When Silver Finishes its Run, Buy the Solar Sector

Did Jim Chanos & Auriga’s Bachman just tell us when silver finishes its run, to buy the solar sector?

I don't know how long silver will continue on its parabolic trend. It has been amazing! The solar sector is down and has very high short interest following. Solar energy had a run-up when the Japanese nuclear crisis occurred, but now is going back down.

Auriga's Bachman & Jim Chanos 

Jim Chanos argues that the raw component input cost is rising for PV solar panels. He specifically mentions silver paste component. He also states that the European subsidies are being cut back.

"…continuing austerity in places like Germany and Italy and Spain where there were big government subsidies to put in solar. It still costs almost three times a kilowatt-hour for solar power than regular natural gas or coal fired power…. [Also] you can't use it for base load. Solar stocks all rallied on the Japanese nuclear problem. Wind and solar may one day be there but they cannot do base load and you still need core power plants."

Bachman mentioned the same issues.

“Between input costs and the Italy issue, the short-term earnings outlook from solar companies may be less rosy than companies thought at the beginning of the year. Most of the solar companies reported their 2011 outlook before Italy announced its plans, causing a near complete stop to installations in Italy.”

But Bachman explains that the feed & tariff subsidies in Europe are generating 20% yield return for 20 years.

I’m not a solar expert, but here’s my two cents worth.

Europe subsidies may be slowing but U.S.’s and China’s are on-going. Also, China is content to sell into foreign markets abroad rather than issue more subsidies.

If oil is up, why is it not making solar more competitive compared to other energy sources? The Solar field competition is getting crowded. When companies get in trouble, mergers & acquisitions are not materializing and the survivors are picking up the scraps at marginal costs. Margins are shrinking due to competition.

There is also a confusing “Efficiency versus cost-per-watt” story that is clouding the issue.

The fear of Chinese accounting fraud is also stopping investors from participating in this sector.

In the short run, let's fall back to the basics contrarian’s rule as defined in David Dreman’s Contrarian Investment Strategies.:

"Rule 2: Respect the difficulty of working with a mass of information. Few of us can use it successfully. In-depth information does not translate into in-depth profits."

Silver and other commodity metals are up. Solar is to down.

If solar energy can’t compete with oil at this higher price, when oil/silver commodities comes down, that would be a good time to measure the progress in the solar sector. “Buy solar when silver goes down” will be your alert signal to remember to re-evaluate the solar sector competitiveness at that time.

[Note: As I am writing this French energy major Total SA's  is offering  $1.37 billion for a majority stake in SunPower Corp  – this sector continues to change ]

http://www.reuters.com/article/2011/04/29/sunpower-total-ma-idUSN2913609620110429

Jim Chanos 

http://video.cnbc.com/gallery/?video=3000016651

Auriga's Bachman

http://www.bloomberg.com/news/2011-02-02/auriga-s-bachman-discusses-outlook-for-solar-stocks-audio.html

Prices

http://www.metalprices.com/pubcharts/Public/Silver_Price_Charts.asp?WeightSelect=LB&SizeSelect=M&ccs=1011&cid=0

http://www.pvgroup.org/node/1281

Cost-per-watt versus efficiency

http://www.fool.com/investing/general/2011/04/18/whats-really-going-on-with-solar-stocks.aspx

Explanation of  base load

http://en.wikipedia.org/wiki/Base_load_power_plant

Short interest

http://www.cnanalyst.com/2011/04/top-10-solar-stocks-with-highest-short-interest-spwra-ener-fslr-jaso-ldk-jks-tsl-stp-sol-csiq-apr-28.html

Found this week - Apr 29, 2011

Blog Directory
http://www.pfblog.org/

----------------------------------------------------------------------------------
All things TA - Your experimental fix.
Get predefined TA scripts that screen stocks for you. But not only that, go into the program editor and experiment!
MACD example  Borrow some one's or make up your own function.
Read the user's guide for help.


You probably have seen this list on the Nasdaq website. Here is the original creator. Barchart's TOP 100 & Bottom 100 52-week weighted alpha stocks.
[Note: It's not true alpha calculation, but it's a start]  Weighted Alpha is a measure of how much a stock has risen or fallen over a one-year period. The original research was restricted to large cap stocks, so the corresponding rise in the S&P 500 index was subtracted; however, as there are a number of interesting stocks that do not fit well into any category, and others that fit into more than one category, the results are presented without subtracting any index.

Another page has end-of-day pivot points and when the market is open this page tracks live floor pivot points, key stochaic and fibonacci turning points.

--------------------------------------------------------------------------------

Contrarian Investing Quote 

 Contrarian Investment Rules as defined in David Dreman’s Contrarian Investment Strategies.

"Rule 2: Respect the difficulty of working with a mass of information. Few of us can use it successfully. In-depth information does not translate into in-depth profits."

For Better or Worse, Crocs Reports Today

Crocs, Inc. provided this guidance in their 2010 Fourth Quarter 8K on February 24, 2011:

"For the first quarter of 2011, the Company expects revenue of approximately $215 million, a 29% increase over first quarter 2010 and gross margin is expected to be between 53% and 54% level.  The Company expects diluted earnings per share for the first quarter 2011 to be approximately $0.19. This guidance assumes an effective tax rate of 27% and outstanding diluted shares of approximately 91.0 million."

Will they beat this, and/or beat the street?  They need to, so as to show that their $1.9B market cap is not out of the ballpark for a company working its way from $600M/yr to $1B/yr.  They need to show that a company pilloried in 2007 for excess inventory and falling sales knows what it's doing in this challenging global marketplace.  Whether they will or won't is known only by those in the C-suite. But I think that CROX is a very happening company, has been for years, and will continue to be.  I am personally long with both equity and 2012 calls.

..TS.

Overconfidence & Being Wrong

In www.psychologytoday.com Marty Babits wrote:
"Have you ever had the experience of feeling you were absolutely right about something and then realized that you were mistaken about that very thing of which you were so sure?.....Being wrong is disconcerting. It is one of the few, and therefore precious routes, that lead us to putting our capacity for humility on line. And humility is a precondition for empathy. Learning from mistakes is not simply about the acquisition of new and better understandings, it also pays off in hard-won knowledge about the self. Lack of this knowledge is not always a character flaw. It is often a sign of underdevelopment; evidence that the self is a stranger to key aspects of its nature."

A Ted Talks video by Kathryn Shults is about "Being Wrong"


Kathryn Shults explains, "This internal sense of rightness that we all experience so often is not a reliable guide to what is actually going on in the external world. And when we act like it is, we stop entertaining the possibility that we could be wrong..."

According to my kids "I always think I'm right". So maybe I'm deflecting criticism here, but I would like to build a case where you can be right and you can still be wrong. Obviously, I want to learn by my mistakes and improve. Isn't there still a whole universe of circumstances where it isn't that you did something wrong?

1) being early to a trade is wrong.
2) being front-run by a program or algorithm can make your trade wrong.
3) flash-crashes can kick you out of a stop, even if your underlying assumptions were correct.
4) being right and the rest of the world wrong, still makes your trade wrong.
5) trends and momentum stocks are "usually right until they are wrong", even if the fundamentals are wrong.
6) both bull & bear markets overreact.
7) Can't things be right today and then wrong tomorrow?

Let me think of ways towards being less wrong; Have curiosity,  do extra research, be doubtful, be contrarian, be skeptical. Be aware that circumstances can change.  In the end we should take the risk of being wrong and live by the Russian proverb, "Trust but Verify."
Right or wrong, it forces us to realize that we need to continually re-think things and that overconfidence is deadly.

We Miss You Dr. Brett

We miss you Dr. Brett, trading coach extraordinaire. The trading advice and knowledge that you shared with us was priceless. Thank you! I wish you success in your current endeavor.

Through your books we can still access your wisdom.

The Psychology of Trading - Examines psychological patterns and their impact on trading

Enhancing Trader Performance - How traders can accelerate their learning curves

The Daily Trading Coach - A set of 101 lessons to help traders coach themselves to success

Is Trading a Zero-Sum Game?

First of all, let me cite the article that started this whole voyage into game theory. In the appendix of this pdf is a great table of who is competing against whom in a stock transaction.

From there I watched 2 free lectures on the  Academic Earth website on game theory.
Benjamin Polk from Yale lectures on pure game theory.
Kathleen Bawn from UCLA lectures on game theory in politics.

As an aside, how did Clint Eastwood know what to do in the final scene of the "The Good, The Bad & The Ugly"? He followed his own game theory. [ Edit: I have heard another version of the story, where the only way to be assured of survival is to shoot your gun up in the air prematurely. That way the other two know they will not be killed by you. ]


Is trading a zero-sum game? In economics and contract theory, information asymmetry deals with the study of decisions in transactions where one party has more or better information than the other. "When two asymmetrically informed risk-neutral agents repeatedly exchange a risky asset for numéraire, they are essentially playing an n-times repeated zero-sum game of incomplete information"

Joseph E. Stiglitz pioneered the theory of screening. In this way the under informed party can induce the other party to reveal their information. They can provide a menu of choices in such a way that the choice depends on the private information of the other party. Examples of situations where the seller usually has better information than the buyer are numerous but include used-car salespeople, mortgage brokers and loan originators, stockbrokers, Realtors, real estate agents, and life insurance transactions.

Examples of situations where the buyer usually has better information than the seller include estate sales as specified in a last will and testament, or sales of old art pieces without prior professional assessment of their value. This situation was first described by Kenneth J. Arrow in an article on health care in 1963.^[2]

George Akerlof in The Market for Lemons notices that, in such a market, the average value of the commodity tends to go down, even for those of perfectly good quality. Because of information asymmetry, unscrupulous sellers can "spoof" items (like software or computer games) and defraud the buyer. As a result, many people not willing to risk getting ripped off will avoid certain types of purchases, or will not spend as much for a given item. It is even possible for the market to decay to the point of nonexistence.

But the best white paper on financial applications of game theory I have found is this link. In Corporate pricing, it starts "with a discussion of the use of game theory in corporate finance where to date it has been most successfully applied". It talks about dividends as signals, capital structure, debt and bankruptcy. These include the choice between debt and equity and the amount to pay out in dividends.

In Asset pricing it talks about market microstructure.  "This is the study of the process and outcomes of exchanging assets under explicit trading rules. Where as general equilibrium theory simply assumes an abstract price formation mechanism, the market microstructure literature seeks to explicitly model the process of
price formation." Also covered are market manipulation models and "pricing anomalies such as those associated with P/E or P/B ratios that have received so much attention in recent years, are intimately associated with accounting numbers.  Since these numbers are to some extent the outcome of strategic decisions analysis these techniques seems likely to be a fruitful area of research."

Waiting on Weight Management Company NTRI Conference Call & Dividend

As a technical analysts will tell you,  the chart is broken on NutriSystems Inc. (NTRI). On February 25th NTRI stock declined $5.72, or 28.3 percent, to $14.48 after management lowered guidance. A major new product launched by Weight Watchers International, Inc. (WTW) in January is pressuring prices and profits. "We need new product offerings and new sales channels to re-energize top-line growth", NTRI management said.


NTRI is to report 1st Quarter results on Wednesday, April 27th.

WTW is to report 1st Quarter results on Friday, May 6th.

What are the short-term problems facing NTRI?
1) SALES GROWTH RATE: [FAIL]
From the 10K filed 3/27/2011:

"Competition

The weight loss industry is very competitive and consists of pharmaceutical products and weight loss programs, as well as a wide variety of diet foods and meal replacement bars and shakes, appetite suppressants and nutritional supplements. The weight loss market is served by a diverse array of competitors. Potential customers seeking to manage their weight can turn to traditional center-based competitors such as Weight Watchers and Jenny Craig, online diet-oriented sites, self-administered products such as the over-the-counter drug Alli and other medically supervised programs."

"New customer revenue is the main driver of revenue growth. Over the past several years, our financial performance has been adversely impacted by a number of factors, including the economic downturn and declines in consumers’ discretionary spending. We believe these factors have primarily driven the decline in the number of new customer starts during 2008, 2009 and 2010. The decline in new customer starts in previous years has also hampered reactivation revenue during 2010. We are continuing to see a challenging environment develop in 2011 as we experienced significantly reduced sales below the comparable 2010 period throughout the month of January. Our 2011 diet season launch was ineffective in light of intense competitive activity, bargain-focused consumer behavior and weak promotional offerings. To increase sales effectiveness we re-launched our “Rollback” pricing strategy, which increased sales traction in the month of February but had a significant negative impact on gross margins. These factors will have compounding effects through 2011 resulting in decreased revenue and net income. Additionally, we will incur additional charges during the first quarter of 2011 including severance which we expect to be more than offset by reductions in general and administrative expenses throughout 2011. "

[Note: gross margin is 55.9%]

"Seasonality

Typically in the weight loss industry, revenue is strongest in the first quarter and lowest in the fourth calendar quarter. We believe our business experiences seasonality, driven by the predisposition of dieters to initiate a diet and the placement of our advertising based on the price and availability of certain media."

 [Note: upside surprise?]

2) PRICE/BOOK RATIO: [FAIL] 
From the 10K filed 3/27/2011:
"In the first quarter of 2010, we committed to a plan to sell the business operations conducted by our subsidiary, Nutrisystem Fresh, Inc. (“NuKitchen”), as it was no longer aligned with the business direction of the Company. NuKitchen has been treated as a discontinued operation. During the third quarter of 2010, this business was shut down as we were unsuccessful in locating a buyer. Accordingly, the operating results of this discontinued operation have been presented separately from continuing operations for all periods presented. The loss on discontinued operations during 2010 was primarily from operations. During the fourth quarter of 2009, an impairment charge of $4,541 was recorded in connection with the NuKitchen acquisition. This charge consisted of $2,717 of goodwill and $1,824 of identifiable intangible assets. See the discussion contained in Note 12 of the Notes to the Consolidated Financial Statements."

p/b is price over net income/equity
[Note: if charges, goodwill and intangible assets return to normal what will the p/b be?]
 
3) Chief Marketing Officer executive leaving

From the 10K filed 3/27/2011:

"Our future growth and profitability will depend in large part upon the effectiveness and efficiency of our marketing expenditures and our ability to select the right markets and media in which to advertise."

 4) The dividends may be cut

According to a Motley Fool's article

"With earnings estimates currently below the annual dividend payout, there is risk the dividend will be cut."

[Note: Maybe that belongs under the first bullet]

There is a large block of shares that are shorting the stock. Although it has come down from last month, there are currently 6.6M shares short sales. Should you be a Contrarian?  Is it too early for a reversal? Another approach is to "follow the trend" and create a pairs trade with WTW long and NTRI short as a combination.

Again, my methodology is short-term. If you asked a value investor they would say that the p/e * p/b is greater than 22, therefore the NTRI stock is broken. If you asked a technical guy, they would say there is substantial resistance for NTRI to overcome in the 14.30 range. As I try to get better at this "sport" I will just enjoy the week's fun; I won't buy any shares of WTW or NTRI. The odds are that, most likely nothing will happen. But it will be fun to watch for a stock geek like me.

 

Contrarian Investing Quote

 Contrarian Investment Rules as defined in David Dreman’s Contrarian Investment Strategies.

"Rule 22: Look beyond obvious similarities between a current investment situa­tion and one that appears equivalent in the past. Consider other impor­tant factors that may result in a markedly different outcome."

Found this week - Apr 22, 2011

Link for Good Friday

Queen says "have a good Friday" to the Pope.....

Royal wedding in 6 days - watch live

How to build courage:  http://www.spring.org.uk/2007/08/how-to-build-courage-through.php

Games to play while you trade: http://www.puzzles.com/

Good community: http://stock.ly/

Addictive putt-putt: http://www.adverputt.com/

Oh! by the way Pandora radio is possibly going public this year. Stay tuned.
Music: http://listen.grooveshark.com & http://www.pandora.com/

Viral video about viral videos: http://www.youtube.com/watch?v=LkOnsIhIcu8

Parabolic Metals

When you begin to see words like "parabolic" used to describe the run-up of an investment, ya gotta begin looking at the other side of the mountain.  How do you play the upside? How do you play the inevitable downside? And, of course, when will the downside occur?

The scorching run in silver has been even more impressive than that of gold, but now some traders are betting on a sharp reversal by year's end.

The iShares Silver Trust (NYSEArca:SLV) hit another new high this morning, currently up 1.65 percent on the day to $44.85. The exchange-traded fund, which was below $18 in August, found support at $26 in late January.  [ Large trade bets silver will reverse course ]

 Now, if you thought the ups and downs of tech stocks caused butterflies in your stomach, that's nothing compared to the Sopwith Camels that put and call options can generate, but the options market is the place to play both upside and downside.  There's nothing like the certainty of the final stages of a bubble in which to hone your understanding of when to use calls and when to use puts:  my puts on ZSL are perfectly weird example--profiting from the downward pressure of an inverse ETF caused by the upward pressure of the underlying commodity.

One thing to note about options: people spend oodles of time trying to figure out the bid/ask spreads to identify best in/out times, etc., and to identify the value of an option, being overly mindful of both time decay and intrinsic value, if any.  My advice: forget all that.  Just be aware that you'll generally buy in at the ask and sell at the bid. As soon as you buy, your option will be priced at the bid price, versus what you think you bought it for--the price gyrations of that bid price is what you're watching, not your buy-to-open price.  Also, unless you have the support of your convictions and the market be damned (like my OOTM leaps on CROX), consider buying options that others have clearly bought (based on open interest)... that way you know others have also considered the possible outcomes of the trade in question.

..TS.

Different Paradigm for Patience in a Sideways Market

"That has always been my pet peeve - no historical data seems to be kept anywhere for options.  It's probably in the databases of larger, full service brokerages.  It could be because option pricing is based on the underlying stock price, but the time decay is a big variable. I have kept historical data for awhile, but always had to copy and paste every morning. It's too much of a pain...", explained TrashStock.

Can you actually use support / resistance methods on option history? Technical Analysis concepts on options?
All the methods used for range and trend trading?

I don't know, but a graph would be useful for visualizing historical pricing regardless...

Here's a website that does. 
Silver $SLV options graph looks like this.

I think that is why I don't feel comfortable with options. No visual or graphical representations of trading ranges are easily accessible. Let's reverse the paradigm. what if you treated equities like options. The time decay[ theta ] in stocks could be Patience decay? Let's use the same algorithm as time decay but for stocks?


I'll tell you right now, I can't do the math. 
Besides it's only an approximation. Wiki states, "The Black–Scholes model disagrees with reality in a number of ways, some significant. It is widely employed as a useful approximation, but proper application requires understanding its limitations – blindly following the model exposes the user to unexpected risk." You might find excel addons that would have the formula.


I changed my mind and used the time value of money, and Future Value. Well, the math is a little easier. At least you can stick that in an excel spreadsheet. My approach was to estimate the opportunity cost of holding a stock that is stuck going sideways versus what could be generated from interest in a bank or Treasury. 


Could that be used as a decision to sell a morose and depressed stock that has been going sideways for weeks?

Anatomy of inside buying at MCZ

Over the weekend I was all excited about a stock I found during my research. Mad Catz Interactive (MCZ) looks like a good fundamental company.  What attracted me to it was its high ROE, low PE, and an EV/cfc that was even lower than the PE. I noticed it had run up since the beginning of this year and according to Yahoo had increased by 317% in the last 52 weeks. A quick look at Finviz showed  an high debt/equity ratio, but I figured that was one reason the ROE was 62%.

Assets = Equity + Debt 

Assets/Equity = 1 + Debt/Equity

Using the Dupont ROE formula

ROE= Net income/Sales * Sales/total Assets * total Assets/Equity
ROE= Net income/Sales * Sales/total Assets * 1 + Debt/Equity

Debt to Equity ratio is high and cash is high and inventory is high. They just made several acquisition of companies. What a combination of mixed signals.

I don't know anything about the industry, so I will leave that to another day.

Mad Catz Interactive, Inc. was founded in 1989. At what stage of the life cycle is this company? Market cap is 107M. In Yahoo that is listed as the 6th largest Market cap in its industry. It is paying off its debt with the extra cash, but then adding more. The stock fell ~10% on Monday after the announcement. 

Short sales have doubled from last month, but insiders are buying. Then I noticed that institutional buyers are selling. Interesting. I have never noticed that trend before. 


[edit::]
Wow! Just found a great site for insider information.


So who is right?

Subtlety to the Often Mentioned Mantra of Follow your Trading Plan

I've been trading for about 4 years. The difference between a veteran trader and a novice is humongous. I feel intimidated by the amount of information available online. It's a form of information overload. Even veteran traders, after 10-15 years trading, are not 100% sure the methodology they use will work. If your success rate is greater than 60% or 65% then congratulations are in order. There are a ton of different methods to trade equities. Methods come in and out of favor constantly. Compounding the problem is the fact that different methods work better at different times. Not just bull versus bear markets but different asset classes or different macro economic settings. The good traders are the ones who constantly experiment and still don't think they have it all figured out.

When talking to someone about stocks, you don't know who you're talking to. He/she could be a 10 year veteran trader who has found his own unique methodology or a college student who finds penny stocks and trades  with limited resources.

There is a  forum article that explains it well.
"Always DD any stocks that you're interested in, and remember their source in case the DD is great, or just hot air! I've found out over the years that some people have great picks most the time, others hit and miss, and a few just guess in order to join in on the conversation – know the winners! Some give a tip and cannot even read a chart, or pump a stock, giving false information!"

I'm starting to realize that so much study is required for trading stocks. So I "buckle down" and put in trading rules for a proper money management plan, a risk/reward plan and the entry/exit strategies. I do my due diligence as best as I can and don't rely on "Hope versus Homework".

Yet there is a subtlety to the often mentioned mantra of "follow your trading plan".
Consistency of "follow your rules" also include a consistent execution plan to finding the stocks your are watching. Pick one tool or analysis. Master that idea, before adding any more. That consistent trading discipline or methodology, allows you to master your unique trading style. Only then can you become good enough to constantly experiment without getting waylaid. You want to stay within your self-made plan and pick what matches your style.

I find that something I read years ago, tried and dismissed, sometimes on rereading will become the foundation for a tremendous step forward in my trading success. But I still don't have it all figured out. Too many ideas just makes your trading haphazard and the results inconsistent.

Friday Draws Hearts and Arrows

While many investors are seeking the next IBM, Microsoft, Apple, Berkshire-Hathaway and to follow in the footsteps of Warren Buffett, many pop-star wannabes and producers alike are looking for the next Back Street Boys, Billie Joel, Mick Jagger or ...

Rebecca Black & Patrice Wilson?

While millions of viewers have panned the lyrics, the production, or both, what you cannot ignore is the fact that, well, millions of viewers have viewed this first-time singer's music video.  This video was posted to YouTube two months ago... and has generated some 103,580,728 views.  My own YouTube videos belong in the Urban Dictionary compared to these Oxford English Dictionary numbers.

..TS.

Found this week - April 15, 2011

Every so often I think I'm going to add links and video of what I found during the week.

Here are two videos and one link for the weekend. Enjoy.

• This short film illustrates the power of words to radically change your message and your effect upon the world.
  The power of words

   

• YouTube user Mel describes the video thusly: “I was studying abroad in NZ when my friends found out that I can do animal noises. So, they had me do them in front of a video camera. They suggested that I make a YouTube account and post it… Well, here it is! Enjoy!!”
  
  Girl Does Really Good Animal Impressions, Delights Web [VIDEO]http://t.co/2RkqL5a via @mashablevideo @mashable

   

• check out this computer putt-putt! I just scored 1480 on Micro-Putt at  http://www.dampgnat.com/
  

During the day Donald Rumsfeld May Be a Secret Day-Trader

I was going to write a quick post on Rumsfeld's quote and go on to work. But the more I though about it, the more profound the quote  became.

"There are known knowns; there are things we know we know. We also know there are known unknowns; that is to say we know there are some things we do not know. But there are also unknown unknowns – the ones we don't know we don't know."
—Former United States Secretary of Defense Donald Rumsfeld

 The "known known" we do every day. We feel confident that our trading plan will manifest large or consistent profits and usually everything works out.
The "known unknowns" is that article we want to read. That research paper that is going to teach us how to accomplish our goals. Or it is the co-worker who knows and believes your trading rules would work with his idea. We know where to find this information, and are showing our interdependence.
The secret to trading is the "unknown unknowns"....Wait, I know there is no "Holy Grail" of trading but.... What don't I know that other traders are using and taking advantage of?  What "unknown unknown" trading rule or opinion would change my view, my life and my future?  What subtle change could I engineer that would open my world to a whole new avenue of opportunity?

The definition of confirmation bias is a tendency to test for, use and notice only what confirms to one's own beliefs, and ignore or avoid what contradicts one's hypothesis.

I found a wiki that showed all the different cognitive biases and started to equate them to trading. Wow! So many apply to the trading process.

What biases have you observed or noticed?

Posts & Other Articles
http://www.skepdic.com/confirmbias.html
David Dreman, Contrarian
Stephen Covey

Cisco Flips the Video Switch Off

My personal video shooting has been growing steadily over the past decade, and was greatly augmented by the Flip MinoHD camera.  Three techs were merged into one: 4GB of Flash RAM, HD quality video, and an easy-to-use USB dongle which makes for no messy cables. Finally a device designed to shoot and upload, allowing a fairly seamless path from initial creativity to final publication.  I loved this opportunity so much I presented at Podcamp Cleveland last year with a presentation called "Global Self Publication".

Well, as often happens to good ideas, this one has come to a quiet end: Cisco, the networking behemoth that acquired Flip Video's parent Pure Digital Technologies, Inc. in 2009, has decided to close the company.  The following is from their press release:

"Close down its Flip business and support current FlipShare customers and partners with a transition plan.

Refocus Cisco's Home Networking business for greater profitability and connection to the company's core networking infrastructure as the network expands into a video platform in the home. These industry-leading products will continue to be available through retail channels.
    ....
"We are making key, targeted moves as we align operations in support of our network-centric platform strategy," said John Chambers, Cisco chairman and CEO. "As we move forward, our consumer efforts will focus on how we help our enterprise and service provider customers optimize and expand their offerings for consumers, and help ensure the network's ability to deliver on those offerings."

I can imagine that while Cisco suggest that they are quietly closing this $590 Million acquisition to refocus their energies on enterprise networking, they may merely be reacting to the smartphone tsunami, which in the form of the iPhone and Android platforms, along with competitor Nokia, offer inexpensive devices which shoot very nice video and can upload via 3G, 4G, WiFi, and Wimax networks.  They'll use their Eos products to help people manage & distribute all that video they're shooting with their wireless devices.

..TS.

PUDA was a Reverse Merger IPO in 2005-07-15. This has been going on for a while.

Puda Coal (PUDA) was halted this morning. The chairman is being investigated.
Puda was a reverse merger IPO in 2005. You would think that since it's been almost six years that the company would have been vetted and potential problem resolved.

A reverse merger is when a private company purchases control of  a public shell company. The two companies merge into one publicly traded company. Often, this is in the U.S. market and this process bypasses the checks and balances  imposed by vigilant investors. These companies undergo a traditional IPO after their mergers.

When the business is an international company, potential problems arise because of lack of transparency and the different auditing standards imposed by the local governments. Chinese executives have engineered reverse merger or reverse takeovers to bring their companies to the American Markets and get new investors and an infusions of cash.
 
This is not the only Chinese stock that has had trouble this year.
CCME, LLEN, CHNG, RINO have all had improper accounting problems.

But not all Chinese reverse mergers are bad. Youku.com (YOKU) is doing great since its IPO in December of 2010.  Another good company that IPO'ed around the same time was China Dangdang (DANG).
Both companies are audited by Ernst & Young. As a good rule, I would make sure that the auditors are from a prestigious big 4 firms.

I have found a good website that gives you the details of  many Chinese stocks that are listed on the U.S. markets. On this site you will find who the stocks auditors are, if they are in fact reverse takeovers, and much more.

Considering PUDA et al, sticking to American company penny stocks would give you much better transparency. I would stick to companies that can be researched and studied.

[edit:]
Related Articles & Opinions:
http://www.cnbc.com/id/42451764
Company Announcement
Investigation Begins
Advantages/Disadvantages of RTO

Continually Review Your Personal Penny Stock History

It can be very instructional to look back at your previous picks to see what survived and what died the penny stock death.  Here're two views from my past creativity: a Chogger comic, and an e-newsletter I sent to a circle of friends in 2003.

TrashStock 1 - made 04/24/09 by landalex

---- the 8/27/2003 e-newsletter ----------------------
Friends,

check this blurb out about Sandisk in specific and tech positions
generally. I'm really ambivalent about the market at this
point...maybe it's my biorhythms. :-) I've trimmed my SNDK position
at the recent high, by 75%, but have moved those same funds into LEXR
and FLSH (to build existing positions). SNDK has the dominant
position in the Flash ram industry (for pure plays, versus non-pure
plays like Intel and AMD), but LEXR and FLSH are building market
share (and revenue) quickly.

Also at this point I really like and have built my positions in both
BRCD and OPSW. Fidelity recently let slip that they've built their
position in BRCD to 7.5% of outstanding shares...and I think that
since the slide of BRCD lagged the down market, it's rise will lag
the up market (and, of course, following any earnings news).
Opsware, formerly Loudcloud (of Marc Andreesson fame), has come back
up from a low of $.35 (if only I'd bought then!) and similar to
Freemarkets is now priced near to their initial offering price.
Opsware does software for datacenters....and in fact used to run
datacenters but sold the hardware part of their business to EDS,
which included a 5-year contract to manage those datacenters for EDS.

I also like and have built position in BCSI (formerly Cacheflow).
They've come back nicely from a low of 2.50; but since their market
is extremely narrow (internet security devices) I can't recommend
them as anything more than pure speculation. ;-)

There's an interesting article in today's WSJ about market timing.
Although I talk "buy and hold", in today's market you can't
successfully surf the waves and troughs without blending "buy and
hold", "market timing", "gut feeling" and consistent research.

ttyl,
Posted by Phyllostachys at 8/27/2003 08:40:00 AM
--------------------------
..TS.

Penny Stocks are a way to Scale up your Trading Method

I have been trying to find a way to expand my trading process. I have blogged in the past about trying alternate paths to reach this goal.

I have always approached my trading such that if I saved and acquired a large enough starting capital base that I could trade full-time. I would have more than the minimum in a day-trading account and everything would be great. But life always seems to intervene. Kids, college tuition, weddings. Yikes.

It also seems like the market has changed in the last few years. Of course, the last 3 years have been tough. The stocks I buy are in the price range from 10.00 to 100.00 dollars.  I take 1/3 of my total pot in each position. I quickly run out of attention or money if I try to increase anything.

Options would be a way to do it. I started to experiment with options, so that I could increase my positions by 100 fold; However I hate  the risk of losing a chunk of money if the options expire. I detest losing money.

Last night, I was in a stock chatroom and I had an epiphany.  On a penny stock I could buy a stock in the range of 1.00 to 10.00 and scale my trading process by ten-fold. If I went further and started buying stocks in the   .10 to 1.00 scale I would match an options leverage. I wonder if there are options available on penny stocks? So much to learn.....so little time. Check out the pink sheets.

The drawback would be that more homework would be required to approach the added risk for these smaller companies. More vigilance would be required to watch for scams and fraud. I found a good website  that talks about companies that are "too good to be true".

That sounds basic, right? I'm increasing my risk to get a larger payout.  The thing about investing is that the complex truth or new moments of divine revelation always diverge back to the basic ideas.

Has anybody else tried this?

[edit a month later]
Well, I'm at a point in my blog life here where my ethics/values have to come into play. Should I just delete this post and act like it never happened? No, the intent of this blog was to learn all I could and post my trivial thoughts as I went along the trail. Hopefully they help you. 


Conclusion:
Penny stocks are all fundamentally bad. They all suck. But, you can still make money with stocks that are unsound. Your just not going to make money if you treat them as value or position trade stocks. My swing trading methodology is not going to work with penny stocks. Know what your getting into. Day trade these things and never hold on to them through the weekend.

Maya Calendar Portends Final Gold and Silver Rallies

If that title doesn't grab your attention, I'm not sure what will.  You see, Hollywood has etched a connection between an archaic culture's calendar and the fate of the world into modernity's consciousness with just one movie.  Which was enough to elicit this paragraph on the Wikipedia article about the Maya calendar:

"Misinterpretation of the Mesoamerican Long Count calendar is the basis for a New Age belief that a cataclysm will take place on December 21, 2012. December 21, 2012 is simply the day that the calendar will go to the next baktun."

So, if the οἱ πολλοί are gonna fall for calendar predictions, surely they'll fall for a similar correlation to the current bubble-formation in certain precious metal commodity markets.  There, of course, AFAIK is no such correlation, but if it makes you feel better, let's see how high AU and AG are gonna go:

As the 8th Long Count after creation (in 3114 BCE) occurs on a year that corresponds closely to today's closing price for AG:  8.0.0.0.0  -- September 5, 41 CE   The next long date ends in the year 435 (9.0.0.0.0 -- December 9, 435), so that must be the top of the current silver rally.  Hold on to your hats!

As the world will not (probably) end on December 21, 2012 (13.0.0.0.0 December 21, 2012), gold must be going to peak above that number.  The next Long Count year is 2407 (14.0.0.0.0  March 26, 2407), which nearly corresponds to the time that Captain Kirk and Jean Luc Picard rule the high seas, so that must be gold's next peak.  Still holding your hats?

So, there you have it - commodity peaks based on the Maya Calendar:
AG: $435/oz.
AU: $2407/oz.

I guess ZSL is gonna have to reverse split coupla more times. :-)

..TS.

OMG - There's Silver in Them Thar Hills

Tons of informative videos on YouTube talk about the pitfalls of investing in leveraged bull or bear ETF's: the videos range from clearly just poorly informed sales people, to well-informed but injured investors talking about the fleecing of Main Street by the denizens of Wall Street.  But how else are you going to quickly learn about the risks and rewards of leveraged and/or inverse ETFs than by listening to many sources (including this wonderful Seeking Alpha article)?

A wee bit ago, MM posted part of a conversation he and I had, in which I essentially glorified ZSL. I was a newbie and very enamoured of the possibilities of silver hitting a peak... which it then did not do.  Silver in fact just kept rising, and is rising today.  So, you like an inverse ETF, and you want to stay on top of it, but you don't want to lose money on it, so what do you do?  Easy:  check to see if Put options are listed for it, and jump in for the ride down (up now, as you're effectively shorting the falling inverse ETF).  Make sense?

Granted, options have a decaying time value, but if you buy far enough out of the money (so, no intrinsic value to speak of), and the underlying catches up with your position (or, down to your position) then you could be sitting pretty on a nice little gain.  Be careful to always seek the LEAPS or furthest out option expiration dates, because you don't want to get so caught up in family and work-a-day stuff that you forget the expiration date has come and gone.  With ZSL, I'm looking at the $15 Jan 11, 2011 Puts, thinking that as ZSL has very easily fallen from 27 to 20, 15 cannot be that far out.

What do you think?

..TS.

We have become a collaborative blog!

"A collaborative blog is a type of weblog in which posts are written and published by more than one author. The majority of high profile collaborative blogs are based around a single uniting theme, such as politics or technology."


We will remain focused on trading and investing.


Please welcome TS http://trash-stock.blogspot.com as a guest host to the blog.

Disruptive technology events

Deb Roy showed a video on the development of language in his 5 year old son. Link here. It showed how we are all hooked up in  a social matrix. A cloud of connections and interactions of people that grows and feeds on itself.

We reinforce our ideas in conversations with our friends, social circle and work. This is a method of confirmation bias based on our thoughts and who we interact with.


The Black Swan Theory is described in this link. These events are considered to have negative consequences. Similar in its rarity and impact, but having a positive powerful outcome, a company or idea that appears without warning and is growing exponentially would be a disruptive technology force.

This made me start to look for disruptive technologies in a couple of search engines. Made me start to look for phrases in Facebook and on Twitter; My conclusion was that it will not be on Twitter or Google Trends that you find these events. It will not be in the social matrix.

Reading from the Black Swan Theory wiki:
The theory was developed by Nassim Nicholas Taleb to explain:

1. The disproportionate role of high-impact, hard to predict, and rare events that are beyond the realm of normal expectations in history, science, finance and technology
2. The non-computability of the probability of the consequential rare events using scientific methods (owing to the very nature of small probabilities)
3. The psychological biases that make people individually and collectively blind to uncertainty and unaware of the massive role of the rare event in historical affairs

The best we can do is to try to find the trends that are least prevalent. Maybe we should reverse the order of  a popular idea or item in a search, starting at the least relevant criteria.  Rethink trusted assumptions. The people who know that the disruptive event is coming are not going to tell you it's coming.

Do you have any comments or ideas on where to find these events?

homebuilders

RealtyTrac, a leading online marketplace for foreclosure properties, released its Year-End and Q4 2010 U.S. Foreclosure Sales Report. It showed that foreclosure homes accounted for nearly 26% of all U.S. residential sales during the year.
Are foreclosures on a rise? According to Bloomberg, "Total U.S. filings in the fourth quarter fell 8 percent from a year earlier to 799,064. The tally for the three-month period was the lowest since the fourth quarter of 2008."

I live in western Pennsylvania. Around this area we did not participate in the hectic real-estate bubble and therefore have not felt the extreme bubble melt-down.
Areas in California, Phoenix and Las Vegas are bad. Collier County Florida has seen property values that are cut in half. Luckily we have only gone down about 10% - 15%.

Robert I. Toll, Executive Chairman of Toll Brothers Inc. (TOL) said in his
Q1 2011 Earnings Call Transcript the following:
"The territories that are good are good, but there is plenty of territories out there that are big and the uptick is very slight. So, we've got to remain cautious, until we put a few more of quarters behind us and we've got to remain cautious until some of those territories start to kick in."

The take away is that there are some regions that are prospering.
NVR Inc. (NVR) is a regional home builder from this area. The problem with the stock is it has an expensive price tag. It closed at 756.42 on Apr 1st.

It takes five to seven years to build land development from purchase to completion of the project.  Their is a wide spectrum of how companies deal with buying land. Some buy land as they need it and others buy land in advance, or in joint ventures to lock in today's prices. Home builders have now had about 3 years of cheaper land prices. Along with streamlining and other efficiencies they are starting to become profitable.

One year ago Seeking Alpha wrote a great article on home builder etf's. They weighed and compared ITB and XHB merits. The first conclusion is that neither etf is a pure home builder vehicle. ITB's accounted for about 70% of the portfolio and XHB was 35% last year. Looking at the company profiles today, ITB has 56.34% and XHB has reduced to 27.67%.


transcript
http://www.morningstar.com/earnings/22568805-toll-brothers-inctol-q1-2011-earnings-call-transcript.aspx?pindex=4&qindex=2

Barchart homebuilder sector
http://www.barchart.com/stocks/sectors/-BUSI?sym=MTH

XHBCompany profile
ITB Company profile

SeekingAlpha Comparison of the two etfs
http://seekingalpha.com/article/193144-battle-of-the-homebuilder-etfs-xhb-vs-itb

Foreclosure stats
http://www.bloomberg.com/news/2011-01-13/u-s-foreclosure-filings-may-jump-20-this-year-as-crisis-peaks.html

Other Opposing views
http://seekingalpha.com/article/261432-housing-prices-rise-in-response-to-reduced-supply-higher-employment
http://rismedia.com/2011-02-24/foreclosure-homes-account-for-26-percent-of-all-2010-residential-sales-according-to-realtytrac/
http://www.cnbc.com/id/42324054