To OTC Journal Members: 
 

Yes, The Sky Is Finally Falling

I thought I'd seen it all with the end of the Savings and Loan industry in the 80's, the '87 crash, the dotcom demise of 2000, 911, and Enronitis. Today, I've started a new chapter in the ugly experience book that is getting longer than it should be.

Hindsight has proven I was wrong last week when I predicted Congress would get done grandstanding and pass the pending legislation to reliquify the banking system.

The House or Representatives voted down the bill that would have created RTC 2.0 which I believe would have been a great investment for the American tax payers. Here's what happened in a nut shell. Conservatives Republicans believed there was too much money being spent, Liberal Democrats believed we would spend too little.

In the end, had about 15 Congress persons voted differently, it would have passed and been signed into law by the President.

The consequence of not acting was pretty much bloodbath in the markets. I believe the markets had already priced in a normal recession. Today, the markets started the process of pricing in a nasty recession/depression. 

I believe there's still a chance the House could get back to considering the bill in some amended fashion later this week, and do a 180. After all, it would only require a few votes to pass it into law. The vote was 205 to 227.

This situation is easy to define. These representatives of the people voted to go the easy way- not the hard way. It's hard for the American public to accept what needs to be done here in order to keep the banking system liquid- the media has painted it as a "bailout". I believe it would have been a great investment for American taxpayers if handled properly.

Congressman and Senators were railing in the media against the dissenters- very few "no voters" made media appearances. The average American believes this is a "bailout" because the media sold it that way. Anytime you buy irrationally priced distressed assets, you make money when the distress abates and sanity returns. We would have made a return two ways- by saving huge losses in GDP and buying the assets right so we made a profit over the long term.

Representative Darrell Issa was one of the few who got up in front of cameras and delivered his point of view for voting against. He did bring up one valid point. Conservative Republicans were looking for a suspension of the "Mark to the Market" accounting rules, which would be helpful. I've written about this and been in favor of getting rid of those stupid regs. I personally believe "Mark to the Market" standards don't work for securities with no regulated market, and they are a left over knee jerk reaction to Enronitis- which of course led to the Sarbanes Oxley disaster.

However, I don't believe that needs to be part of this bill. The SEC under bird brain Christopher Cox could handle that one. He should be fired. 

Nevertheless, as I stated earlier, I now believe the market is going to price in a full blown raging recession/depression. 

Here are my thoughts for specific action on the stocks I currently cover:

• CGYV- My SSL is about the $2 mark. It is highly likely the stock will trade below that level tomorrow as I'm quite sure the market will get clobbered, and absence of buyers will hurt this one. Numbers will be very strong the remainder of the year, and they are very profitable. The stock could be fragile as there are still funds in with a $2.18 cost basis. In this market, cost basis is meaningless. If the stock drops in a vacuum, it will likely be one of the first to come back. You have to decide if you want to be long term, or take your losses and get out. It's your choice. I have been an open market buyer of about 35,000 shares with about a $3 cost basis, and will hold long term. I will only sell this one if I really need the cash. 
• SPKL- The stock hasn't been greatly effected by this market turmoil as everyone who was going to sell probably has done so. However, there could clearly be some downside pressure this week. I made a personal decision to stay long term on this one in the Spring, and won't let the insanity change my thinking. I am prepared to wait through the recession despite the recognition the stock could go lower. Riskier than CGYV as the company is not profitable yet, but management will do what it takes. I will only sell this one if I have to have the money.
• China ETF: FIX- since I just featured it this weekend, it is unlikely anyone warmed up to it yet. Sell it if it trades below $30.
• NIHK: Great sales growth but a little short on cash and still losing money. I am concerned for NIHK, as this will be an impossible environment to raise cash. Way below my SSL, so if you're attitude is what's the point now, just hang in there. Dicey with a shortage of cash. If you have to sell something, it might be one choice.
• EFSF: In good shape cash wise and very low burn rate. If they can continue to run the company without spending any cash and don't start issuing stock like they have a printing press, a good hold down here.
• TCGD: No indication of any sales out of the company yet. They will probably have a rough time raising money, and if they do the terms will be horrendous. Another one way below my SSL, so if you're in you might want to hold it. However, this one might not survive.
• PNWIF: Certainly worth holding as the company won't need any more financing and should be cash flow positive on a go forward basis. Revenues will be lower than expected during the upcoming holiday season as they sell a discretionary product to American consumers- a bad space to be in. Stock could weather the storm ok and come out the other end, but won't be the first one to come back. My 10,000 shares I continue to hold could be sold if I really need the money.
• CREE- if you still have it, sell it.
• PLTG: Should be ok on a go forward basis. Fundamentals improving, and I hope they don't need to raise any more capital. The stock will probably sell down this week on an absence of buyers, but might be worth holding if you're still in it. 

If Congress gets its act together later in the week, it might get interesting. In the interim, I will continue updating everyone on the progress of these companies as a service to shareholders. When the smoke clears, there will be some real bargains.

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