The recent unprecedented carnage in the equity markets has created a longer term opportunity of historic proportions. In the past one hundred years, we have seen only one time when the S&P 500 dropped more than 50% from its prior high and that was during the onset of the Great Depression in 1929 to 1932. The other four historic drops made historic bottoms in 1907, 1942, 1974 and 2002, and on each occasion the fall was almost exactly 50% from the prior high but no greater.

A depression is said to have occurred if we see a 10% drop in GDP, and the “Great Depression” was called such because we saw a 30% drop. Unlike 1929, global central banks are providing liquidity not taking it away. Unlike 1929, when the money supply fell 33%, the money supply is increasing today. Unlike 1929, today bank deposits are insured by the federal government. GDP growth will now most likely be negative for at least a couple of quarters, but it is important to appreciate that despite all the turmoil of the past year, we still saw 2.8% growth in the 2Q, and that until very recently, the economy was continuing to surprise on the upside. In the last few years we have seen the emergence of a global middle class, and it is due to our strong exports that GDP had previously held up so well. This new “flat world” will provide continued support and we believe that the economy will prove again more resilient than most anticipate. Yes we are now going into reverse, but to believe we will see negative 10% growth has no basis in rational thought other than unmitigated panic. If we take the 100 year historical precedent that a 50% drop in a non-depression environment is the maximum amount of pain to be inflicted, it would suggest a low of 790 on the S&P 500 and 7100 on the Dow. These levels are both into the body of support provided by the 2002 and 2003 lows, and even if we were to reach these dire levels, it would suggest that we have already seen almost 90% of the full damage.

Three days prior to the bottom of the worst market in history in 1932, the “godfather” of security analysis, Benjamin Graham, speculated that some companies were better off to shareholders if they were liquidated, as fully 1 in 12 stocks were trading at or below cash. Last weekend Barron’s ran an analysis that said 1 in 10 stocks were trading at or below cash. From 1932 to 1937, during the worst depression in history, the Dow soared over 300%, and small caps did even better. The following is a list of beaten down Tech stocks that have healthy net cash balance sheets and are trading at no more than 6.0x the estimated ’09 estimates after cash. .This portfolio of stocks has already bounced 18% off the lows set Friday Oct 10th, and it appears likely that the market experienced a significant technical capitulation on that day.

We will track an equal weighted index of the following stocks as of the opening price today. We strongly believe that out of the recent wreckage, there are many potential four and five baggers, and that many exist within this list. .

NetCash ’09 EPS Adj P/E
Per Share Est. after cash

The Stocks

Company*	Symbol**	Opening Price	Cash/Share	Est. 2009 Earnings/Share	Adjusted Price/Earnings
Anadigics	ANAD	$2.34	$1.63	$0.34	2.4
Authentec	AUTH	$1.89	$2.19	$0.08	0.0
Applied Micro	AMCC	$5.35	$3.00	$0.81	3.0
Actions Semi	ACTS	$2.13	$1.97	$0.42	0.4
Airvana	AIRV	$4.69	$3.45	$0.40	3.4
Acme Packet	APKT	$3.91	$2.53	$0.28	5.2
AXT Inc	AXTI	$1.21	$1.02	$0.19	1.1
Blue Phoenix	BPHX	$2.92	$0.95	$0.73	2.9
Brocade	BRCD	$3.57	$1.44	$0.65	3.3
Cogo Group	COGO	$4.76	$3.23	$0.81	2.1
3 Com	COMS	$2.18	$0.60	$0.39	4.4
Ceragon	CRNT	$4.62	$1.99	$0.72	3.7
Double-Take	DBTK	$7.52	$3.36	$0.81	5.5
DIVX Inc	DIVX	$5.63	$3.12	$0.66	4.0
Electr For Imag	EFII	$9.84	$4.54	$1.15	4.8
Emulex	ELX	$9.76	$4.14	$0.96	5.2
Extreme Netwk	EXTR	$1.63	$0.97	$0.30	2.2
Giant Interact	GA	$6.26	$3.47	$0.87	3.4
GSI Group	GSIG	$2.63	$4.40	$0.34	0.0
Global Sources	GSOL	$6.39	$4.72	$0.82	3.0
Integrated Silicon	ISSI	$1.80	$1.75	$0.30	0.0
Sun Micro	JAVA	$5.12	$1.91	$0.76	4.4
China Fin Online	JRJC	$9.49	$4.35	$1.90	2.7
The 9 Ltd	NCTY	$14.04	$10.98	$2.22	1.4
Namtai	NTE	$7.72	$5.83	$0.64	3.0
Netgear	NTGR	$11.18	$5.27	$1.41	4.3
Nvidia	NVDA	$7.48	$2.98	$0.93	5.1
Novatel Wrless	NVTL	$4.73	$4.32	$0.42	1.2
O2 Micro	OIIM	$2.96	$2.20	$0.36	2.6
Oplink Comm	OPLK	$9.72	$5.88	$1.20	3.5
Omnivision tech	OVTI	$8.37	$4.72	$0.92	4.2
Opnext	OPXT	$3.93	$2.70	$0.47	2.7
Pericom Semi	PSEM	$8.77	$4.45	$0.94	5.0
Sigma Design	SIGM	$11.59	$4.57	$1.93	3.8
Silicon Motion	SIMO	$3.48	$2.59	$1.51	0.6
Silicon Image	SIMG	$4.14	$2.52	$0.29	6.0
China Digital	STV	$7.35	$4.66	$1.04	3.0
Sierra Wireless	SWIR	$7.76	$6.28	$1.28	1.2
The Street.com	TSCM	$3.65	$2.64	$0.32	3.4
Zoran	ZRAN	$6.64	$6.90	$0.30	0.0

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The above portfolio of 40 stocks trades at an only 3.0x ’09 earnings estimates after cash. While estimates may come down, the fact that almost 70% of the stock price is free cash on the balance sheet should certainly limit any potential downside.