For those not following the AIG (AIG) saga - there is a lot of dirty laundry going on. First we were told it's an $85 Billion bailout, but in a couple of steps after it's now increased to $123 Billion (so far!) It has been very difficult to sell AIG assets to pay off this loan thus far.

If you are into this type of thing and want some very interesting reading there is a damning Bloomberg article on how the former CEO of Goldman Sachs (GS) "saved AIG" and the first batch of money went in large part directly to Goldman Sachs (GS) and Morgan Stanley (MS). It will get the blood boiling if this is your type of thing - so essentially your tax dollars went from your pocket to Goldman and Morgan via a quick pit stop at AIG.

We once owned Mylan (MYL). It was safe ... boring ... someplace to hide out in case the market his further turbulence. What could be safer than generic drugs? We closed our position Sept 2nd for a $300 loss near $13 - that was 5 weeks ago. I look today through an old watch list and see Mylan in the $6s - scary. This is not Mylan Coal or Mylan Biopharma or Mylan Investment Bank.

The past week started on a seemingly strong note, with the positive sentiment witnessed towards the end of last Friday (February 22) carrying forward on Monday, after S&P reiterated its top rating for Ambac Financial (ABK) and took MBIA (MBI) off its credit watch list. The front-line indexes held on to their gains over the following two trading sessions, managing to shrug off the weak economic data on the back of the announcement of a repurchase program by IBM (IBM) and optimism over additional Fed rate cuts. Heightened fears of a recession gripped the minds of investors towards the end of the week, and the front-line indexes squared the week with losses ranging between 0.9 percent - 1.7 percent.

In our previous report, we had likened the price action since January's panic lows to a bearish pennant pattern on the DJI (DIA) and the S&P 500 (SPY) indexes. Though the gains witnessed in the early part of the week rendered the pattern invalid, the DJIA retreated from the resistance at 12740 levels and the S&P 500 resumed the decline from around 1395 levels. The front-line indexes appear poised to decline further to the January panic lows.

We had earlier commented that last week's trading action was suggestive of an 'inside week' formation - a consolidation after recent steep losses. This week's action was similar, with the front-line indexes staying confined within last week's trading range, forming a 'double inside week'. Inside weeks are continuation patterns, with double inside weeks being even more so. Bears have certainly taken a breather after the sharp blood-letting in January.

Despite the ups and downs during the week, bulls can probably claim a semblance of victory at the end, considering multiple negative news-flow (dismal Philly Fed data, sharp rise in inflation, crude rising to over $100 a barrel), finishing the week with less half a percentage gains. Other markets, however, did much better, with Bovespa closing the week with 7% gains.

We had reaffirmed last week that stocks were in a confirmed bear market. We also categorically stated that a pullback rally within the larger downtrend was overdue and should be used solely to lighten up on long-only exposures. Stocks played to script this week notching up modest gains despite heightened volatility that usually accompanies an options expiration week. Stocks gained sharply mid-week following Warren Buffett's bailout plan for the monolines and a narrower-than-expected trade deficit. But comments from Ben Bernanke and a remarkably weak consumer sentiment survey spoiled the party. The front-line indexes closed out the week with a respectable 0.5%-1.5% gain. Most indexes witnessed an 'inside week', that is in keeping with the idea of a consolidation after recent steep losses.

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The week ended February 2 saw the best performance on Wall Street in almost five years, with the broad S&P 500 posting solid gains of 4.87% driven by the largesse of the Fed rate cuts. But in a sign of the tumultuous times we are in, the front line indexes gave up most of those gains this week, posting average losses of over 4.5%. The losses were seen across the board, with only the defensive sectors such as medical labs, research, health care, drugs, medical equipment and supplies, health care information and beverages managing positive returns.

The indexes struggled to build on to last week's gain on Monday, before finally capitulating on Tuesday following the release of pretty dire ISM non-manufacturing numbers (detailed below) and Richmond Fed President Jeffrey Lacker's comments of a possible mild recession. The Dow Jones Industrials declined a sharp 370 points on Tuesday, its largest decline in almost a year. Although bulls tried to regroup towards the end of the week, the battle had been won by bears emphatically.

The markets kick-started last week on a positive note, with each of the front-line indexes gaining between 1% and 1.8%, anticipating a Fed rate cut. The next two days were spent in a wait and watch mode with the indexes remaining largely flat. Contributing to the sharp intra day reversal on January 30^th after the Fed cut was the news of Fitch Ratings downgrading bond insurer FGIC (from AAA to AA).

However, the world's largest bond insurer MBIA reported that it has completed a $500M stock sale to Warburg Pincus (subsequent to reporting a staggering $2.3Bn Q4 loss, due to a $3.5Bn write-down on its insured credit derivatives portfolio) a part of the larger $1Bn investment the latter has committed to. This coupled with the news that a consortium of eight banks is working with New York State Insurance Commissioner Eric Dinallo, towards bailing out the troubled bond insurer Ambac Financial Group helped allay concerns that the next sector to fall prey to the sub-prime crisis would be the bond insurance sector. Positive sentiment was further heightened by Microsoft's unsolicited bid to acquire Yahoo Inc. for a whopping $44.6Bn. The markets showed strength for the last two days of the week, riding on the back of the above, enabling front-line indexes to post handsome weekly gains ranging between 3.7% and 4.9%.

We now strongly believe the Fed will most certainly cut the benchmark Fed funds rate again today by another 50 bps. This is in addition to the massive emergency 75bps cut announced last week.

We have a sound basis for such a bold argument. Not least because the market itself is betting on that.

We had signed off last week suggesting that a near term recovery may be on the cards, but just stopped short of making a decisive call. That indecision was vindicated by this week's volatile trading action. Although there was a sharp rebound in the front-line indexes from their intra-week lows, stocks had a wild ride.

On the back of sharp losses in equity markets world-wide on Monday and Tuesday, front-line indexes were slated for a disastrous opening (Dow futures down 550 two hours before the opening bell). Then news trickled in of the emergency 75 bps rate cut by the Fed and futures rebounded sharply, before reflexively giving up most of their gains as traders wondered what had suddenly gotten into the Fed. After opening 350 down on the Dow, stocks gradually rallied towards the close but still ended up negative for the day.

Stocks had another awful week, dropping between 4-5%. The broad-based S&P 500 slumped 5.4% this past week, its biggest weekly decline in five years. Last week we compared the stock markets to a chronic alcoholic who has had frequent unsuccessful visits to Alcoholic Anonymous; as time goes by, his addiction gets stronger and it becomes increasingly difficult to wean him away. Even the announcement of a major fiscal stimulus package (read below) failed to evoke any response from the bulls.

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On January 10, Amazon.com (NASDAQ:AMZN) announced the addition of Sony BMG Music Entertainment to its repertoire of labels available at Amazon MP3, the DRM-free music store of Amazon.com. With this deal, Amazon is now offering DRM-free MP3s from the four major music labels - EMI, Universal, Warner Music, and Sony BMG - and 33,000 independent labels. This deal puts Apple (NASDAQ:AAPL) at a disadvantage.

The music industry has been witnessing rapid downfall in the sale of CDs. Some solace in this environment is the increasing sales of digital songs and albums. Apple iTunes, with more than two-thirds marketshare, has been successful in making the customers pay for online music. The music industry will now be looking forward to AMZN's role in increasing sales of digital songs and albums - AMZN now supply almost 3.1M DRM free songs. The Sony BMG deal brings in a massive portfolio of leading artists that include Backstreet Boys, Beyoncé Knowles, Britney Spears, Carlos Santana, Celine Dion, Kenny G, Michael Jackson and more.

We had questioned last week whether 2008 would turn out to be the "Year of the Bear" in the stock markets considering the lurking full-blown recession in the horizon. We had also concluded that a 50 bps rate cut seemed a certainty at the upcoming FOMC meeting.

The events that unfolded this week confirmed most of our contentions. Sentiments were battered following last week's thrashing. After enduring a nervous session on Monday due to the resurgence of some hostilities with Iran, stocks declined sharply on Tuesday following disappointing pending home sales data and rumors of Countrywide filing for bankruptcy. Stocks, however, rebounded sharply from their intra-day lows on Wednesday driven by an upbeat profit forecast from Dow component Dupont and the stepping down of Bear Stearns bridge-and-golf-playing chief executive Jimmy Cayne. A stronger than expected earnings announcement from another Dow component Alcoa and Bernanke's speech hinting towards further aggressive rate cuts lifted spirits up briefly, fueling strong gains on Thursday. The most notable gainer for the day was Countrywide Financial which shot up over 50% in a sudden intraday spike following rumors of Bank of America agreeing to acquire the struggling mortgage lender. The gains were however, short-lived, with stocks resuming their descent on Friday following reports of Merrill Lynch writing down an additional massive $15billion and American Express increasing its loan loss reserves to cover increased customer defaults.

Below are eight internet/tech stock picks for 2008 and the reasons why they should do well.

We had remarked last week that when the holiday hiatus comes to an end, traders are likely to take stock of events that have unfolded over the past few weeks and possibly dictate the short term course of the front line indexes. 2007 ended on a bad note with all the front line indexes closing in the red; 2008 has begun on an even worse cue with all the indexes declining sharply this week amidst some very dire economic data. Ominously, S&P (SPY) is down 3.86% in the first three trading days of the year, its second worst start ever.

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Very little has changed this week on the broad market price front. The front line indexes were largely unchanged for the week, barring Thursday's fierce sell-off partly fueled by events in Pakistan. In this relative quiet of the holiday season, investors and analysts alike are likely to be unsure of what to make of any news flow.

On December 17, Ormat Technologies Inc. (NYSE:ORA) announced a 20-year agreement with Southern California Edison for the sale of energy from ORA's 30 megawatt plant at Imperial Valley, CA, that is expected to come on line by mid 2012. On December 18, Ormat announced the execution of agreements in the 340 MW Sarulla Geothermal Project in Indonesia where Ormat will design and supply the power generating units. These agreements indicate that ORA will not only remain as a leading geothermal power producer in US, but is also expanding its international presence.

Biologic products grew at an average clip of 17% over the past two years, a growth higher than any other sub-sector within the pharmaceutical industry. There are many biologics in the approval pipeline and it has been projected that 50% of drugs approved for the marketplace in 2010 will be the result of biotechnology. Biologic medicines, manufactured from complex living cells, provide some of the most effective treatment options for serious diseases like cancer and diabetes, but are prohibitively expensive. Biogenerics (generic versions of biologics) can bring down the cost of biologics. However, there is no regulatory process for approving biogenerics.

A biologic to treat colon cancer costs $100,000 a year. There would be a substantial economic benefit - estimated savings of at least $43.2 billion between 2011-2020 - if Congress creates a new path, similar to the Hatch-Waxman Act (a landmark law enacted in 1984 that gave birth to generic drug industry) for the approval of biogenerics. The absence of such a regulatory approval process for biogenerics prevents competition that would lower biologic drug costs.

After making a multi-year high at around $25 levels, GigaMedia Limited (GIGM) appears to be consolidating side-ways for the past two months. This period witnessed the company announcing a slew of new deals. We believe that these deals will help GIGM in continuing with its strong growth (a CAGR of 37.4% in total operating revenues between 2002 and 2006).

CEO speak generates media attention. When Patrick M Byrne, CEO of Overstock.com (OSTK) speaks, the market and media give a little more attention (the reader can verify this argument by looking at the number of blogs posted about Byrne in Seeking Alpha). Byrne appeared on CNBC's Closing Bell on Friday, December 7. His comments on this show and a subsequent press release stating expectations about OSTK's performance in Q4 resulted in the stock tanking 21% on Monday, December 10. The stock has now lost almost 50% of its value from the October high of $39. Our belief is that the stock has tanked too much, and will bottom out soon.

Overstock has been showing signs of recovery through the past one year, after a substantial meltdown from the 2004 high of $77. This recovery was aided by expectations about the company making a profit. Its Q3 results beat the analyst expectations in both the top-line and the bottom-line (Loss of 20c per share on revenue of $161.9M Vs a consensus of a loss of 39c per share on revenue of $155.1M). The company reported an 81% YOY reduction in net loss to $4.7M, while improving its gross margins to 17.5% from 13.6% in the comparable quarter of the past year. For the first time, the company also generated a positive EBITDA for a non-fourth quarter. With the market expecting the company to make a profit in the fourth quarter, the stock rallied to $39.

The stocklore says that Bernard Baruch knew it was time to sell his stocks when his shoe shiner gave him a stock tip. Baruch's judgment involved taking several market inputs and piecing them together to arrive at a conclusion. Sophisticated investors call this the 'Mosaic theory'. We can use the same methodology and gather different clues that can then be put together to finally crack the jigsaw.