Author: Michael Goode

Request for help – Looking for a direct market access broker

As my regular readers are aware, I have sold short a number of penny stocks over the last year. However, that strategy has not worked recently due to my broker, Interactive Brokers, forcing me to close out short positions without notice due to an inability to continue to borrow shares. I am therefore searching for a new and better broker. If you happen to know of any brokers that are good at getting long-term borrows on hard-to-borrow OTC BB and Nasdaq stocks (it would also be great to be able to get pre-borrows) and that would be willing to deal with a sophisticated individual investor, please contact me or leave a comment below. If you know what kind of account / trading minimums I would need for them to give me the time of day, please let me know.

I am currently looking into Genesis Securities as well as RBC Professional Trader. If you have experience with either of these, please let me know by leaving a comment here or sending me an email.

Thank you for your help.

Noble Roman’s Sued by Franchisees

I am quoted in another excellent article by Cory Schouten of the Indianapolis Business Journal. Ten former and current franchisees have sued Noble Roman’s for misleading them when it sold them their franchises.

Here is what I was quoted as saying:

But plenty of the blame for franchise problems rests with the Mobleys, according to Michael Goode, a St. Louis stock trader and financial blogger who writes GoodeValue.com.

The company owns only a few stores, giving it little opportunity to prove the model works and to test new products or strategies, Goode said. The Mobleys also tried a nationwide expansion despite lacking national marketing and having limited brand recognition.

But the biggest red flag for Goode was the barrage of area developer agreements that boosted revenue and profit.

“They engaged in business in such a way to get lots of near-term earnings at the expense of future earnings,” said Goode, who previously bet against Noble Roman’s by selling the stock short but no longer has a position.

Further Information

I argued that Noble Roman’s expansion strategy was doomed to failure back on December 2, 2007 when the stock was priced at $2.48. I later criticized management for blaming franchisees for their failures. More recently, I mocked the company’s effort to hire an investment bank to sell itself, calling the company overvalued at $1.50 per share. The stock currently trades at $1.00. Most recently, I reported on the company’s 54% decrease in earnings.

Disclosure: No position in NROM, long or short. I have a disclosure policy.

Perf Go Green Holdings: Another Pumped Up Penny Stocks Falls to Earth

Perf Go Green Holdings (OTC BB: PGOG) is a standard pumped-up penny stock, although it has former NY governor Pataki as a director to lend it “credibility” (although anyone who know’s Pataki’s record knows that he has no credibility at all). The New York Post had a good article about the company. Carol Remond had a great article on Perf Go last week (only available on DJ Newswires, a pay service), in which she brought up some interesting history about the company’s CEO:

“Then, there is the issue of company Chairman and Chief Executive Anthony Tracy’s involvement with an extortion attempt a few years back. According to a court docket available to online subscribers, Tracy pleaded guilty to one count of extortion in state court in Pinellas County, Fla., in August 2002. Joseph Cartolano, a lawyer who represented Tracy, said he is “pretty sure” that his client pleaded no contest instead of guilty, neither admitting nor denying guilt. The judge in the case sentenced Tracy to three years probation and withheld adjudication of guilt – which means that as long as he didn’t violate the conditions of his probation, he wasn’t convicted of a crime.”
…
“According to information available online, Tracy and George Cappelli in November 2001 threatened a Palm Harbor businessman named James McGuire to get back $30,000 he owed to another individual. Michael Holbrook, a detective who investigated the case, said Tracy took McGuire’s watch and said he would keep it until the debt was paid. The detective said that about the same time as Cappelli was arrested, an attorney from Miami called the Pinellas Sheriff Department looking to return the watch without naming his client. Tracy was later identify through information contained in one of Cappelli’s notebooks. Tracy’s lawyer Cartolano said he (Cartolano) called “the owner of the watch to return it.” Cartolano, who explained the affair as “an argument between two guys”, said Tracy was given the watch as a collateral and then returned it.”

The fall of pumped penny stock Perf Go Green is yet another testament to why people should never speculate in penny stocks.

Disclosure: No position in any stock mentioned. I inadvertantly published this article two days previously, violating my disclosure policy (as I had just closed a short position in the stock a day earlier). I regret the error.

Change to disclosure policy

I have changed my disclosure waiting period to 48 hours from seven days. That means that I can now write about stocks up to 48 hours before and after I trade them. I will disclose if I plan to trade a stock I hold immediately after that period.

My previous policy prevented me from writing about certain timely news as my trading always comes before my blogging.

Disclosures and Disclaimers

Are your deposits insured? How to avoid losing money in the coming bank Armageddon

I am not one to use the term Armageddon lightly. But when major banks like National City (NCC) and Washington Mutual (WM) are trading under 30% of book and Wachovia (WB) is trading at under 50% of book value, what othe term is appropriate? The market is pricing in a fair probability of a number of very large banks being bought out at firesale prices (like just happened to PFB) or being taken over by the FDIC and then being dismantled.

That being said, while the coming two years will be a very bad time to own bank stocks or bonds or to have uninsured deposits at banks (over the $100,000 FDIC limit), the economy will not completely collapse (though we should have a decent recession) and the world will move on.

The main thing to do is make sure that you and any friends and relatives never have more than $100,000 at any bank. If you wish to keep more, you may want to visit the FDIC website to see if your type of account is protected for more money (some are). You can search for your bank here and find out if it is insured by the FDIC and you can view financial information on your bank, even if it is private. For example, try searcing for “Home State Bank NA” in zip code 60014* (see random note at bottom of post). Then click on “Last Financial Information”, and on the next page click on “generate report”. This brings you to the bank’s balance sheet. If you click on the link towards the bottom for “past due and nonaccrual assets”, you will be taken to the good stuff. You can see that past-due loans have more than doubled over the last year. Unsurprisingly, much of the increase ($2.5m) was from “construction and land development loans”. It also pays to note that this big increase in past-due loans was solely in the 30 to 89 days late category. A more agressive bank might still be accruing interest on those loans. However, this is a conservative community bank and as you can see towards the bottom of the page, all loans that are more than 30 days late are non-accrual. (An interesting discussion of regulatory vs. tax requirements for deciding which loans are non-accruing can be found here.)

If you go back to the main balance sheet page and click on “net loans and leases” you can find the breakdown of loans. This is a good place to find out how risky your bank’s loan portfolio is. Unfortunately for Home State Bank, 20% of their loans are construction and land development loans. This bank is based in the far northwest exurbs of Chicago, so I think it likely that the bank will take a huge hit here. If you click on “1-4 family residential” you can see the breakdown of these loans. Luckily, most of these are first mortgages. Overall, Home State Bank looks okay. What about your bank?

If you have accounts as a credit union, visit NCUA to see details on insurance of your deposits. You can find your credit union and then request that a financial report be emailed to you. As an example I uploaded the report on my credit union. You can download the Excel Spreadsheet here. When analyzing credit unions, be aware that they will generally have more real estate exposure than similar commercial banks. Important things to examine are delinquent loans as a percent of assets (sheet 2, line 21 in the spreadsheet), asset mix including the amount of REO (sheet 4). If you are afraid of a bank run sparked by articles similar to this, take a look at the amount of uninsured deposits (sheet 5, lines 46-50). Delinquent loan info is always interesting (sheet7). For most of the data in the spreadsheet, an average of peer group credit unions is provided as well, making comparison easy. Overall, I think West Community looks quite safe.

What should you do if your bank doesn’t look safe (such as National City, where I have multiple accounts)? First thing that you should do is make sure your deposits are insured. Then make sure that you have enough cash in safer banks so that you can last awhile if you temporarily lose access to your money. Up until now the FDIC has been very good at getting depositors quick access to their insured deposits at a failed bank, but if things get really bad and big banks go down the FDIC could become backed up and take weeks or months to grant depositors access to their money. It pays to be prepared for such a scenario, even if it is unlikely.

*This bank, by the way, provided me with my first mortgage. Easiest mortgage I ever got — my father and I ran into Steve Slack, the bank president, while dining at the local country club, and I mentioned that I was buying a house in St. Louie. Slack gave me his card and told me to give him a call when I get close to finding a house. There are benefits to relationship banking–my extended family has banked there for three generations and uses the bank for a family company.

Disclosure: I am short several regional and local banks. 

Phoenix lawyer sues blast-faxing stock touters for $6 billion

Finally, a lawyer after my own heart. See this article about Peter Strojnik’s class action lawsuit against “Triple Play Stock Alert” and those behind it. From the article:

The Complaint alleges that Triple Play Stock Alert is a fictitious name used by stock manipulators who want to conceal their identity to avoid liability for their illegal activities. The suit was filed in the United States District Court for the District of Arizona under case number 2:08-cv-1116.

Hopefully he wins, although I am never optimistic about pursuing scammers, fraudsters, or spammers. If you have received spam faxes from “Triple Play Stock Alert” and you wish to join the class action, please contact Peter Strojnik, 602-524-6602, ps@strojnik.com.

Violating the laws of thermodynamics for fun and profit

Evidently someone forgot to tell investors or management of GMC Holding Corp about the law of conservation of energy. The company reported tests on a motor that produced more energy than was put into the device. According to the SEC’s complaint in the matter, the company did not mention that “the efficiency lasted only a few moments and that they were unable to duplicate the results in subsequent tests.” The company also put out a press release stating that it was negotiating to sell the technology to a company in the S&P 500. However, again according to the SEC, “GMC and Brace never contacted, much less negotiated with, an S&P corporation, or any other company, regarding the sale of the company’s technology.”

The SEC today received an injunction against Richard Brace, formerly of GMC, preventing him from serving as the officer of a public company. I presume that the SEC will continue its case against Brace in the pursuit of monetary penalties.

It is time to end Americans’ acceptance of debt

Americans have too much debt. That is self-evident. More importantly, there has been a change in the culture to where debt is acceptable and even bankruptcy and foreclosure have lost much of their stigma. A Wall Street Journal article today profiled a woman who is buying a second house in her neighborhood with the purpose of defaulting on the mortgage on her first house. Her credit will be shot, but she will have a house with a much cheaper mortgage (as house prices have fallen greatly in her area).

But the current mortgage crisis is only the pinnacle of the problems with our debt-accepting culture. See the new report by the American Interest, a think tank. They fault credit cards, payday lenders, and especially state lotteries for encouraging spending and debt and discouraging savings. It is amazing to me how much low income households spend on lottery tickets. It is galling how the states take from the poorest and then give it back in welfare, food stamps, and section 8 housing assistance. In the taking the government discourages savings and in the giving it discourages work.

It is time for Americans to learn that it is good to save. Having a nice car is not going to bring you happiness. Having a 4,000 square foot house isn’t going to bring you contentment. But I can assure you that being debt-free and having enough money saved up to not worry will make for less stress, a lower risk of divorce, and more happiness and satisfaction.