I don’t get things right as much as I’d like when it comes to the market but my Latticework Linkfest back in late February was spot on:

In times of recession, when unemployment is high, the unemployed go back to school to add marketable skills and increase future earnings power. The leading companies in for-profit education include Strayer Education (STRA), DeVry (DV), ITT Educational Services (ESI), Career Education Corporation (CECO), Capella Education (CPLA), Corinthian Colleges (COCO), and industry giant Apollo Group (APOL). Apollo operates the ubiquitous University of Phoenix campuses. This investment thesis has worked in past recessionary times, but the unique risk this time around is the possibility that the credit crisis will hamper students’ ability to repay or obtain school loans.

The for-profit education companies mentioned have for the most part been immune to the market’s recent collapse. Some have even made significant money for their investors. The risk that students and prospective students being unable to borrow tuition dollars is still very real but has yet to have a material effect. Unlike a sample basket of leading technology bellwethers like Apple (AAPL), Google (GOOG), Yahoo! (YHOO) eBay (EBAY), Microsoft (MSFT), Amazon.com (AMZN) and Oracle (ORCL) that destroyed wealth, if you invested in a basket of these education stocks, you’d have a juicy profit or at least preserved most of your wealth.

The leading education companies collectively appreciated approximately 31% since my post published February 25 all the way to yesterday’s closing prices. If an investor had put $100,000 in each of the leading companies in that space, that basket would be worth over $921,000 today. The leading technology companies, as great as their brands and products may be, collectively lost almost 26% of market value. The index that is most apropos as a benchmark in this comparison, in my opinion, would have to be the NASDAQ Composite, which lost 26% of its value as well. An investor putting initial capital of $700,000 in either the NASDAQ Composite or the technology basket would have only $518,000 of value remaining. That’s a whopping difference of approximately $403,000 between the education portfolio vs. the technology portfolio or the NASDAQ index.

Have I been able to profit off this insight? Unfortunately no. I went into cash on June 25th for the majority of my portfolios and my private investment partnerships. In a summer of uncertainty and volatility, I thought it would be a prudent measure to preserve wealth – which has turned out to be a service for my investors and myself (unless of course inflation is higher than what the government is officially reporting). The real estate asset bubble appeared to have made other things expensive as home equity propped up prices in the stock market and other financial markets.

What’s next? Given the stellar performance of for-profit schools, I would take some profits off the table. As much as I admire Warren Buffett, I don’t have the capacity for pain to buy and hold like the old master of value investing. On a macro level, the risks to the education sector in particular and the market in general are still profound. The next shoe to drop will be fund redemptions or withdrawals from mutual funds and hedge funds, which I alluded to in Long Term Capital Mismanagement. If this occurs in a heavy way, the overall market will lose some more value and push us deeper into this bear market. The other shoe that could drop would be a failure of the consumer credit market. Credit card companies will reduce credit lines as consumers fail to meet monthly credit card payments. Consumers no longer have rising home equity to feed their spending habits. Rising unemployment also increases the likelihood of household bankruptcies.

What can we learn from this downturn?

From an investing point of view, there are always countercyclical investments available. Higher in the value chain of countercyclicals are the for-profit education companies. They are far more attractive than the conventional defensive stocks such as food manufacturers like Kraft Foods (KFT).

From a business point of view, I can only speak from the technology startup standpoint as that is where I spend much of my time. It is nice to see that people will be going back to school to learn new skills and improve their future earnings. But as much as I believe that talent can come from anywhere, as a startup entrepreneur I can seldom take the risk of hiring people out of these for-profit vocational schools. I’d rather hire someone without a degree but was passionate enough to teach himself how to write code. Or I’m looking for the genius from Stanford or MIT who dreams in code.

We all know that the rigor of most of these vocational schools like Strayer and University of Phoenix just isn’t up to par with our top national universities or even regional ones like University of Utah, Brigham Young University, University of Colorado, University of Arizona, or University of Nevada Las Vegas. Vocational institutions’ lack of selectivity (anyone can sign up for school with Strayer while prestigious institutions like UC Berkeley reject an overwhelming majority of applicants) and their lack of rigor means a bunch of job candidates with bad habits. Of course there are rare outliers and standouts, but does a startup have the time to evaluate and separate the few good from the mostly mediocre?

A startup’s early days are its most productive and critical. Founding teams employ magic to make something out of nothing. Startups cannot afford to take risks on what most likely will be mediocre talent. Let the large soulless organizations like Ingenix (UNH), Convergys (CVG), and IT departments across the Fortune 500 suck up all the graduates from vocational schools like Strayer, Capella, and DeVry. While the for-profit education companies can make for great investments, their graduates would usually make poor investments.

The stock market’s rebound has been so fast and furious that it might make folks forget that we just experienced a nasty credit crisis and market downturn. Have sinking home values not registered with the national psyche? Surf around on Zillow.com and witness the vast amounts of wealth disappearing over the last few months as homeowners see their most significant asset crumbling on a shaky credit foundation. Of course, institutional money managers are the ones buying furiously and fueling this market rebound. It is entirely plausible that, unlike the average American, their homes are not their most significant asset. Maybe most of their wealth is stored in Swiss bank accounts, gold bullion, Impressionist paintings, or first edition copies of Superman and Batman. Thus, unlike Barack Obama, Hillary Clinton, and John McCain (average Americans all), hedge fund managers don’t feel your pain.

But we are all shareholders now. Even as our home values continue to sink, our brokerage accounts are softening the pain as equities turned in a strong performance over the last week. Technology stocks, much to my chagrin, turned in a 3.4% pop. In investing, paradoxically, there is nothing as potentially humbling as having a strong opinion. The S&P 500 and Dow Jones Industrial Average followed the leader and also rallied impressively. Curiously, REIT stocks topped them all, suggesting that the market is discounting further weakness in real estate.

“Go East Young Man!” That ought to be the rallying cry for ambitious college graduates. Learn an Asian language and stake your future in emerging markets. While almost all equity markets have performed negatively over the last twelve months, emerging markets continue to appreciate at a blistering pace with Asia being a driving force. I count myself lucky that my parents taught me to speak Cantonese-Chinese. They displayed amazing persistence as I was not a receptive student to one of the most difficult languages in the world to master. I am still amazingly inept at it, but I could survive in Hong Kong and Guangzhou.

The Black Bubble inflated just a tiny bit. Nonetheless, crude oil set a new record high – topping $127 per barrel before settling at $126.02 per barrel. As the summer driving season approaches, will the high cost of oil discourage road warrior Americans from taking that trip to the Grand Canyon and other national monuments?

Macro

American corporations are flush with cash. Big blue chips are flush with cash. Mid-sized companies are flush with cash. Small capitalization technology companies are flush with cash; actually, a wide swath of technology companies is flush with cash. So while the major market indexes have rebounded strongly, many individual company stocks are still way off their price highs. We need more dudes like Carl Icahn.

Mr. Icahn last week announced that he had accumulated a significant stake in Yahoo! (YHOO) and plans to nominate an alternative board in order to force a sale of Yahoo! to Microsoft (MSFT). He contends that the current Yahoo! board acted irresponsibly by rejecting Microsoft’s buyout bid.

This is precisely the time for cash-rich companies to go shopping for fallen competitors on the cheap. If the pickings are slim, then they ought to deploy their cash and buy back shares. If corporate managers cannot put corporate coffers to good use by engaging in business activities that produce strong returns on investment (ROI), they should return that cash to shareholders.

There are plenty of situations that could use a good activist investor to spur intelligent deployment of cash. Smart acquisitions and stock buyback programs would further bolster the current rally. There are few good reasons, given the prevailing environment, to hoard cash.

Micro

CBS in $1.8B deal for online news, info site CNet – This is exactly what I’m talking about. CBS Corporation (CBS) has a decent balance sheet and plenty of cash to make this acquisition of CNet Networks (CNET). Startup entrepreneurs rejoice! With Rupert Murdoch’s News Corporation (NWS-A) busily gobbling up web companies to bolster its Fox Interactive Media unit and Time Warner buying new properties in an attempt to make its eventual spinoff of AOL more attractive, the rest of the media giants will play lemming to catch up. Suddenly, everyone wants to be Web 2.0! Here’s a very informative piece from Amy Webb showing who owns what in Web 2.0 – a handy thing to keep at the side of your desk if you’re a venture capitalist with some Web 2.0 in your portfolio:

Meet Carl Icahn’s Yahoo Board – Let’s revisit the drama that is Yahoo! Mark Cuban is on the alternative board. Cuban is the smart fellow who sold Broadcast.com for $5.7 billion at the height of the dotcom bubble. He also had the foresight to sell whatever shares he had for cold hard cash. In life, timing is everything. This time though, the payoff for Cuban will not be quite so lucrative. If Icahn is successful with this proxy battle, I liken Cuban’s likely short stint, as a director, to community service. He’ll perform a service to the community of Yahoo! shareholders by forcing a sale to Microsoft.

Comcast to Acquire Plaxo – Here is one that doesn’t make sense, no matter how flush Comcast’s (CMCSA) coffers are. Did I mention that big media companies will begin to behave like lemmings? If the big cable giant is going to move into this space, it should also set its sights on LinkedIn.

Ask.com buys Dictionary.com parent Lexico – Ask.com, owned by IAC/InterActiveCorp (IACI) takes ownership of Lexico for a reported $100 million. IAC/InterActiveCorp is another one of these bigger tech companies with a boatload of cash. The options are simple – invest it, buy competitors, or return to shareholders. IAC/InterActiveCorp will undergo big changes itself as it prepares to spin off non-core properties.

Natus Shareholders Throw A Fit – Let’s look at a different kind of tech. Natus Medical (BABY) develops and sells medical devices that help in the screening, detecting, and monitoring of newborn conditions. It filed to issue a secondary public offering of 3.5 million shares. Shareholders reacted violently to the potential dilution, but the company is simply attempting to raise more cash in order to make more acquisitions. It is essentially the same theme being played out over in the software industry with Microsoft, AOL, and IAC/InterActiveCorp. Full Disclosure: I currently have a long or short position in BABY in one or more of my private investment partnerships.

A couple weeks ago, I wrote about my pessimism regarding the technology sector. The market had seemed to interpret the surprisingly good results reported by Big Blue (IBM), Google (GOOG), and even Yahoo! (YHOO) as reasons for unleashing optimism and a bargain hunting shopping spree for stocks of publicly traded technology companies. Maybe the recessionary environment and the woes faced by banks and the American consumer would not negatively impact corporate budgets for technology. My skepticism rests on the ability of secondary technology companies to weather the economic slowdown. In other words, I think there is going to be a bifurcation of the technology sector, with blue chips performing in line with expectations and second tier players getting hit hard by purchasing slowdowns.

How has my skepticism aligned with reality? As usual, I’m wrong more often than I’m right. Over the past week, Apple (AAPL), Amazon.com (AMZN), and Microsoft (MSFT) all reported earnings greater than expectations. These blue chips however warned of weaker results in the foreseeable future. For the week, Apple stock rose 5%, Amazon ticked up 1%, Microsoft ticked down 1%, and Yahoo! fell a whopping 6%. Yahoo’s weak showing had a lot to do with Microsoft reiterating its reluctance to increase its bid for Jerry Yang & Company. These mixed results mask a surprisingly strong showing by the Nasdaq Composite Index which rose 0.8% for the week. This implies that a lot of the secondary technology issues performed better than other sectors of the economy. Industrials in the Dow Jones Industrial Average rose only 0.3% and the blue chips in the S&P 500 did slightly better with a 0.5% rise. We’ll get an even better reading on the technology sector as bellwethers like Blackberry maker Research In Motion (RIMM), Cisco Systems (CSCO), Hewlett-Packard (HPQ), and Dell (DELL) report their earnings in the upcoming weeks. In the meantime, I’ll be looking for a lot of smaller technology companies to run into a brick wall.

Macro

The media just started latching onto the rising cost of food story. All throughout Ben Bernanke’s easing of credit and interest rates, which in the short run looks like a success, I worried about his staying power because of inflation. The Federal Reserve is stuck between a rock and a hard place because of the conflicting forces of inflation and the slowing economy. Everyone knew about oil’s incessant march to record prices, but few worried about food prices. Recently, The Economist ran a cover story on the food crisis. Much of the blame rests with increased planting of corn for biofuels instead of wheat for food. The unintended consequences of government initiatives and regulations bolstering or subsidizing the use of ethanol are now materializing in record food prices. The head of the United Nations warned that the dearness of food could cause political and social instability. Asian countries are in a mini-panic because of the skyrocketing price of rice, the staple input of Asia. Riots have erupted in Egypt and even the prime minister of Haiti was forced to resign over food shortages. Crises bring opportunities, so rumors of American food conglomerates craving foreign food companies abound as executives weigh their next move in response to the food crisis. Will we want to drive more or eat more? That is a very basic question.

Micro

Interactive Intelligence to Announce First Quarter Operating Results – Interactive Intelligence (ININ) provides software applications used by contact centers or call centers. ININ has some award-winning products. One of the most interesting to me is their Interaction EasyScripter, which is software that allows for management of “scripts” for call center agents. Companies that rely on call center agents to sell products or perform customer service should find EasyScripter very useful. I’m considering using EasyScripter or something similar in the sales efforts of the startup I’m involved in. The company reports earnings after market close on Monday and analysts expect 8 cents of earnings per share for Q1 this year. ININ is one of the second tier technology companies that will test my thesis, that blue chip technology companies will do fine through the economic downturn while the smaller technology companies suffer from budget cuts. Full Disclosure: I currently have a long or short position in ININ in one or more of my private investment partnerships.

Decker surges on higher outlook – We can’t always focus just on technology and food. Let’s take a look at fashion for a bit, albeit low fashion. Decker Outdoor Corporation (DECK), the maker of those annoying UGG boots took short sellers on a 21.55% ride after reporting earnings growth of 18% for Q1 2008. DECK has other product lines, but the primary driver of growth is the UGG boots line. Always be skeptical about fashion fads. Take a look at the stock charts of CROCS (CROX) and Heelys (HLYS) for an illustrative warning.

Focused Strategy Helps Chipmaker Rise Above Sector’s Slump – Back to technology, I just had the power brick on my Hewlett-Packard Pavilion laptop fail on me. Replacement power bricks are unbelievably expensive. Why can’t laptop manufacturers standardize on power bricks and power cords so we can all buy a one-model-fits-all commoditized power unit? The Universal Serial Bus (USB) port has worked so well for consumers. Power Integrations (POWI) makes a tidy business supplying the chips that control power bricks.

Citi upgrades Sohu.com – I pay great attention to the China tech sector and, recently, the Chinese passed the United States for the most Internet users. Sohu.com (SOHU) is China’s version of Yahoo!, an Internet portal company. Sohu.com, unlike Yahoo!, is growing by leaps and bounds. Also unlike Yahoo!, Sohu.com has figured out online gaming. Going forward, its online game, TianLong Babu, will be a strong contributor to the bottom line. If you think World of Warcraft and online gaming has had a big impact on the American gamer, just keep your eye on what massive multiplayer online games (MMOGs) will do in China and the rest of Asia.

Netgear shares tumble after profit drops on US, UK woes – I love Netgear (NTGR) products. Netgear powers my home network. However, it seems that Cisco System’s Linksys division is taking market share by sparking an industry-wide price war. Wireless networking, once the next big thing, has become a commodity. Aside from a few gifted companies like Apple and Cisco, hardware makers often fall prey to the commoditization trap. It happens sooner rather than later. Netgear reported Q1 earnings dropped 20% and promptly saw its stock take a 16.74% dive.

Shares of Synaptics drop after fiscal 3Q profit slides – Synaptics (SYNA) specializes in touchscreen technology. It used to do a lot of business with Apple supplying technology for iPod user interfaces. The long term growth of electronic equipment with touch interfaces like the iPod, iPhone, and the flood of iPhone competitors soon to come bodes well for this company. Cell phones and smart phones will have increasingly intelligent touch interfaces. Even automobile dashboards will become flattened digital touch interfaces rather than today’s analog dials and switches.