Microsoft today at long last got a deal done with Yahoo! to partner on Search. This is the piece that has been most needed by Microsoft in its ongoing war with Google. Yahoo! has lost relevance on the Internet and needed a partner to take on the Google goliath (which as detailed earlier on Wealth-Ed is arrogant and deserves to be knocked down).  Microsoft will benefit and now becomes a more formidable opponent with almost 30% share in Search.

Bing, the new Internet Browser, was announced a few months ago and Windows OS7 is on the horizon for Microsoft, so don't write this computing pioneer off. The details of the partnership are not yet fully understood, but here is an early report from CNBC:

Microsoft  is not expected to pay an upfront fee to Yahoo , and the focus of the deal is on sharing revenue between the two companies.

Under the expected deal, Microsoft's new Bing search engine will power Yahoo's searches, according to Advertising Age, while Yahoo will handle the advertising sales, using Microsoft technology.

The deal should give Bing a giant boost in competing with Google's search engine. Google's search engine dominates the marketplace with 65 percent of U.S. Internet searches, according to figures provided by research firm ComScore. Last month, Microsoft had only 8.4 percent of the market and Yahoo 19.6 percent.

There is a chance a deal combining the powers of the second and third-ranked search engine companies would be blocked by antitrust regulators. Google and Yahoo dropped plans for an advertising partnership last year under opposition from the U.S. Department of Justice.

All of this should hurt Google and help Microsoft as will be seen in the stock value. I am a buyer of MSFT at this level and have recently doubled down by stake. $30 a share is possible by year end based on new growth prospects, existing market dominance in Office software suite and its tremendous cash hoard of $30B (which not so incidentally, is untouched by this deal, which at one time to purchase Yahoo! would have cost MSFT $47B).

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Here is a provocative take on an internet juggernaut: Google is nothing but a giant Ponzi scheme that is coming undone as I write.

This is not an accusation, but more a hypothesis.  What gives this hypothesis legs is a recent discovery that Google is aggressively cracking down on so-called “violators” of the terms and conditions of its "Adsense" program.  My own website recently fell victim to this ruthless and mindless activity.  We have been gradually building our readership and hence our traffic through the combined effort of good, original content of the financial kind, and a parallel effort to monetize our traffic so we can continue offering this commentary at no cost to the reader.  

As measured by various metrics tools for the internet, we were succeeding at Wealth-Ed.com and were just beginning to gain some traction with readers.  Our writings are picked up now by SeekingAlpha.com  and our insights and observations are available to many.  Our well-timed pieces on General Growth Properties and more recently on the prospects for natural gas ETF, UNG, caused our views to spike.  It was not through any illicit effort to create fictional traffic that our page views increased, but through hard and time consuming work combined with good luck and timing.  Naturally, as our traffic increased, so did the balance in our Google Adsense account. 

Then, without warning two weeks ago, our account was not suspended, but was permanently canceled by Google, apparently for all time.  And our Adsense revenues were absconded by Google.  Not just this website, but any other website we should ever develop is also barred from any relationship with the Adsense program.  Again, there was no warning, no real chance to appeal (only a token automated email appeal form that returned a computer generated rejection).  I was floored.  How can a company that claims it wants to “do no Evil” justify this malevolence?  Google is no longer the white knight, but has become Darth Vader.

We at “Wealth-Ed.com” could not believe that we were somehow singled out from the millions of similar websites that have been created and that utilize Adsense to help pay for the effort in some small way.  We had done nothing wrong that we knew of that violated Google’s rules.  The relationship between small website or blog developer and Google is supposed to be symbiotic.  Small websites like ours put Google on the map. 

Google attracts advertisers because it has such great reach and exposure through millions of small websites.  It needs the billions of webpages to provide the internet real estate and associated “eyeballs” to sell to its advertisers.  Google depends on small businesses and entrepreneurs more than any other internet or computer based software company.  Microsoft , SAP and Oracle all rely on large business customers for the bulk of their revenues.  But Google is almost entirely dependent on its ad-based business model that is dispensed through a myriad of startup websites.  “Wealth-Ed.com” and all other similar small, entrepreneurial webpages on the “net” allow Google to exist.

So, how does Google figure to go forward by biting the hand that feeds it?  This is a question that must be asked by any investor.  My only answer is that Google is in big financial trouble that is not yet revealed by their published financial statements.  This trouble comes from the same place that has exposed many other Ponzi schemes recently, most notably, Bernie Madoff’s.  As the economy falters and advertising revenues dry up, Google is losing its primary source of income.  It is no longer able to take money from one source, advertisers, and give it to another, Adsense ad posters, to keep the pyramid upright.

A good Ponzi requires a very convincing story which generates substantial public interest.  The Ponzi sponsor then monetizes this public interest by collecting funds with a promise of great returns.  The returns are generated by money brought in from other participants, not from any specific benefit created by the Ponzi artist.  The Google Ponzi speculation is a little more subtle, which also makes it a little harder to uncover.  Its scheme is supposedly made legitimate by a multi-paged, “fine print” contract that gives it the ability to shut down any website for just about any reason imaginable, or no reason at all except at the whim of Google.  But is this contract really legal and enforceable?

As we started researching the crackdown on small businesses, we uncovered that there are thousands of others in the same situation.  Many of our fellow small website developers have written about their own experience and loss of Adsense revenues.  Many describe that it happened to them just as it happened to us:  with no warning, no real chance of appeal, no one at Google to talk to, and unilateral confiscation of all their earned Adsense revenue.  One such participant, Aaron Greenspan's "Think Computer", was officed in the same county in California as Google, Santa Clara. Greenspan took Google to small claims court…and won!  (and then lost on appeal to a bevy of Google lawyers). I am sure Google knows that most web owners are not in a position to sue and wanted to drive the fruitlessness of litigation home by the appeal.  Once again, Google demonstrated its utter contempt of the same customers and business partners who have made it what it is.

As Google continues to cut off its advertising partners reducing the number of ad page views what will the advertisers think?  Google’s viewership will be greatly reduced and so will their ad traffic.  The advertisers will respond by cutting back even further on their advertising.  Google revenue will subsequently fall as will its profits, which may turn to losses given the enormous overhead created by the recent reckless moves by the management of Google. 

The Google stock has a lofty price and multiple to earnings.  It is valued as though it will continue to grow at 20% a year well into the future. But, if ad revenues and profits drop as we think they might, Google stock should be sold or shorted.  Google's latest attempt to remake itself into a full-featured business software company will cost it a king's ransom. Taking on Microsoft, Oracle and SAP on their own turf could be the demise of Google. Hubris has its costs. Shorting Google stock is how we plan to recoup our losses of Google Adsense revenue.

As a long time lover of Microsoft (MSFT) and its terrific cash flow and accumulated cash, finally, there is something for "M" fans to crow about: BING.  Check out the video on CNBC today.  I will write a complete analysis of MSFT this weekend.

Jeff asked me yesterday to keep an eye on a few key charts for signals to buy or sell within that sector, or the sector itself. So, I will monitor the S&P; 10 sectors plus a few other specialty sectors like Materials and Mining. I will post them here regularly, as there are changes to report.

We talked about Technology. After hearing the Cisco news yesterday, it seems like Tech might be taking a little turn for the better. Tech is a good sector to buy as a sector since there are a lot of casualties in that sector. The chart for the S&P; Tech is XLK. It does show a recent breakout where the third green arrow was made two days ago, so now is a time to buy the sector, or good stocks within the sector. I hope this change in trend helps out Microsoft, which I have in a big way:

Another sector to monitor is the Energy sector. We recently looked at the OIH (yesterday it was in a report I sent out). Jeff was concerned about the prospects of equipment builder RIG, which has been declining steadily along with the entire sector. You can make the comparison yourself, but both charts are down about 25% from their high and are trending lower.

RIG is getting very cheap by all measures (P/E, P/CF, Book Value, PEG, etc). But what about the overall Energy Sector, XLE? It is in a downturn and should be watched for a break to the upside. But there is no rush. When a chart is in steep decline as this one is, it can continue quite a bit lower. Don't try to catch the falling knife, is the saying. A cheap Value guy like me, has been stabbed numerous times by not heeding this advice. The 12 month low in XLE is 10 points lower than where it is today (62.50). Don't fight the tape is another of the oldest sayings in investing. We should wait till we get three Green arrows, before we commit new money to Energy stocks.

Great Squawk Box this morning if you like oil and energy. We had the very watchable Boone Pickens offering his opinion that oil would make it to $150 a barrel by the end of the year, and would keep going up from there. He mentioned the possibility of $12-15 gasoline at some point. That will kill our economy, but also will accelerate the development of alternate fuels and vehicles. Question: do the refiners find a way to make money at $12 gas?

Boone has rarely been wrong the past 10 years. He also is pushing the heck out of wind energy which is a good reason to own GE, the biggest maker of wind generation equipment in North America, if not the world (I own a lot of GE stock and options). I wish there was a more direct play on wind energy, but there is not. This is a tough business. A friend of mine, who was CFO for a local wind energy company in Minneapolis, just quit because his little company cannot get any generators from suppliers like GE. They are all committed for the next 4-5 years to big players like Pickens.

Pickens mentioned Solar as part of our national energy solution. I don't know if he has a play there, but I do know that I am helping my employer, SICK, get positioned in that market. After a company meeting last week, it was decided I will be focusing more of my time on the Solar energy market. We are attending several solar equipment trade shows the rest of this year and I am working on brochures for applying our products to that industry and have a couple of sales proposals in the work to equipment suppliers. It is the new oil and will be big over the next 20-30 years. (I own a small stake in solar company ETF fund - TAN and will keep adding to it).

We also had Gary Kaminsky of Neuberger Berman funds on CNBC this morning. Gary's column in Forbes is what got me into PennWest in 2004. He was the first to recommend this way back then, and still does. He also has been promoting Suncor for just as long. I already knew about the Canadian oil sands having worked up there since 2000. But Gary has reinforced the message about oil sands and makes me want to own more (have Candian Oil Sands - COSWF, today, plus Daylight and PGH that have some oil sands exposure).

As for the Yahoo-Microsoft deal: what fun! I have stock and options in Microsoft and also options in Yahoo. Carl Icahn's involvement in a new board of directors for Yahoo is the catalyst needed to move Yahoo towards MSFT. (Boone Pickens agrees as he said he bought 10M Yahoo shares behind Icahn, though $240M is play money for T Boone). However, Steve Ballmer is not playing along with Carl and proposed last weekend an alternate plan to only buy part of Yahoo. Question: is this truly Ballmer's intention? or, is this a negotiating ploy to get the price for Yahoo down, as in: MSFT thinks part of Yahoo has value, and the rest is not worth what Yahoo shareholders think. It will be entertaining for sure.