low risk/high reward short.

Q1 "Blowout"
Amazon surprised analysts and everyone following the name. Though there were some legitimate business drivers for the gains (lower than expected margin compression, slightly better sales, etc.) the majority of the earnings surprise can be attributed to lowered R&D investment, a favorable tax situation, and foreign currency gains. These are not the kind of operational improvements that merit such an enormous increase in stock price, but instead served to artificially show earnings growth well above the real growth in the business.

Management has done an excellent job improving gross margins on low margin product, and refocusing the business on more attractive products going forward. Management also kept expenses down, and has continued to paid down a good chunk of debt from cash flows. Looking ahead to next year, the company should benefit from launch of the InAir headphones, halo faceplates, as well as additional licensing deals that should be announced over the next year.

On the downside, management suggested they will not be launching a software title in the next fiscal year, which could make revenue comps difficult. I estimate that software accounted for about 12-13% of revenue in FY07 (including a whopping 28% in Q1), and its possible they could lose upwards of half of that next year as their current titles age. They are going to have to figure out a way to make up for that revenue -- InAir and more licensed products could do the trick, aided also by a continuing recovery in the company's core hardware accessory sales, though it may be difficult to grow revenue more than a few percent, barring a knock out hit of some kind. The company will look to launch up to two titles in FY09, once the console transition is well behind us, and the installed base is more favorable to a MCZ release.

Position Sizing

I make some modifications--most notably shorting individual securities rather than his puts strategy, which I believe affords similar downside protection while allowing for the possibility of returns on the short-side, as well.