Biggest Pump and Dump in World History?

    Not everyone is in love with #Bitcoin.  I, for one, am highly suspicious of this circularly defined "commodity" oddity that is backed by ITSELF.  

How does Block-Chain Crypto work?  well, you can search the web for "Block Chain" and you'll get a lot of information; perhaps too much.  In a nutshell, Bitcoin is encrypted initially and every transaction that occurs with the coin adds to the randomization of the coin itself, and as I understand it without a server on one of the Bitcoin exchanges to decrypt the coin, it is indecipherable.

So, EVERY transaction made with a particular Bitcoin is in the history of the bitcoin and any attempt to introduce a new bitcoin to the market will be discovered by the exchange because either the originating data will be incompatible, out of sequence, or just outright unreadable.  This makes it more secure right?

Not so fast.  I'm an engineer and I can tell you that one man's bomb shelter can also double as a fire-trap and coffin/grave.  In a kind of "fight to the death" process, the exchanges upon which Bitcoin is traded get reduced from time to time; I think I read somewhere that every 6 months they cut the number of exchanges in half, keeping only the top holders.  Eventually, there will only be one exchange remaining; like the movie, Highlander.  If the few or one server is wiped out in a fire or terrorist attack, then all the Bitcoins are gone - FOREVER.

It's just money, right?  Again, not so fast.  Remember?  EVERY TRANSACTION is recorded in EVERY BITCOIN?  EVERY ONE.  Remember those RUSSIAN HACKERS and their #RansomeWare?  What was the currency they demanded for payment?  

Oh yeah, #Bitcoin!  It's almost like they were COLLECTING the fixed finite number of Bitcoins in existence, and NOW they're going to #CashIn.

Yep! The evidence of all those cyber criminals' activities, who they worked for, how they're all connected, is ALL DOCUMENTED in the Bitcoins.  While it's not officially a true commodity they might be a target for a raid and acquisition of intelligence.  But once they become a recognized commodity, they will be protected by a grand Catch-22 because it will require a Warrant to get access to any particular bitcoin's history, with evidence of the crime tied to that Bitcoin, so that it can be decrypted to reveal the evidence of criminal activity it holds, which cannot be revealed without the server that drives the exchange.  If that server is destroyed in a terrorist attack or even a "accidental" fire, then ALL THE BITCOINS on that server are GONE - FOREVER.  All the evidence of criminal activity is GONE - FOREVER.  

The money spent on those bitcoins?  ONE HUNDRED PERCENT UNRECOVERABLE.

If this doesn't scare you, you don't understand what's going on.

Oh, and Happy Pearl Harbor Day.

Paul

Friday's Bear Alert - 2016-02-12

There's always a bear market somewhere, and bears eat well.

    My last Bear Alert for this week is HR.  This may be heading into a bounce but it has broken its upward trend.  Like all the REITs I've discussed this week, and there are many more like it, it has high multiples:

    Beyond that, they have a debt-to-equity greater than one, and the EPS while expect to rise this year, is expected to fall next year, and it still trades at a P/E multiple of over 50.

The analyst target price is now lower than the current trading price.

So let's take a look at the chart:

    As you can see from here, the price has broken below the daily MA50 and has closed below it for the last 3 days.  Now this changed in after hours trading yesterday with some sizable purchases:

    There was more volume after hours than there was the rest of the day, which wasn't small either.  This might be a short seller covering, or a bull going VERY long.  The thing is, when I did some Fibonacci work on this I don't see the bottom happening until next Friday, and the overall market trends are likely to weigh on this.

    I'm seeing a price range of $26.92 - $26.97 by February 19th.  After that I expect to see a rally that but strong resistance at that Daily MA50, and certainly at the weekly MA10 (below) as it has broken its upward trend bottom.

    Good luck with your own paper trades.  I'll have to finish my special post on NIRP this weekend, but you can trust that it will be a worthwhile read.

Disclaimer: This blog is for informational purposes only.  I may or may not have positions, long or short, in any stock or security mentioned anywhere on this site or elsewhere at any time.  It is the sole responsibility of the reader to interpret the contents here, and to seek the advice of a qualified financial professional before engaging in any trade.

Thursday's Bear Alert - 2015-02-11

(** UPDATED - See Bottom **)
(** UPDATE - 2/12/2016 - See Bottom**)

My Bear Alert for today is Realty Income Inc (O - NYSE).  I can't call it a bad company, at least not yet.  But it still trades at a high premium.

P/E = 51.62
Forward P/E = 53.07
PEG = 11.39
P/Sales = 14.08

I'm going to save the compelling piece for last, the 2 things that made it today's alert.  With a market of Fed tightening, there's no way I can see that multiples like this will be sustainable.  don't kid yourself, Janet NEEDS to tighten and very soon (more on that in my special post later today).  The PEG ratio says that by this time next year the earnings will be 453% higher than what they are today.  How?

Do they expect to raise rents by that much? Will they be able to accumulate that much more realty in that time while paying out at least 90% of taxable earnings as dividends.

Call me a Descartian skeptic, but I'm not buying these share prices.  Assume you bought shares today.  If you took your portion of the sales alone as cash, it wold take 14 years to get your money back.  To me, that's priced for perfection.

So here are the two reasons it's on today's alert:

1: O is trading at it's all time highs, in a market that shuns high multiples, with looming bankruptcies in the oil market, and credit stress around the globe - risking bank failures, and economic slow-downs in many countries.

2: (The most compelling item) - The PRICE TO CASH Ratio is nearly ONE THOUSAND NINE HUNDRED AND NINETY SEVEN (Share Price = 1997 * CASH).  It almost seems ironic, no?  If there are problems, there isn't enough liquidity to help.

While I haven't looked over the balance sheet, there are plenty of reasons for this to be a short term paper-swing as a short.


As always, this blog is about PAPER TRADING, so don't go throwing your money into any investment long or short without doing your own homework and Due Diligence.

UPDATE (2/11/2016):
I just looked through last night's reported balance sheet, and need to uupdate a few pieces of information:

1) The Price to Cash ratio now looks to be only about 345 rather than the 1997 from prior to their earnings report.

2) The debt of the company has come down and the net shareholders' equity has increased by just over $900M from last year.

This certainly looks to be a well managed company, with growth - just like Netflix (NFLX).  Netflix just expanded to 130 new countries versus 3-5 expected.  Take a look at how the market reacted to their price multiples.  

So, the question is: Did last night's earnings report by O changes my bearish thesis?

My answer is:  No.  My bearish thesis is only short term.  They are trading at a peak with high multiples in a market that is spurning such numbers.  O is Oversold.  So for a short term swing, I would paper-trade the short sell or Put options.

***********************************
UPDATE (2/11/2016):

Right now the Feb19 $60 Puts are trading at about $0.50.

Now look at this WEEKLY chart:

It looks like EVERY TIME it jumps like this for a full week, the next week is a STUNNING AND PRECIPITOUS TUMULT.  And it tends to go for WEEKS afterward.  

I'd say to set your paper-trade RIGHT NOW.  You could try it as a short, or your could paper-trade the PUT options.

Have a great long weekend everyone!

Wednesday Bear Alert - 2016-02-10

There's always a BEAR market somewhere, and I'm here to help you find it.  OK, I'm chiding Jim Cramer a little, but I do appreciate the hard work that he and his most excellent team does in finding good companies and opportunities for the investing public.  But moreover his explaining how these things work better that anyone can be expected.  Hats off to you, Jim.  You're a gentleman and a scholar.

EDIT:  I was terribly remiss!  HAPPY BIRTHDAY JIM CRAMER ! ! !

Bear Alert:

    UDR make look like a bounce play but wait a little and it will fall again.  This thing trades with a P/E multiple of over 90, a Forward P/E of almost 90, a PEG ratio of over 12, and ten times their sales.  But what struck me about THIS REIT is that it is trading at over SIX THOUSAND TIMES ITS CASH.

  That's what I'm seeing.  They just reported on Feb 2, 2016 and their Price to Cash ratio is 6735.93 as I'm reading it off of Finviz.  Now, no one keeps perfect records all the time, but it shocked me seeing this and then that they have a Dividend payout ratio of 120%.  Their Price to Free Cash Flow ratio is 621.  Their Long Term Debt to Equity ratio is 1.24 which seems a bit high given that this is a residential REIT.

    To know more about REITs, I suggest reading a little here.  If this is a Mortgage REIT they may be holding direct mortgages, or they could be holding mortgage-backed securities.  Why is proverbial bell ringing?  I suppose I don't need to tell you that aside from the government, we really don't know where all that debt from 2008 went.  People are flocking to rental units according to some recent news reports and the new home purchases are being made by the wealthy.  Let's hope we don't see a return to sub-prime mortgages, but not all of those ever really got resolved and due to a change in bankruptcy laws in 2005, there was a very sudden spike and then plummet in bankruptcy rates in the US.

    As we can see, even from corporate filings, the rates in the first quarter of 2006 dropped to all time lows, but that didn't mean that there weren't problems as we can see the sudden rise in filings immediately thereafter and leading right into the housing collapse.  Because the bankruptcy laws changed to favor indenture over relief (made it much harder to liquidate, and reorganization left far more debt on the debtor after the bankruptcy than before the change, people and businesses started walking away from their debts.  If we see a return to that, these REITs will see a very sudden drop in rents.

    So all this begs the question, why are REITs trading at such high multiples.  I have nothing against the business model.  In fact I think it's a great way to structure it, but the premiums being paid today represent a terrible risk in my opinion.

    As for UDR's chart, they've broken below their trend.  The daily chart shows a possible bounce materializing, but I think this may be short lived.

    So far, I don't see it as a broken company so much as an over-priced stock.  You might paper-trade the bounce for a little gain, but one bad news announcement could trash that trade.  I wouldn't swing trade (hold over night) UDR - not even a paper trade.

    I plan to release a special post, in addition to my theme this week, about the new NIRP environment we find ourselves in.  Warning: it won't be pretty.

Disclaimer: This blog is for informational purposes only.  I may or may not have positions, long or short, in any stock or security mentioned anywhere on this site or elsewhere at any time.  It is the sole responsibility of the reader to interpret the contents here, and to seek the advice of a qualified financial professional before engaging in any trade.

Tuesday's Bear Alert

(** UPDATE - 2/12/2016 - See Bottom **)

In keeping with this week's theme, REITs, here's my next Bear Alert:

The markets are becoming ever-more skeptical of high ratio stocks.  Just look at the tech sector and see the carnage in the FANG stocks (FB, AMZN, NFLX, GOOGL).  These are good companies and they are well run, but their share price has become to bloated for conditions where interest rates are tightening and global economies are slowing.  But one sector has been bucking this trend, or has it?

The financial sector has a large number of companies who are trading at very high multiples.  That was the basic gist of my last post.  One particular multiple I'm going to focus on today, because I think it NEEDS saying (no one publishes this ratio outright).  The ratio I'm using is the Dividend to Sales ratio.  Yep.  A company can only spend as much as it takes in, right?

I'm just a humble engineer, not a financial guru of Wall Street, so perhaps I'm just not understanding all the financial slight-of-hand at play here and perhaps there is a perfectly good explanation for what I found...

BUT...

I found ONE company that can seem to mystically pay out more in DIVIDENDS than it makes in SALES.  How is that even possible?  How do they pay their bills?  Salaries?  Nah!  Forget all that!

They're paying shareholders up to nearly 13% based on today's prices.  This company is trading at a P/E ratio of 123.27, a forward P/E of 57.07, holding a PEG ratio of 4.35, a Book/Sh of -7.29, Cash/Sh of 1.39 and pays a dividend of a whopping $2.40/share.

To me that sounds too good to be true.  SO, let's do a little math:
With a market capitalization of $2.78B and paying a dividend of 12.98% they're paying $360,844,000 in DIVIDEND annually.  They have SALES of $318,900,000 annually.  All this and with a NEGATIVE Book/Share ratio to boot.  Does the ghost of Arthur Anderson do their books?

While the Forward P/E may look a lot better than the current, do remember that future earnings are NEVER guaranteed.

So, who is this mysterious and miraculous company?  It's Communications Sales & Leasing, Inc. (CSAL [NASD]).

Let's take a look at a chart...
S H A L L    W E?

Here's a daily chart for the last year (they've only been trading publicly less than a year).

Aside from the obvious trend and the fact that every time a new moving average is introduced the stock gets hit like a glass punching bag, The missing data from the beginning of July seems to be a glitch in E-Trade Pro as FinViz has daily data from that time frame.  

Today, however, I'm concerned that the dividend to sales ratio is telling us something disturbing.  There are other REITs with high ratios (more than 0.3) but this is the ONLY company I've ever seen so far with a ratio greater than 1 (1.13 to be specific).

If this is something you're paper-trading as a long, your might want to shorten-up your bet. The 200-Day SMA has just recently been introduced and in keeping with past instances, it's shattering to all new lows again.

If you're trading or investing in this thing for real, you should seek the advice of a licensed financial professional immediately and make sure your trade or investment is really safe.  To me, the volume bars in that chart say a lot right at the end there (in the last week).

Update:  After looking at CSAL's Balance Sheet and Income Statement, it looks like they have 10-11 years before the assets are worth zero (rough calc).  With being a REIT, they have to pay out 90% of net income as dividends, so raising cash to replace assets may be problematic. They can only hope their assets will last longer than their expected life.  If their rents are Bonded Leases it would offset costs for repair and replacement to the tenants, but I still find the price multiples particularly unsavory.

Disclaimer: This blog is for informational purposes only.  I may or may not have positions, long or short, in any stock or security mentioned anywhere on this site or elsewhere at any time.  It is the sole responsibility of the reader to interpret the contents here, and to seek the advice of a qualified financial professional before engaging in any trade.

UPDATE (2/12/2016):
Some data on this company has been updated on FinViz this week.  The Earnings for the trailing 12 months has been updated to reflect $0.15/sh as opposed to $0.01/sh from the date this post was published.  This still reflects a 100+ P/E multiple and the dividend still exceeds the quoted sales.

Here's the updated chart with daily Heikin-Ashi candles as of the end of Friday 2/12/2016.

Have a safe and happy long weekend everyone.