Beating Wall Street Discovering Inefficiency in an Efficient Market
	BWS Financial		Daily Market Commentary The news has not been pleasant out of Europe this morning. Ireland’s credit rating was downgraded, and the Euro-zone’s unemployment rate increased to its highest level in ten years. Sweden dropped their interest rate to 0.25 to spur economic development. All of this is on the heels of the June employment data in the US. The unemployment rate is now 9.5 percent in the US with June non-farm payrolls a negative 467 thousand compared to the May figure of negative 322 thousand. Initial claims were 614 thousand for the latest week compared to the prior week of 630 thousand. The market is selling on the news. There was much expectation that the employment numbers would show some improvement from May. That does not seem to be the case. Hourly earning was flat compared to May and weekly hours decreased to 33.0. The statistics would suggest that productivity has not returned to the workforce, which could indicate there is more downside to the economy before we see a rebound. The numbers have caused market averages to indicate a sharply lower market this morning. Today is the last trading day of the week and there has been little news to give the markets a lift. Overall, economic statistics have not been too great over the last couple of weeks to give the markets a lift. Our fear is that once market participants return from vacation next week we could see sharper declines. It will be tough for the markets to recover from the current sell-off this morning, but lower trading volume means higher volatility. The markets should close the session in negative territory after hitting lows of the day by lunchtime. Franklin Covey (FC- Buy Rating) has set July 9th as the day to release fiscal third quarter results. The numbers will be released after the market close. The third quarter is the first period in which we believe CEO, Bob Whitman, needs to deliver on his promises of EBITDA expansion. We are anticipating FC in posting breakeven operating income and positive EBITDA of approximately $1.8 million. The bookings trend was positive going into the quarter, which would suggest guidance for the fourth quarter should remain on track. If Mr. Whitman is able to deliver on his promise of cost savings and an annual run rate of $23 million in EBITDA by the fourth quarter then FC shares could easily move to $10. We do stress the importance of these numbers to FC shares because of investor sentiment. The recent run-up in FC shares ahead of the earnings report could have some impact on the immediate trading activity, but the final action would be dependent on what FC reports. The broadband stimulus criteria was released on Wednesday shedding light on what kind of projects would receive preferential treatment in the bidding process to receive the first batch of the $7 billion plan. All the money needs to be spent by September 2010, which the timing of the awards would make it likely that almost of the spending would occur in 2010. From an earnings perspective, the Street would look upon communication equipment companies’ numbers as a one-time event. What is unclear is who would benefit the most from the spending. The big names in the group are the immediate recipients of much of the money. There is one company we believe could see proportionally more business than its size. Occam Networks (OCNW- No Rating) is a communication equipment company primarily focused on tier-two and tier-three service providers in the US. OCNW has the potential to receive more orders than would be expected of a $70 million market cap company because of the relationships OCNW has fostered. We consider the name speculative, but an off the wall idea when compared to Cisco Systems (CSCO- No Rating) and Tellabs (TLAB- No Rating) where the benefit from the stimulus spending would not have too great of an impact to the financial books when compared to OCNW. This report will be updated again July 6, 2009 before 7:00am Pacific Time.
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