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A small technology company with a goofy name goes public, and before long it is a market titan with a valuation larger than one of the Big Three auto makers. Haven’t we seen this movie before? Sure we have. The first time around it was Yahoo!, complete with exclamation mark (in case you weren’t excited enough already). This time it could be Google – no exclamation mark, but still plenty of heavy breathing about the billions of dollars it could be worth someday.

Most of the people getting all hot and bothered about a Google IPO are on Wall Street, of course, where brokers haven’t had a nice blockbuster technology offering for years. Mention hot IPO and people either think of brokerage firms “spinning” shares of tech firms to their favoured clients, or they think of infamous flameouts such as theglobe.com – which climbed tenfold on its first day in 1998 and soon after disappeared from the face of the earth.

But things are different now, some say. How? Well, for one thing, Internet companies actually make money. Yahoo, for example, has been turning in quarterly profits for some time now, and even Amazon has had a few. The bottom line at eBay, meanwhile, seems to grow by 60 per cent or 70 per cent every quarter. Let’s not be crass and point out that several of these companies exclude various expenses to produce those profits, including the cost of stock options (which would have caused Yahoo to lose $440-million last year instead of making a profit of $43-million).

Profits per se aren’t what has bankers all a-quiver, however – it’s the immense valuations that are being assigned to stars such as Yahoo and Amazon, as well as up-and-comers such as Netflix and even also-rans such as Ask Jeeves. Yahoo is selling for more than 114 times its estimated profit for this year, while Amazon sells for 92 times and eBay for 75 times. Netflix is trading at 100 times this year’s profit, and AskJeeves is selling for about 52 times.

So is Google just getting greedy for some of that hard-earned bubble IPO money, or is it getting its arm twisted by Wall Street? Probably a bit of both. It would take a superhuman effort to resist the prospect of becoming an instant billionaire, as co-founders Sergey Brin and Larry Page would in an IPO. And meanwhile, brokers are whispering in Google’s ear about how it could use the funds for acquisitions.

But isn’t Google the best in the business? No question. As search “engines” such as AltaVista and Yahoo started to grow long in the tooth in the late 1990s, Google came along with its patented “Page Rank” technology. Instead of using search terms (the old method), Google’s engineers came up with a way of determining which page was more likely to be useful to a particular searcher, based on the number of other pages that pointed to that page.

Although Google is clearly the title holder when it comes to fast and accurate searching, however, competition has been heating up with Yahoo since Yahoo bought Overture for $1.6-billion (U.S.), and there is a gorilla on the horizon: Microsoft. The software giant has been talking about improving the search function on its MSN service by designing its own search engine. More funds equals more ammunition for a fight with the world’s largest software maker.

So a Google IPO means that Wall Street gets its blockbuster issue, the market gets a nice big number to compare its other inflated valuations to, and Google’s founders not only become obscenely wealthy but have lots of money to go up against the Gates empire. Now all that needs to be done is to settle on what Google is worth.

All sorts of numbers have been tossed around over the past few months: anywhere from $15-billion to $25-billion, depending on who’s doing the talking. Yahoo is worth (using the term loosely) $27-billion, while eBay is worth $36-billion and Amazon $22-billion. That puts eBay just behind DaimlerChrysler, Yahoo in the same league as Alcoa, and Amazon near General Motors.

Of course, no one is quite sure how much money Google makes, but industry sources say it is expected to have sales this year of between $700-million and $1-billion, and to make about $200-million in profit. Not a bad business – and industry analysts say they expect sales next year of about $1.5-billion. Assuming Google can keep its returns high (and that these estimates are even close to reality), the company might have a profit of $400-million next year.

If you use next year’s estimated profit and apply Yahoo-style multiples, you get a market value of between $21-billion and $30-billion for Google – since eBay is selling for 54 times next year’s profit, and Yahoo is selling for 78 times. If you use a sales figure you get a potential market value of about $18-billion, since both Yahoo and eBay are selling for about 12 times next year’s estimated sales. Now you can see what has Wall Street so excited.

But will the fact that Google can be sold for those kinds of valuations justify the prices people are paying for eBay and Yahoo, or will it simply call attention to how absurd they are? That remains to be seen.

At a recent technology show in Europe, Research In Motion launched a new, consumer-friendly version of its popular BlackBerry handheld device – a smaller, blue-coloured unit dubbed the BlueBerry, expected to be much cheaper than its predecessor. In many ways, the device is a double-edged sword: it has the potential to expand RIM’s market reach, but it also thrusts the company further into a competitive minefield.

Until recently, RIM has concentrated on the corporate market, in part because the “always on,” instant e-mail features of its device – which began as a souped-up pager – appealed primarily to businesses, the kind with salesmen or executives who needed to be available at all times. Politicians and day-traders have also embraced the it, but the corporate market has been the company’s main beachhead and the core of its revenue base.

RIM has also focused on corporations out of necessity, partly because the BlackBerry and its monthly fees have been too expensive for non-business users – and partly because RIM’s e-mail software works best when installed and configured with a corporate e-mail server. Over the last year, however, RIM has been trying to broaden its appeal by licensing its software to other hardware makers, including phone companies such as Nokia. The launch of the BlueBerry is another step down that road.

Many of the analysts who follow the company have applauded these moves, since RIM was seen as too dependent on its own hardware in the past, and restricted to a single niche. They say the new unit – expected to cost $300 (U.S.), compared with the $500 price tag on the regular BlackBerry – could be a winner, and could help the chronically money-losing Waterloo, Ont. company make the leap into profitability. There are some hurdles that RIM has to overcome on the way, however, and they are substantial.

For example, as the company pursues licensing deals with phone companies such as Nokia and distribution arrangements with other providers to sell BlackBerrys and BlueBerrys, it becomes even more reliant on two things. It becomes more reliant on licensing fees and a share of the monthly charges phone companies charge, and it has to rely on those partners to market and sell its devices properly. If they don’t, RIM suffers.

In other words, if Vodafone or other phone company partners don’t discount the BlackBerrys and BlueBerrys to stimulate demand – or don’t discount them enough – they may not sell well. Part of the problem with that equation is that all the major telecom carriers are watching their pennies after the telecom market blowout, and may not be sufficiently motivated to eat into their cash flow for some theoretical future benefit. Even if they are, they could pressure RIM to take a smaller cut of the proceeds.

A related issue is that the phone companies are already busy pushing expensive e-mail-ready devices to stimulate demand for their new services – they’re called cellphones. Many of the newer phones that run on the GPRS, 1XRTT and GSM networks the companies have spent millions building are e-mail capable with always-on capabilities. They may not have thumb keyboards, but plenty of Europeans seem pretty happy with them.

And that’s not all. A U.S. company called Good Technology has been winning RIM customers away with its software – which runs on the BlackBerry, as well the Palm and Pocket PC. Although RIM denies that Good represents real competition, some analysts disagree. RIM has even had to play catch-up with Good: Good’s software offers e-mail updating (in which an e-mail read or deleted on the handheld is automatically read or deleted on the user’s PC), as well as viewing of attachments such as Word documents, and support for web-based e-mail accounts. RIM’s did not, until recently.

As if that weren’t enough, RIM is also wrestling with legal issues – issues that are crucial for a company that plans to gain revenue from licensing. As well as suing Good, the company is fighting a patent case launched by a U.S. company called NTP, which claims it developed technology used by RIM in its devices. After an initial ruling in NTP’s favour, a judge has sent the matter to mediation, and RIM said it has increased to $40-million the reserve it is keeping in case of a negative outcome.

RIM maintains that the NTP lawsuit has no validity, and some analysts agree; but they also note that the suit constitutes an “overhang” that affects the share price. Combined with the tricky transition RIM is trying to engineer, and the substantial risks it entails, even analysts who applaud RIM’s strategy are hesitant to rate the stock anything more than a “market perform” or “hold” – at least until the smoke starts to clear.

Call it the file-sharing war part two: the post-Napster battle. That’s what the major record companies, movie studios and music publishers are now engaged in, with a handful of file-sharing networks that sprang up following the death of Napster. The popular service, which at one time had 30 million users, was effectively killed by a series of multibillion-dollar lawsuits, which eventually resulted in a court order that Napster remove all copyrighted music from its network of servers. Getting rid of the new batch of file-sharing services may not be quite that simple, however.

The new services are known by several different names, including Morpheus, Kazaa and Grokster. They are all based on software from an Amsterdam-based company called FastTrack, which allows users to set up a virtual public network among themselves through which they can trade any type of digital content — music, videos, full-length movies, software, and so on. One key difference is that Kazaa or Morpheus users don’t share files by accessing a central group of servers, as Napster users did. That’s part of what made the company vulnerable, because it was held liable for the file-swapping.

Kazaa and Morpheus — and other file-sharing services such as Limewire and BearShare, which are based on the open-source software known as Gnutella — are “distributed” networks, meaning users download or upload files directly from another user’s computer. In the case of Gnutella, the software that runs the networks is freely available, which makes it difficult to find a company to pursue in court. FastTrack (which runs Kazaa) charges MusicCity (which runs Morpheus) a licensing fee for its software, but even if it was shut down, the software is not that hard to reproduce.

With these kinds of distributed networks, copyright holders are effectively forced to go after individual file-sharers — and in October alone, estimates are that well over half a million users swapped more than 2 billion digital files. File swappers, and some legal experts, argue that under copyright law consumers who pay for music have the right to make copies for other uses, such as playing them from their computer, in a car stereo and so on. Shutting down the file-swapping networks would prevent them from doing so — or they could switch to other methods, including using the latest version of Microsoft’s Instant Messenger or the file-sharing tools included in older chat-oriented software such as Internet Relay Chat.

Nevertheless, last month the Recording Industry Association of America (RIAA) filed a suit against MusicCity and FastTrack, and was joined in the action by the Motion Picture Association of America (MPAA), which is concerned that high-speed Internet access and new compression schemes make it even easier to swap entire full-length Hollywood movies as well as music. Earlier this week, the National Music Publishers Association, which represents about 800 music-publishing companies and licenses music through its Harry Fox subsidiary, also launched a suit. The plaintiffs are legendary songwriters Jerry Leiber and Mike Stoller, who wrote Jailhouse Rock.

While they have been pursuing Napster and its offspring in court, the major record labels have promised that two new on-line music services will take the place of file swapping. MusicNet is a consortium of EMI Music, Warner Music Group and BMG Music that plans to use RealNetworks technology, while Pressplay is a partnership between Sony Music and Vivendi, and has a technology deal with Yahoo. To complicate things, Napster is supposed to be part of MusicNet, while EMI Music has licensed its artist catalogue both to Pressplay and to MusicNet. Both services are expected to launch next year, although their launch dates have already been delayed several times.

Both Pressplay and MusicNet will likely involve restrictions that file-sharers are not likely to take kindly to, however. They are expected to be “tiered,” which means one monthly fee — $9.95, for example — will only allow you to access certain songs, or will only allow you to stream the music rather than downloading it onto your hard drive. MusicNet also has plans to provide music files which expire at the end of the month. Even users who pay the full price may be restricted to copying the file to one device only, while users who are looking for music from both EMI and Sony or Warner and Vivendi, meanwhile, will have to pay two monthly fees.

With those kinds of restrictions, it won’t be a surprise if file-swappers continue to find alternatives such as Morpheus and Kazaa, whatever the outcome of the case happens to be.

Amid the bad news about writedowns and so on in Research In Motion’s second-quarter report, the handheld device maker’s revenue gains stood out as a bright spot — sales climbed by 88 per cent from the same quarter the previous year. Unfortunately, there are just a couple of caveats: One is that the stock market has been pricing in revenue gains of far more than that, and the other is that RIM is now expecting its sales will fall slightly in the third quarter and show little or no growth in the fourth. That’s not the kind of thing investors in a stock selling for 70 times earnings want to hear.

One of the reasons why RIM’s revenues won’t be growing at the speed they were expected to previously is that some of the company’s partners are in serious financial difficulty, including would-be wireless data provider Motient Corp. The U.S. company, which had a deal to offer RIM’s BlackBerry handhelds, said recently that it would not be making a major interest payment on some of its debt and that it is cutting jobs and will have to restructure its finances. Last year, RIM said that it expected to add 50,000 BlackBerry subscribers as a result of an expanded agreement with Motient.

RIM has now taken a $23-million writedown on inventory and receivables as a result of Motient’s “weakened financial condition.” And that is only the latest black spot on RIM’s planned rollout in the United States. Only two months ago, both Motient and Aether Systems — another startup wireless provider — as well as telecom partner Cingular Wireless (a venture of BellSouth and SBC Communications) said they were not adding subscribers as quickly as expected. Cingular added 60-per-cent fewer subscribers than analysts had expected, raising obvious concerns about future sales. Aether has also cut over 40 per cent of its staff and lost $103-million in the most recent quarter.

Research In Motion chairman and co-chief executive officer Jim Balsillie said on Wednesday the company isn’t that concerned about problems with some of its U.S. partners because “we believe that the migration to next-generation networks will limit our exposure to their difficulties.” But the rollout of those next-generation networks — such as the GPRS (global packet radio system) services some North American and European carriers are starting to offer — is not coming as quickly as expected.

That leaves the company in a bind: Its sales of the older-style BlackBerry pagers and handhelds are slowing and profit margins are tightening, but the new markets it needs in order to keep growing have yet to fully develop. RIM said that it has shipped 20,000 of its new handhelds to BT Cellnet,a unit of BT PLC, as part of a deal for 175,000 of the devices — but there was little detail about future shipments. The rollout of GPRS networks by BT and others has been held up by technical and financial hurdles.

Company watchers have been hoping for news of other launches similar to BT’s, since this is where the company expects much of its growth will come from, but so far there has been little. VoiceStream (a unit of Deutsche Telekom) has said that it plans to start offering BlackBerrys in “early 2002,” but apart from that all RIM has are “memorandums of understanding” with Internet and telecom providers in France, Italy and the Netherlands. Many are waiting until they see whether next-generation services will sell, or whether consumers are willing to pay enough for them.

In its release, RIM said sales for the second quarter were $80-million (far below many estimates), sales for the third quarter will be as low as $70-million to $75-million, and the fourth quarter will be about the same — meaning sales for the year could be 15 to 20 per cent below estimates. The company said it would have an operating loss of 6 to 9 cents for the third quarter and a loss of 8 to 12 cents for the fourth — which would mean a loss for the year of anywhere from 4 to 11 cents. That compares with earlier profit estimates for the year of 22 to 34 cents a share.

And RIM is still far from bargain priced. Even before the company revised its earnings expectations, the stock was trading for almost 70 times this year’s average earnings estimates and 30 times next year’s earnings projections. The company is now saying that its earnings for next year may be between zero and 10 cents a share — compared with earlier estimates of between 48 and 76 cents. That means despite its recent fall, and the fact that it is now trading close to its 52-week low of $13.70, the stock is still trading at more than 150 times next year’s estimated earnings. That may have looked reasonable a couple of years ago, but not any more. Mathew Ingram writes analysis and commentary for globeandmail.com

Major North American stock markets are still shaky after the attacks on New York and Washington, the Dow Jones industrial average and the Nasdaq market index are near their lows and investors seem generally tense and nervous. On top of all that, the technology sector is firmly in the grips of a bear market. Sounds like the perfect time to launch an IPO, doesn’t it? That appears to be exactly what the folks at PayPal, the on-line payment service, were thinking: They filed a prospectus for an initial public offering on Friday.

To say the least, this seems like a bizarre – if not doomed – choice of timing. Apart from the malaise infecting technology stocks, the IPO market is virtually dead. It was on life support even before the terrorist attacks in the United States, and the events of Sept. 11 more or less pulled the plug completely: September was the first month since 1975 that saw no U.S. IPOs launched at all. Not just a few – none.

Not only that, there’s a recent cautionary example of just how wrong such an IPO can go: A network services company called Loudcloud – backed by former Netscape founder Marc Andreessen, among others – went public in March, just as the Nasdaq cratered. It raised $150-million (U.S.) but is still struggling, burning through $35-million per quarter, and the company recently laid off an undisclosed number of staff. From $7 after the issue, the stock is at $1.20, having lost over 82 per cent of its value.

But that hasn’t stopped PayPal from going ahead with its issue – which raises the question: Why the hell not? Why would any company decide to wade into the public markets now? The most likely answer is that it can’t afford to wait. Like many startups, PayPal has financed itself over the past two years with funding from venture capital groups, including Sequoia Capital, Clearstone Partners and Nokia Ventures, an arm of the Finnish cell-phone giant. But even venture capitalists have gotten stingy.

Its IPO filing shows that PayPal burned through about $30-million in the most recent quarter – although the company claims that its burn rate is decreasing. Rather than having any equity, it currently has a shareholders’ deficit of more than $164-million, as a result of losing over $230-million since its inception two and a half years ago. After the issue, which is expected to raise about $80-million, the company says it will have shareholders’ equity of $114-million and cash or cash equivalents of $123-million.

And what about the company’s business? PayPal is an on-line payments company, handling e-commerce transactions between individuals or companies. In many ways, it acts as a kind of virtual Western Union, allowing buyers and sellers on eBay or Yahoo’s auction Web site to exchange funds by cheque or credit card. It also functions as a bank, in the sense that users can withdraw funds from their PayPal accounts, are paid interest on any balance they have, and can access their account from automated teller machines.

One of the problems with that model, obviously, is that by functioning as a near-bank, PayPal is vulnerable to competition from actual banks – including Citigroup in particular, which runs an on-line payment service called c2it that has co-marketing arrangements with AOL Time Warner and Microsoft. Not surprisingly, Western Union also has its own services called BidPay (for auctions) and MoneyZap. But the real issue for PayPal is that eBay has its own on-line payment service known as BillPoint.

This is a serious problem because the majority of PayPal’s business comes from auctions – 70 per cent or so in the most recent quarter – and much of that comes from eBay (Yahoo, which also runs an auction site, has its own payment service called PayDirect). EBay promotes its own service prominently on all auction sites as the preferred method of payment. In fact, PayPal recently sent a letter to eBay users telling them the auction site was changing their payment preferences to BillPoint (also called eBay Online Payments) without their knowledge, a charge that eBay has denied.

On the plus side, the company says it has 10 million registered users, and handles an average of 165,000 transactions a day worth about $8-million, for a total of $747-million worth of transactions in the second quarter. But there’s no question the company faces a stiff headwind, particularly in the current economic environment – and the fact that it is going ahead with an IPO anyway has to be seen as a sign of desperation.

After virtually any disaster, natural or man-made, there must be rebuilding, and the attacks on New York and Washington are no exception. That’s not to say the World Trade Center has to be rebuilt, but the brokerage firms and banks and insurance companies that inhabited it have to somehow get back to work. In addition to the horrific human loss that has been suffered, those businesses have to replace the nuts and bolts of their operations, and that means buying everything from computers to phone networks.

According to Tower Group, a New York-based consulting firm that specializes in studying technology in the financial services industry, at least $3.2-billion (U.S.) will have to be spent by securities firms alone to replace the systems they lost when the World Trade Center towers collapsed. The firm expects $1.7-billion to be spent on hardware (including trading stations, sales stations, workstations, PCs, servers, printers, storage devices, cabling, hubs, routers and switches) and another $1.5-billion on consulting services and software to install and connect all the new hardware.

According to the New York Times, one securities firm ordered 200 PCs from Dell Computer within hours of the planes hitting the World Trade Center – and that was just the first in a rush of replacement orders. Dell said it had to step up production at its plant in Austin, Texas and has been more or less operating its plants at peak capacity around the clock. The company said it had sold more than 24,000 servers, laptops and desktop computers as of Monday and had turned three 18-wheelers into mobile support facilities. One law firm sent its own truck to Austin to pick up 400 computers.

Tower Group said in its report that it believes 30,000 securities positions (including trading, sales, research and operations) were destroyed in the two World Trade Center towers – and that as many as 15,000 to 20,000 positions will need to be replaced in nearby buildings, including the World Financial Center and Bankers Trust buildings. That includes 16,000 trading desks (including multiple workstations with multiple flat-screen displays) worth $52,000 each, 34,000 PC workstations at $5,000, about 8,000 Intel servers and 5,000 UNIX servers at a cost of about $370-million.

And those figures are just for the securities industry. Similar numbers will likely apply to the law firms, insurance companies and others that were located in the towers, although they most likely would not have five flat-screen computer displays on every desk the way a securities dealer would. And that’s just the computer equipment that has to be replaced – then there are the phone and data networks that have been destroyed or seriously damaged, not to mention the impact on the commercial real estate market in New York as a result of the collapse of the two immense office towers.

By some estimates, as much as 15 million square feet of office space has been either obliterated or damaged – equal to about 15 Empire State buildings, or all the office space in downtown Atlanta or Miami – in addition to more than 75,000 phone lines and over 20,000 miles of telephone and data cables. According to one report, tens of millions of dollars in phone switches are buried, and steel girders severely damaged one of the switching facilities for Verizon’s network. “We have a giant job cutting out the pieces that don’t work and reattaching the parts that do,” Hugh O’Kane, CEO of telecom consulting firm Levent Management, told Fortune magazine.

Obviously, some of the firms who have lost entire networks – both phone and data – will take the opportunity to upgrade to faster or more secure (or redundant) systems, rather than just duplicating what they had before. And that might mean a considerable amount of unexpected business for companies such as Cisco Systems, Nortel Networks and other networking equipment makers. Focusing on the sales of office equipment after such a terrible event no doubt seems cruel and insensitive, but eventually the world must return to normalcy, and helping companies recover is part of that.

There’s no question that the spending on computers and networking gear will provide tens of billions of dollars that those industries were not expecting to get. But will it be just a short-term blip? Perhaps. On the other hand, it might help PC makers such as Dell and networking equipment companies such as Cisco get through the next couple of quarters, until those industries and the economy itself begin to return to something approaching normal behaviour (assuming that ever happens, of course).

On the front cover of The Hitch Hiker’s Guide to the Galaxy, the traveller’s manual in Douglas Adams’ popular novel of the same name, was a simple piece of advice: “Don’t Panic.” This also happens to be good advice if you are an investor – and not just now, in the aftermath of the attacks on the United States, but at almost any time. In fact, many investors should probably have heeded that advice in 1999, when the market was deep in the throes of a buying panic. And it is just as timely now, when the impulse may be to sell just about everything you own and head for the hills.

If you were to sell everything, you would certainly have plenty of company: Despite all the talk about investors holding fast – or even buying stocks – to show their resolve in the face of terrorism and so on, the Dow Jones industrial average and the Nasdaq stock index both went into free-fall when trading opened on Monday, with the Dow dropping by almost 600 points or more than 6 per cent, and the Nasdaq off by about 6 per cent as well, or over 100 points. After an attempt at a rebound of sorts both indexes started to head south again, hitting lows not seen since the latter part of 1998. Tuesday brought a brief respite, but then the selling intensified again on Wednesday.

So should you join the stampede? Not unless you enjoy throwing good money after bad. The fact is that rash decisions are rarely wise decisions – unless you want to rely on the chance that you might accidentally make the right choice, which probably isn’t the kind of attitude you want to take when dealing with your portfolio. If that is the approach you want to take, then you might as well head down to Las Vegas and put some money on your favourite number, or throw a handful of darts at the stock pages. Throwing all your stocks out the window because of an all-consuming fear of a global meltdown sparked by last week’s events falls into the same category.

Not panicking also covers some of the behaviour that investors might feel compelled to take, apart from selling everything – such as the desire to buy stocks indiscriminately, as a gesture of patriotism or solidarity with the United States, as some financial advisors and columnists were recommending late last week. That may seem like a nice gesture to make, but it isn’t likely to help you or even the economy as a whole.

Holding tight to every stock you own is also not the wisest course, since there are stocks in certain sectors that arguably should be sold – shares in some airlines, for example, whose financial future might be in doubt as a result of a sharp drop in international and business traffic; or shares in certain large insurance companies who might find themselves on the hook for tens of billions of dollars in claims; or some hospitality stocks, on the assumption that travel might suffer.

Conversely, of course, the contrary impulse – to buy some of everything, since this must be an enormous buying opportunity if you were at all bullish before the attacks occurred – would also likely be an over-reaction. As difficult as it may be, investors should do what they (at least theoretically) attempt to do at other times, when there are no disasters and war is not looming large on the horizon, and that is to take a little time and think about what is happening and what it might mean for their portfolio, before coming to any conclusions about which stocks to buy or which to sell.

Warren Buffett, the legendary value investor known as the Sage of Omaha, told the TV show 60 Minutes on the weekend that he wasn’t planning to sell anything, and that depending on how much certain sectors fell on Monday, he might start looking at buying a few stocks. That may be boring and uninspiring, unlike the call to “Buy a stock for America!” that some market watchers have been promoting, but boring is how Mr. Buffett came to be worth $30-billion(U.S.) or so. It doesn’t make for great headlines, of course, but it helps to avoid a lot of the ups and downs of the day-trading crowd.

A survey of past catastrophic events and their effect on the stock market proves the point even better: According to data crunchers such as the folks at Markethistory.com, in virtually every case going back to the turn of the century, a disaster or war event of some kind has caused benchmarks such as the Dow and the S&P 500 index to slide by anywhere from 5 to 12 per cent – but in six months to a year, those indexes were higher than they had been, having made up all the ground they lost and then some. That goes for the bombing of the World Trade Center in 1993, the invasion of Kuwait in 1990, Pearl Harbor and the sinking of the Lusitania in 1915.

In other words, there are plenty of reasons for buying and selling stocks in the wake of the attacks in the United States – but some of them, however well-meaning they might be, are unsound.

Although the pieces of the puzzle haven’t all been put together yet, the early signs are that those responsible for the attacks in the U.S. are associated with militant Islamic leader Osama bin Laden. And what could possibly have sparked those horrific attacks? As with so many other aspects of U.S. foreign policy, much of the hatred that emanates from militant Islamic terrorist groups such as Mr. bin Laden’s can be traced back to a single thing: Oil – and more specifically, the U.S. government’s desire to maintain control over the vast quantities that exist in the Middle East.

Mr. bin Laden, a Saudi-born businessman who left the construction business to become a financier of international Islamic terrorism, is only the latest in a series of Middle Eastern figures who have become public enemy number one as a result of U.S. oil policy. Until Mr. bin Laden came along, for example, the most hated man in the Middle East was Saddam Hussein, the leader of Iraq – who some military intelligence observers feel may be involved in assisting Mr. bin Laden with the war of terrorism against the U.S. Many political analysts believe that the war against Iraq was fought largely to ensure that the oil would continue to flow from Saudi Arabia.

During the Gulf War, the U.S. stationed troops in Saudi Arabia at the request of the Saudi royal family – a move that Mr. bin Laden and other Islamic groups have said was an affront to Muslims, and one which many security experts warned against at the time, arguing that it would increase tension in the Middle East. “A lot of people advised [President George W.]Bush’s father not to put U.S. troops in Saudi Arabia – to put them ‘over the horizon’ rather than in the heartland of Islam,” said U.S. policy expert John Sigler, a professor of political science at Carleton University.

While the State Department argued that the troops should be located in some other area, Prof. Sigler said, the Pentagon decided that they needed to be on the ground in Saudi Arabia for reasons of “military efficiency.” Even after the Iraqi threat had eased, U.S. soldiers remained in what Mr. bin Laden’s group refers to as “the land of the two holy places” (Mecca and Medina). American officials said the troops needed to remain because they would protect the Saudi Arabian government of King Fahd from Iraqi attack – but Prof. Sigler said this was largely a fiction, presumably designed to justify keeping troops to protect Saudi oilfields.

Not only does the presence of non-Muslim soldiers inflame the religious passions of fundamentalist Islamic groups such as Mr. bin Laden’s, but their existence is also a regular reminder that the U.S. is primarily interested in the Middle East because of its oil supplies. Much of Mr. bin Laden’s anti-U.S. rhetoric – expressed in several rare interviews with Western reporters over the past few years – concerns the alleged “rape” and “plundering” of the Middle East by the United States, aimed at controlling the area’s oil for the benefit of the U.S. and other Western nations.

This idea is intricately intertwined with America’s policy on Israel. Some Muslim groups believe that the U.S. is in league with Israel to take control of the Middle East – driven, they argue, by Israel’s desire to crush all Islamic nations, combined with the American desire to control the source of the vast majority of the world’s oil. Within Saudi Arabia, meanwhile, many critics of the monarchy see the U.S. as supporting a “puppet” government for its own purposes, in the same way it did in Iran.

The problem for the U.S. is that anything it does to try and influence the flow or supply of oil involves a large part of the Middle East, and impacts on nations that have an abiding hatred for the U.S. – including Iraq, Iran and Libya. And despite sources of oil such as Alberta’s tar sands, some forecasters expect the U.S. and the rest of the Western world are going to need even more supply from the Middle East in the future: A study by the Center for Strategic and International Studies said the world will become increasingly dependent on the Middle East over the next 20 years.

The study said that oil-rich Persian Gulf nations will have to expand their oil production by almost 80 per cent over the next 20 years in order to keep up with demand, particularly demand from China and India. The potential for terrorism, supply interruptions and outright war will remain high, the study says – adding that getting more oil from Iraq will be “crucial” to meeting the world’s demands, since Iraq contains 11 per cent of the world’s oil reserves, second only to Saudi Arabia’s 25 per cent.

As long as the U.S. continues its growing demand for oil, in other words, it will be forced to deal with the troubled politics of the Middle East in one way or another, whether it wants to or not.

At first glance, everything looked peachy keen in Research In Motion’s quarterly results, released late on Thursday. The handheld device maker came in right on estimates with a 5-cent-per-share profit and revenue more than doubled over the same quarter last year. What could possibly be wrong with that?

Well, for starters, the profit wasn’t really a profit on the BlackBerry pagers that everyone is so in love with — and there are some other warning signals lurking around the edges of RIM’s results. It’s possible that investors don’t care whether RIM made any money selling its two-way pagers and a hybrid pager and Palm-style handheld in one.

Those who pushed the company’s stock price up by more than 7 per cent after the results came out didn’t seem to mind that the firm actually rang up an operating loss of more than $3-million and only made it into the black with the help of more than $9-million worth of gains on RIM’s investments.

Investors’ complacency aside, however, it’s important to note that RIM’s core business is still a money-loser — in fact, operating losses were up more than 40 per cent. Although the company’s revenue rose, expenses also increased at a pretty rapid clip: While sales were substantially higher than the same quarter last year, the company’s cost of sales more than tripled, with research and development expenses tripling and marketing and administration expenses doubling.

Gross profit margins fell to 38 per cent from 44 per cent and the company shipped about 25 per cent fewer units than it did in the previous quarter.

There are larger issues for RIM, however. For example, now that everyone is familiar with its “killer app” — always-on e-mail service — because of the publicity about all the high-tech CEOs who use a BlackBerry, what does RIM do for an encore? And how does it do so without eating into the business model that has convinced investors to pay almost 100 times forecasted earnings for the stock?

Those kinds of multiples are as rare as hen’s teeth nowadays, and it’s not clear what RIM has that justifies such a premium. Palm used to command that kind of multiple, too, back in the old days, but the handheld device maker is only valued at 1.5 times revenues now (it has no earnings), while RIM is still trading at more than eight times its revenue.

And in a jab at the Canadian company’s perceived dominance of the wireless e-mail-access game, a Palm executive said this week that Palm’s wireless Palm VII — which can access the Internet using a number of different networks — has more users than RIM does.

Users agree that RIM is far more elegant and efficient an e-mail solution, but for how much longer?

Wireless access is the Holy Grail for handhelds, and both Palm and the various PDAs that use Microsoft’s Pocket PC software (such as Compaq’s iPaq) are rolling out wireless e-mail and Internet access plug-ins or software that will make them far more competitive with RIM.

Rogers AT&T Wireless and Microcell’s Fido are both introducing next-generation GPRS (global packet radio system) high-speed digital networks, which will allow handhelds or telephones to access e-mail and the Internet at faster speeds.

RIM is working on a GPRS model, too, but it will be entering a fairly crowded field.

RIM executives have said they are working with Compaq and others to develop BlackBerry-style “solutions” that could be used to provide the same kind of always-on e-mail for the iPaq or other Pocket PC handhelds, and RIM also has a prototype of a BlackBerry-type unit that runs on Java software — the idea being that it could partner with some of the cellphone handset makers on a combined BlackBerry phone running Java.

The problem with these options, however, is that making a two-way pager that plugs into an iPaq or helping to make a BlackBerry Java phone would eat away at what RIM is: a proprietary handheld device maker with a unique e-mail solution.

In a nutshell, the problem is this: When always-on e-mail was unique to RIM, it stood out as a result — but when other players with more to offer and deeper pockets also have that capability, what will RIM have left that makes it worth the kind of premium it’s getting now?

As with so many other dreams that seemed attainable a year ago, like the idea that a company could make money by giving away Internet access or selling groceries on-line, the idea that Napster and Mp3.com could revolutionize the music business has also collided with reality. After being bludgeoned by lawsuits, the two digital music companies have fallen into the clutches of the big record labels, with Vivendi agreeing on Saturday to buy Mp3.com – a company it was recently suing – for $372-million.

That means the on-line music game is now controlled by two superpowers: Duet and MusicNet. Mp3.com becomes part of Duet, which is made up of Vivendi’s Universal and Sony Music (Vivendi also bought Emusic.com a month ago), with Yahoo as a delivery partner. MusicNet consists of AOL Time Warner, EMI Group and Bertelsmann’s BMG Music – with Napster as a partner, since BMG owns a stake in the company, and also RealNetworks, which has agreed to provide the software required to use the MusicNet service.

In less than a year, the on-line music industry (if something so new can be called an industry) has gone from being a free-for-all of startups and questionable legality to being a subset of the global record business. Is that going to make things better or worse for music fans? At least in the short term, it’s likely to make things a whole lot worse, and not just for the lawless hordes who got used to downloading with impunity from Napster. In fact, if history is any guide, the record labels could wind up killing the goose before it lays any golden eggs.

One of the ways it could die – or at least become seriously ill – is through sheer boredom. Put it this way: If companies like AOL Time Warner and Universal Music were in charge of the Internet, we would still be typing arcane Unix-style commands and surfing the Web on 9600-baud modems. Despite the fact that the Mp3 format (which made downloading music feasible) has been around for more than four years, the major labels still had to buy Emusic and Napster and Mp3.com just to get in the game.

Why is that? Because rather than seeing downloadable music as an opportunity, the record companies still appear to be motivated primarily by fear: Fear that they will somehow lose control of “their” music, and the massive profits that it generates (for them that is, not the artist – unless the artist happens to be Madonna or Metallica). Fear helped fuel the multimillion-dollar lawsuits against Napster and Mp3.com, lawsuits that softened up the digital music crowd and made them easier to purchase.

And fear is what will probably make the Duet and MusicNet services – whenever they actually arrive – a monumental pain for users. At least there will only be two outlets, which is an improvement on the way things were shaping up, with every record company offering its own competing service. But you will have to pay a monthly fee, and you won’t be able to make a copy of anything (unless you pay a fee, and then only one copy).

You’ll probably get a lower-quality file for the entry-level fee, or it will only be a “streaming” file, and therefore not downloadable. You might be restricted to a certain number of songs downloaded in a certain period, or you might only be able to play them a certain number of times before they “expire” and you have to pay another fee. Not only will the Wild West of Napster be gone, but so will a legal and easy-to-use service such as Emusic, where you could pay $1 and download a song.

Ironically, one of the big roadblocks the record labels are running into involves accusations that they are doing the exact same thing they sued Napster and Mp3.com for: distributing music they don’t own. Music publishers say both MusicNet and Duet are planning to let consumers download songs even though they haven’t paid for the right to do that (the record companies say downloading and/or streaming should be covered under existing deals, but some publishers argue they deserve a separate fee).

In response, both the record companies and some digital music players such as Mp3.com have been proposing – in hearings being held by a U.S. government subcommittee looking at the issue of digital music – that copyright legislation should be changed so that Internet distribution of music can function the same way that radio broadcasting does, with a blanket license that gets paid out to artists and their representatives.

Even if that happens (which isn’t likely), the two superpowers will still control access to something like 90 per cent of the recorded music available for download. If you like the kind of service that comes from a market where two global conglomerates control the supply, then you’re going to love the Internet music business.

Research in Motion’s handheld two-way pager, the BlackBerry, has developed such a passionate following in some parts of the U.S. that one water-cooler humorist dubbed it the “CrackBerry.” Devotees can be seen obsessively checking their e-mail and tapping away on its tiny keyboard with their thumbs during meetings, in restaurants, in buses or taxicabs, or any time they are sitting down.

The rise of the Waterloo, Ont.-based company’s stock since 1999 produced a core of devotees who believed that RIM, as it’s known in financial and stock circles, was destined for once-in-a-lifetime mass-market success. But RIM’s stock plunged in early 2000 as the air escaped from the dot-com bubble. Despite the dose of reality that hit the rest of the market, RIM’s share price then climbed again. That share price still seems to assume that RIM will fulfill the wildest dreams of its supporters, and then some.

Is that possible? Anything is possible, of course. Is it likely? There are some fairly compelling reasons to believe that it’s not. That’s not to say Research in Motion isn’t a good company, or that the original BlackBerry and its newer cousin, the 957, which looks a bit like a Palm handheld, aren’t useful products. But it’s often said that investors shouldn’t confuse a good company with a good stock, and RIM is a good example.

At RIM’s peak price of $260 on the Toronto Stock Exchange in March, 2000, its market capitalization was $18.6 billion, more than the Canadian Imperial Bank of Commerce or Canadian Pacific, and twice as much as Petro-Canada or Canadian National Railways. That couldn’t last. RIM sank to $35 last May, which reduced the company’s market value to $2.5 billion. But the stock turned upward as RIM signed various distribution deals, including one with America Online, even though those deals had no immediate impact on the bottom line.

After climbing into October, RIM’s share price sagged into the new year. In January, it was near $90. At that level, RIM was trading for 1,125 times its earnings per share for the previous 12 months, and 26 times its sales per share for the same period. By comparison, the much larger handheld- maker Palm, Inc., based in California, was selling for 230 times its trailing earnings and 10 times its sales.

In other words, investors seemed to feel that RIM was somewhere between 2.5 and 5 times more valuable than Palm, the company that virtually invented the handheld device market in 1996 with its PalmPilot. Palm still has a worldwide market share of over 80%, and had revenues of $1.55 billion (U.S.) for calendar 2000. RIM’s revenues during the same period were roughly $157 million, and it was expected to make about 54 cents a share in the 12 months ended February, 2002, meaning this February the stock was trading at 170 times forecast earnings.

One reason RIM’s fans believe the company is worth more than its competitors is the unique nature of the BlackBerry, which can be summed up in three words: instant e-mail access. Like the pager that inspired it, the BlackBerry is always connected to a wireless network, meaning e-mail can be sent and received instantly at all times. Other devices require users to connect to a phone line and dial their provider, or connect to a web site, or call a special phone number.

But that instant access may not be worth as much as RIM fans think it is. Nor is the BlackBerry all that unique. Motorola also has a line of two-way pagers that can retrieve e-mail, and they come in a range of cool colours. Plus, they’re popular with the Los Angeles sports and entertainment crowd. Basketball star Shaquille O’Neal uses one, and rapper Jay-Z wrote a song in which he used the popular phrase “two-way page me.”

Defenders point out that the RIM product has more features than Motorola’s, and that it is designed to integrate with a company’s internal e-mail system, whether that is Microsoft’s Exchange network or IBM’s Lotus Notes/Domino system. That’s one of the main reasons why the BlackBerry is so popular with brokers, traders and sales representatives of any kind. RIM’s strategy is to derive much of its revenue from its proprietary server software and other elements of its system, as opposed to sales of the BlackBerry device itself.

Palm, meanwhile, is focused more on consumers, potentially a far larger market. Palm users can access any e-mail account, not just corporate e-mail. The company also permits designers to create add-on software for its devices. So does a Palm-like competitor called Handspring, formed by the three original developers of the Palm after they left its parent, 3Com Corp. Handspring went public last year, and it markets the Visor, which some industry watchers see as a cheaper and more flexible version of the Palm. Using various plug-in modules, the Visor can become everything from an MP3 player to a GPS receiver to a cellular telephone.

Then there’s Microsoft. As part of its ongoing attempt to diversify away from the slow-growing PC industry, Microsoft has developed a version of its Windows operating system for handheld devices that competes with Palm’s. As well, Compaq Computer Corp. has introduced a handheld Palm-style device called the iPAQ. It doesn’t do instant e-mail–at least not yet. But not everyone wants instant access to their e-mail in the same way stockbrokers and day traders (or basketball stars and rap artists) do. Even if they do, iPAQ, Palm or Visor users can add that capability fairly easily using a snap-on modem to access a digital cellular or data network.

In late January, most analysts still rated RIM a “strong buy.” But when it comes to the consumer market, the BlackBerry faces some stiff competition. Unfortunately for RIM fans who are also shareholders, the stock price seems to assume that the company will not only succeed, but will virtually take control of the entire sector. And that isn’t going to happen.