Excellent article that I think definitely relates to CDXC right now. I love our chart. We break .82 next week and we are at .90 or higher. It looks like we are finally on our way. JMO
March 9, 2013
Volume XVI, Issue 35
OTC Journal Newsletter
What Gives?
This past week the talking heads in the financial media were absolutely giddy and gleeful as the major large cap indexes- the DOW, S&P 500, and the NASDAQ made new all time highs.
But, doesn't it feel like there's something missing? Do you feel like small stocks are participating in a meaningful way? It doesn't feel to me like microcap investors should be popping the champagne corks quite yet.
In my universe of micro cap companies- some of whom will go on to become great companies and graduate to the NYSE or the NASDAQ- stocks don't seem to be trading with the kind of vim and vigor I've seen in past markets.
Why is that? With the DOW, S&P, and NASDAQ making new all time highs, one would think the microcap world would be going crazy as well.
Here's your answer in one phrase: "Risk Aversion".
The mark is chugging up, but it's still very risk averse, and the tone is being set by the government.
Will the large cap market continue higher? Yes- it will. Despite all the arguments I hear related to weak GDP growth, limited earnings growth, a total dysfunctional government, one fiscal crisis after another, and and aging work force, I very much believe this market is going higher.
Let's make it really simple. Our super accommodative FED is holding interest rates at nearly zero, and buying back Treasuries- which forces prices up and yields down.
The net effect is to make any interest bearing instrument pretty much worthless, thereby forcing capital in the equities and real estate.
Hence, our homes are finally rebounding in value, and large cap stocks are making new all time highs. The market is even ignoring the succession of fiscal crises our dysfunctional government is creating.
It's a bit amazing to me that the financial media is in a tizzy about these all time highs. It's worth remembering it took 13 years from the last highs to make these new highs, so it really shouldn't be such a big deal. For me, it's more relief than celebration. The stock market is viewed as a place to create wealth once again.
Consider the following. When we made the previous all time high in 2000, the S&P 500 generated $56.13 in earnings.
In 2013, the S&P 500 is expected to generate about $110 in earnings- nearly double the earnings generated at the last all time high. The earnings yield is about 7.2% vs the 1.85% yield in the 10 yr bond. Where's the money going to go?
Same price- twice the earnings. Why would you view that as overvalued? It's not. This market will continue higher despite all the doom and gloom forecasts you might read.
Risk Aversion Rules Micros- For Now
One of the largest bricks in Wall Street's Wall of Worry is the anemic growth in the economy as measured by GDP and slow job growth recovery.
One would think the Entrepreneurial Animal Spirit would be on fire with capital so available and so cheap. After all, it's the entrepreneurs who are out there taking risk that create jobs. Did you know 70% of the work force is employed at companies with 100 or less employees?
Hold the phone. Is the entrepreneurial spirit really alive and well in the US today? No- it's not. And, the simple reason- there's very little risk capital around, and capital is the fuel of the growth fire.
This past week I watched an interview with Steve Forbes on CNBC. He addressed that very issue, and here's the irony.
The Federal government is spending a lot of time reviewing bank loan portfolios, and making sure the big banks are only loaning money to individuals who can prove there's no risk.
It's ironic that 5 years ago you only needed to be able to sign a piece of paper to get a home loan. The least credit worthy were able to get it. Today, thanks to government restrictions imposed on banks, highly qualified borrowers with impeccable credit histories and high levels of equity in their homes are unable to take advantage of low interest rates and refinance.
Why? Because a great credit history and 40% equity are no longer enough. Now you have to demonstrate certain levels of "taxable" income, which most entrepreneurs are unable to do. Most entrepreneurs manage their cash flow to maximize deductions and pay lower taxes. Hence- income levels are lower. It's an insidious way the government has of attacking entrepreneurs.
This isn't isolated to home refinancing. The banks are only lending in the most conservative manner these days. The appetite for risk has been completely wrung out of economy.
And- guess who the job creators are? It's the guy with 1 restaurant who'd like the borrow money to open 2 more. It's the general contractor who'd like some capital to hire more workers as his business improves. It's the car dealer who'd like to expand his facilities.
It's all the small businessmen- it's not Oracle or Microsoft who are both loaded with cash but contracting their work forces.
A healthy risk orientation has not returned to the economy yet, which hinders growth, and it's finding its way into the markets.
Money that might be in US Treasuries is chasing large cap indexes, but risk money is not finding its way into micro cap stocks as strongly as it has in past markets.
Hence- a company like Kinbasha Gaming (KNBA) can deliver $100 million in annual revs, and $.59 per share in earnings in one quarter, but still go unrecognized by the markets despite making a new all time high of $1.17 this week. This stock could be $10 in a year or two.
A company like Panache Beverages (WDKA) can announce a 200% growth in revenues in Q4 and it goes largely unnoticed by the markets. This company is going from $4 million in 2012 to $10 million in 2013- yet no one knows about it.
Here's the good news- our Bull Market is still coming, and there's plenty of time to accumulate meaningful positions in stocks I find and you might like.
We're on the cusp of a bull market where the micocaps outperform. There's 24 to 26 months of strong performance out ahead.
As the value of your home improves and your large cap mutual funds continue to outperform, the appetite for risk will return to the American investor, and microcaps will begin to trade very well.
Surges won't be rewarded with pull backs. Stocks will break out and go on to make new highs as companies prove out their worth.
After 5 up and down years, we're finally on the verge of a sustained bull market in the microcap space. Hang in there. Stocks like KNBA and WDKA will find audiences and will trade more efficiently. It's inevitable, no matter how badly the government tries to screw things up.
The entrepreneurial spirit is alive and well in the US. It's just needs a little more time for assets to appreciate, and risk money will be back.
Faith can be defined as "Belief in the Absence of Data". I have faith a huge bull market in micros is just around the corner.
Special Note
I was struck by an email I received from one reader after the WDAS idea traded so poorly the past week.
I had suggested an entry level of $.095, with a rather tight stop loss of $.08. After the original alert, I published a follow up edition stating so, and suggested getting out.
I received an email from a reader who had missed the follow up edition, and was looking at a bit of an ugly loss.
One way to avoid these kinds of situations is to take better advantage of the simple tools we have at our disposal.
From now on, I'll be "Tweeting" as warning when a Trading Alert stock gets down to a dangerous level.
Nearly everyone can get a text these days. They are instantaneous, free, and don't require you to be watching your email.
If you haven't done so already, simply Click Here to go the OTC Journal's Twitter page, or click on the "t" in the upper right hand corner of this edition.
Every edition I published is "Tweeted", and from now on I'll Tweet out the information when a stock is selling off dangerously.
Next week- Updates on every idea I still like.
Home Page: www.otcjournal.com
Email Questions or Comments To: editor@otcjournal.com
News 
Market Data 
Discover 
AI
