The Best Source for Penny Stock Insight
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.
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.
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.
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.
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.
Perhaps the most incredible thing ever — a supposed reverse merger six months in the past was not correctly consummated and now the public company is left with no assets or sales. Unsurprisingly, this involves a Chinese company trading on the horrible OTC BB:
From the China OTC Blog:
“Contrary to what we have been thinking for the last half a year, Bejing Logistics (BJGL.OB) has never had control over its Chinese subsidiary Baolong, described as China’s largest third-party logistics providers, specializing in books & magazines, agricultural products and Chinese traditional medicine storage and shipping. For today’s shocking announcement relays the fact that the merger between BJGL and Baolong was “never consummated pursuant to Chinese law” and thus null and void. If this is true, it means that BJGL has no assets, revenues, or any operations in China. This is a major blow.”
I read the China OTC Blog for fun. I would not recommend actually buying any such companies — while they may appear cheap, the risk of fraud is too great.
Disclosure: I have no position in BJGLE.O.
Growth investors like to talk about inventions and new ideas. The pull of growth investing is all you have to do is find a great company with a great product that will soon be big and you can just buy the stock and sit back for incredible gains. There are several problems with this thesis.
American Technology Company [[atco]] was the first stock that ever interested me. I was into high-fidelity music at the time and it was in an industry magazine that I first read about its technology to use multiple point sources of sound waves to project sound to a specific location (rather than all around).
If I had invested in ATCO 11 years ago and held until today, I would have lost over half my money.
Disclosure: No position in ATCO.
Today I asked SeekingAlpha to remove me as a contributor and to take down all my articles that they currently syndicate on their website. I am tired of getting flack from dumb people who believe it is wrong to criticize a company. I do not make any money from blogging (my advertisements don’t even cover my hosting costs), so I would rather be read by just a few people who appreciate my opinion than by a large bunch of morons who hate to see their companies criticized.
I am not a professional analyst who is trying to give a balanced view of a company he covers. I am a cynic who tries to point out the negatives in stocks where everyone only sees the positives.
Who’s Your Daddy Inc. investors may be thinking that the company’s name is a taunt to them considering that its stock price has fallen over 95% in the past year (graph at Google Finance). The maker of King of Energy™ energy drinks now has a market capitalization of under $2 million and its stock price is at $0.17. Who’s Your Daddy has a stockholder’s deficit of $3.8 million (that’s a negative book value, folks) and a loss of $335,000 on sales of $103,000 in the most recent quarter. The company has under $2,000 in cash and $61,000 in accounts receivable. Unless the company receives a cash infusion quickly it will likely go bankrupt.
Our auditor has raised substantial doubt about our ability to continue our business. We need to obtain sufficient liquidity to continue as a going concern if our business is to achieve profitability. [quote taken from 10k]
(click image for full-sized stock chart)
Who’s Your Daddy 2007 10k
Who’s Your Daddy 10Q for period ending March 31, 2008
Disclosure: I have no position in any company mentioned above, long or short. I have a disclosure policy.
Over the last five days, the stock of Global Roaming and Distribution (OTC BB: GRDB) has dropped 70% on no news. To those familiar with pumped penny stocks, this is unsurprising. The pump and dump scheme is quite simple: a company or a large shareholder pays a publisher to print amazingly optimistic advertisements for the company that are sent out to hundreds of thousands if not millions of investors via mail, email, and fax. The information published about the company is either absurdly optimistic or downright false. The SEC never gets involved unless the statements are verifiably false, so the publishers usually stick to insanely optimistic predictions (which are protected speech, no matter how absurd). While the stock soars, shareholders of the company sell their positions at inflated profits.
As usual with pumped up penny stocks, GRDB is way overvalued, even after its recent 70% stock price decline. With 164.7 million shares outstanding as of the filing date of its most recent 10Q, Global Roaming has a $211 million market cap. What do investors get for their $211 million? They get a book value of $3.1 million, no revenues, and a loss of $78,000 in the most recent quarter. Global Roaming has such a small chance of ever selling its product or earning a profit that it is pointless for me to criticize it in any more detail.
In return for publishing the tout sheet, Eric Dany’s Stock Prospector received $32,500 from ILDM Incorporated, which was itself paid with 3.34 million shares of GRDB stock for publicizing the company.
For more information
GRDB on Motley Fool CAPS (verdict: everyone hates the stock)
GRDB March 2008 10Q
Front Page of 15-page tout sheet, Eric Dany’s Stock Prospector
Disclaimer of Eric Dany’s Stock Prospector
Disclosure: I have no position in any company mentioned above, long or short. I have a disclosure policy.
