To OTC Journal Members: 
 

Single Touch (OTC BB: SITO) Still Rocking

Single Touch appears to be headed to $1.70. No if, ands, or buts. The stock is simply rocking right now against a backdrop of a fairly lousy environment for small stocks, and there is some serious institutional accumulation going on here. I'll let the rumor cat out of the bag. 

Here's what's going on. In two recent press releases SITO has alluded to its ESP (Enhanced Service Platform) being adopted by a major US retailer. Their platform is being used primarily to send text messages to the retailer's customers.  Those messages might inform the customer about a special on Coke, or let them know their prescription is ready to be picked up.

As I wrote about 14 months ago, there's been an ongoing pilot program with a few of this retailer's stores- testing the effectiveness and use of the system. Single Touch is a 3rd party provider being offered to the end customer through an alliance with AT&T (NYSE: T).

The stock market has taken an interest in the future of permission based text messaging as both an advertising and value added customer retention tool. SITO appears to have something special going right now. 

Yesterday afternoon SITO disclosed the program has been launched in an additional 1000 retail locations. This piles on to the 1700 retail locations announced last week, and brings the total to 2700 retail stores using the system recently added. As SITO disclosed yesterday, there's now a total of about 3,000 stores using the service, averaging about 300 text messages a day. That's 900,000 text messages daily, or 27 million monthly. 

Here's the rumor that I cannot confirm or deny- the unidentified "Big Box Retailer" is none other than the largest retailer in the world, WalMart (NYSE: WMT). I do know this- I signed up for text messages from WalMart, and they are flowing into my cell phone. #WMT on your phone will get you the same service.

There's a lot of unknowns here- no one is clear about the revenue run rate associated with this new found success or the long term ramifications to this company's performance. Today, all the market knows is the stock is still cheap and there's lots of upside.  As of the last filing, there's 77 million shares I&O- at yesterday's $1.42 close (up from $1.20 last week when I clued you in), the market value is $110 million. 

Technically, there seems to be little doubt the stock wants to regain the $1.70 level. The volume is consistent and accelerating, suggesting institutions can't get enough of this one right now. This surge is not being fueled by individual investors in my view, and likely will have some legs.
 

The China Currency Move: Y (uan) Not?

The Yuan- The RMB as it is shown in SEC filings- Renminbi- all the same thing. It's the China version of the dollar, and the current exchange rate is 6.7976 for $1. The easy way to think of it- $1 equals 7 Yuan or RMBs- same thing.

This past Saturday the Chinese government announced it was preparing to become "more flexible" as it relates to foreign currency exchange- it was going to start allowing the Yuan to be pegged to more currencies outside the dollar, and allow the Yuan to "float" a bit more freely on a global basis.

Since the summer of 2005 the Chinese government has kept the exchange rate of Yuan for dollars static- 6.7976 Yuan gets you $1. Therefore, the Yuan is not truly fixed- it's simply fixed against the dollar, and goes up and down in value with the greenback. 

The market assumes if the Yuan is allowed to float as it did in the summer of 2005, it will go up in value against pretty much all other global currencies including the dollar. The reason? Most governments are printing money these days, creating an excess supply. The Chinese have a budget surplus, and therefore don't have to print money in the form of new debt (see US Treasuries). In the early going yesterday the market loved China's move, but by day's end all the major indexes put it in reverse and backed up, ending a 4 day winning streak for the DOW and S&P.

So, what does all this mean for stocks? For starters- let's look at Chinese Exports. If the dollar loses ground to the Yuan, Chinese exported goods become more expensive to buyers in dollars. Therefore, the market assumes China's exports will struggle a bit more. Hence yesterday's late day sell off in US retailers- the market believes the cost to them for their goods is going up. Towards the end of the day, shares of the biggest retailers- WalMart, Sears, Kmart, and the like all sold off on the assumption their prices will be going up.

Like any species of political animal, the Chinese do nothing that doesn't benefit themselves. The don't buy US Treasuries for the coupon- the buy US Treasuries to help keep one of their biggest customers healthy and indebted to them. So, if the Yuan is allowed to appreciate against other currencies and their exports become less attractive, how does it help them? It helps on the converse side- it makes their imports cheaper. 

Therefore, if the Chinese economy is as "export" focused as many economists believe, this is a strange move. However, suppose the Chinese believe their growth is now stable and being fueled by internal growth? Suppose the Chinese consumer really is the engine of growth for the "future" China? Then, wouldn't it make sense China will need to import infrastructure support type commodities such as oil, copper, steel, etc? If that's the case, then it makes sense for the Chinese to want to lower the cost of imports, making them cheaper to purchase.

And, if the Chinese believe their economy is demonstrating stable, internal growth, then it only makes sense the Chinese economy is becoming less dependent on the "global consumer" to fuel 8% to 10% annual GDP growth, and more dependent on the 1.17 billion potential China consumers who own next to nothing today.

Therefore, yesterday's action in the markets makes sense. WalMart (NYSE: WMT), a company dependent on many goods sold to us from China, was down. Ford (NYSE: F) and Caterpillar (NYSE: CAT) were both up on the day- 2 big exporters to China. The Obama Administration has been pressuring China to move in this direction- why? So we can sell more of our stuff to them.

As a side note- one of the unintended consequences of a strengthening of the Yuan will be a bump in the bottom line earnings of our China based, US listed companies. As with all China stocks, the companies do business in Yuan, then convert to dollars for their filings. The currency conversions will create a little earnings bump, which in my view really doesn't reflect the relative corporate performance. However, it will make temporarily make earnings per share look stronger as it did the last time the Yuan strengthened in the summer of 2005. BTW- in the second half of 2005, China stocks started a 2 year tear- FXI- the large cap China ETF went from $17 to $75 between 2005 and October of '07.

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