To OTC Journal Members: 
 

What A Week- So Far

I have a ton of commentary on this past week and the times we are living through, but I just don't have time to go into all of it today. I could write 10,000 words on the whole short selling issue, and probably will next week.

The market was absolutely pounded earlier in the week, but rebounded 400 points on the DOW today on the news Treasury Secretary Hank Paulson was going to Capital Hilll to propose an RTC like government agency to help resolve the subprime mortgage crises. The RTC (Resolution Trust Company) was the agency that took the assets of the defunked savings and loans back in the 80's, and resold them on behalf of American Tax payers once the market had stabilized.

The RTC was a little different. When the Savings and Loans all closed their doors, the government already owned all their assets. Today's banks still have the 3.5 million risky mortgages, they are just carrying on their books at zero or nearly zero valuations.

A bid from a government agency for these mortgages would accomplish two things- 1. It would allow the banks to establish a bid price for the securities on the books, and 2. It would provide an exit strategy if required. In my view, it can't happen soon enough. The market loved it.

It's been a terrible year for investors- pretty much all asset classes have been decimated, and I'm right in there along with most of you who are reading today's edition. My net worth has taken a huge hit this year.

I have been involved with the stock market for about 22 years. During that time I have seen the demise of the savings and loan industry, the crash of '87, 911, Enronitis, and 4 bear markets. You know what everyone of them had in common? They all were outstanding wealth creation opportunities for those with the courage to recognize the world was not coming to an end. Here's something to think about- in 2002 the PE ratio for the S&P 500 was about 22- today it is about 12. The guy who said you buy farmland during a drought year- Warren Buffet- is licking his chops as he pours over a list of stocks he wants to buy right now. Tune out the noise, keep a cool head, and recognize the next 5 years could represent a monumental opportunity to create wealth.
 

Pickle Pause Nears An End

Many of you have been asking for an update on Spicy Pickle, and here it is.

I won't insult your intelligence by stating market conditions and the US recession aren't having a negative effect on the company. It is, and of course it is being priced into the stock quite rapidly.

Here's how- the company's growth is likely to slow in the 2nd half of 2008. There are still about 90 new Spicy Pickle's committed to by franchisees. The 42 existing stores are experiencing minor slow downs relative to the economy, but on the whole they are doing just fine.

Recently, a lease was signed for a 4th Spicy Pickle location in the San Diego area, which is one of the few recent lease signings.

One of the issues the company still faces is the state of "denial" in commercial real estate. Prices have not cracked, and landlords are finally starting to come around to deal with the reality of the recession. New locations are actively being sought in Houston, San Antonio, Los Angeles, Illinois, and Las Vegas. The company is very close to new leases in a number of these locations.

At the same time, it is no secret SPKL is actively pursuing an expansion campaign outside the confines of the US borders in places where there is no recession. There are a number of ways this could be achieved, but I can't make any suggestions about what the future might hold. However, if SPKL is successful at achieving a strategic move, rapid expansion could come back into the equation.

While you look at this chart of SPKL during 2008- which is just as painful as most stock charts- I'll share some thoughts. First- regarding the financial condition of the company. Revenues are going up, and losses should be coming down. Revenues should be up 300% again in Q3 '08 over Q3 '07. However, the company is still not profitable.

SPKL is far from insolvent. Money rolls in everyday, and the revenues are recurring. The company is taking steps to lower overhead as it doesn't need the expansion infrastructure it anticipated before the recession.

With a break or two in the right direction, the company could near break even by year's end. I won't claim that no equity capital will ever be required again, but it will probably be looked at by year's end.

Whenever I have my doubts about what to do, I simply go to a location and have a sandwich. I love the food.

I have some partners who have sold a few shares of this stock over the last several months as disclosed on the site, but I have not sold one single share of my personal holdings. I believe that if I can hold out for 18 months to 2 years, I will make a killing in SPKL long term.

I can't say the stock won't go lower. Certainly, people are panic selling to raise cash at any cost. Perhaps a catalytic event will get the stock rolling. If it drops much more, I'll be a buyer if I have the cash.

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