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Special
Announcement |
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| Next Wednesday, September 26th,
the
OTC Journal will be publishing a special edition which tells
the story of one man's lifetime struggle with a debilitating disease. He
is now in total remission thanks to a new miracle drug. Next Friday we
will release a new profile which gives our members the first look at this
once-in-a-lifetime investment opportunity!!! It is the type of technology
breakthrough investors dream about. It is a medical miracle causing clinical
remission in a disease that afflicts 7 million Americans and 120 million
people worldwide. Industry experts tell us this drug will generate $1/2
billion a year in high margin sales once approved and in use Internationally.
For microcap investors this is the Superbowl. |
*this could be subject to change
if the market does not stabilize
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Market Comment |
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History never looks like history when you
are living through it. It always looks confusing and messy, and it always
feels uncomfortable.
John W. Gardner in No Easy Victories
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Stocks were crushed all across the
board this week on the heels of the Attack on America. The
markets are trying to return to pre 1998 levels, and many technicians feel
stocks will give up all their gains of the past five years.
Short Sellers have complete control
of the markets and investors are frozen in panic and fear.
Before the Attack on America
the economy seemed to have stabilized, and there were signs that business
could be headed back up. Now there is no question we are going into a recession,
and stocks are being priced for a worst case scenario.
We wish everyone reading our newsletter
could have seen CNBC's "Town Meeting" with Peter Lynch which was
broadcast on Thursday afternoon. Peter Lynch is the legendary former
fund manager of the Fidelity Magellan Fund. He is the author of several
best selling books on investing, and is well known for his common sense
approach.
Mr. Lynch astutely pointed
out that our current recession will likely be short lived as there are
a number of favorable factors as compared to the 1990-91 recession. Here
are some examples:
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In 1990 we had huge budget deficits.
Today we have a budget surplus at both the Federal and State levels.
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In 1990 we had high inflation. Today
inflation is extremely low.
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In 1990 we had high interest rates.
Today interest rates are at the bottom of historical ranges and appear
to be going lower.
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In 1990 we had a low money supply. Today
the FED is pumping money into the system rapidly.
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In the 1990 recession America lost about
2 million jobs. Over the expansion period covering the next 10 years 22
million new jobs were created.
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In 1990 American political factions
were bickering, and then became united behind the President on the heels
of the Gulf War. The same scenario is in place now, and bodes well for
the future.
Mr. Lynch counsels investors
to re-examine the reasons you invested in your stocks in the first place.
He suggests if all the original reasons remain intact continue to hold
your positions and add to them if you have the capital.
He also reminded viewers that most
of his greatest gains were made after three to five year holds. As Peter
Lynch said last Thursday on CNBC- "All You Need is a Few Good
Stocks Every Decade".
The Bright Side: As
we go lower stocks reach levels where the rebounds will be prolific. As
consumers return to the malls and restaurants, and travelers get back on
airplanes the tide will turn in the market and it will be open season on
trading profits for buyers.
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Is
Time On Your Side? |
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Nothing has changed except the price
at any of the four companies the OTC Journal is covering in 2001.
None are airlines, insurance companies, retail chains, or restaurants.
None have suffered any significant corporate set backs as a result of the
Attack on America. Therefore, if you are a disciple of Peter
Lynch, all of these stocks should be held through this market bloodbath
unless you need the money.
If you losing sleep over the money
you have invested in these stocks you shouldn't be in them in the first
place. We feature small companies which are high risk, and high return.
If you don't need the money today
time is on your side. Time gives you a competitive advantage. We might
have to wait three to six months for the market climate to improve. However,
the OTC Journal will continue to bring you timely information on
all of our featured companies to help you evaluate the merits of continuing
to hold or possibly adding to your positions at more favorable prices.
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Lee
Iacocca- A Man For Troubled Times |
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While there is no incident in history
to compare to the recent Attack on America, there are some
historical comparisons for investors who seek opportunity in chaos.
Let's take a look back at 1979. It
was near the end of the Carter Administration, one of the least noteworthy
Presidencies in modern history. Conditions were as follows:
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Inflation was rampant and out of control.
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Gasoline prices went through the roof
and many metropolitan areas had lengthy lines at gas stations due to severe
fuel shortages.
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Government deficit spending was at record
levels.
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Interest Rates were the highest in history-
the Prime Rate was 19%, and AAA rated tax free muni bonds were yielding
12%.
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The money supply was near zero as the
FED was doing everything possible to bring inflation under control.
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The ecomony was in terrible shape.
Chrysler Corporation was on the verge
of bankruptcy. The company had failed to evolve its product line from gas
guzzlers to the fuel efficient vehicles which were in demand at the time,
and sales had fallen dramatically.
On the same day Chrysler announced
its worst quarterly loss in history, Chrysler also announced it hired Lido
Anthony (Lee) Iacocca as its new president. The son of an Italian immigrant,
Iacocca
was well known for having invented the concept of car purchase financing
in 1956 at Ford Motor Company. In 1964 Iacocca headed the team at Ford
that developed the Mustang.
Iacocca had risen to President
of Ford and was fired in 1979 as his ideas were considered too radical
by Ford chairman Henry Ford II. Ford would live to regret the decision.
Iacocca inherited a mess at
Chrysler, but he had a plan. In a well publicized move Iacocca reduced
his personal salary to $1 per year, and instead took a huge number
of stock options which were out of the money at the time. All other high
level executives took large pay cuts. Costs were reduced across the board,
and Iacocca convinced the unions to freeze new demands.
He then went to a highly skeptical
Congress and asked for capital to bail out the company. After a legendary
and impassioned speech, Iacocca convinced Congress that a Chrysler
bankruptcy would cost the country $2.75 billion in unemployment benefits.
Congress agreed to loan the company $1.5 billion if Chrysler could raise
another $2 billion on its own. Iacocca got his money.
Under Lee Iacocca's leadership,
Chrysler staged a dramatic turn around on the strength of the fuel efficient
K cars. One year later the company made a small profit, and in 1984 Chrysler
Corporation announced record profits of $2.4 billion. Chrysler paid back
all its loans seven years ahead of schedule.
Moreover, investors who had
the courage to step up with the US Government and bet on Lee Iacocca were
richly rewarded. Split adjusted, Chrysler stock traded to a low of about
$.78 in December of 1981. In May of 1983, a mere 18 months later, the stock
hit $8- Over 800%
return in just 18 months if you had the courage to buy when things were
at their worst!!
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The
Moral of the Story |
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There are two important lessons we
would like everyone to take from this story.
First- The leaders
of American industry can produce extraordinary results when government,
labor, and management all team up with a common purpose. When confronted
with adversity, American industry can overcome great obstacles.
Second- The airline
industry is facing the same kind of financial ruin Chrysler faced in 1979,
but for much different reasons. This group was healthy before circumstances
beyond their control through flushed their cash flow down the toilet. The
Government is going to step up and help this group.
We are not suggesting you go out
and buy stock in every airline. However, when the smoke clears and business
returns to normal these will be healthy companies once again, and someone
is going to make money betting on the turn around.
Never underestimate the power of
highly motivated Americans when they are backed by their government.
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