I bought CVBF stocks a couple of weeks ago and first I was wondering whether it was a wrong decision or not as the stock is currently in a downward trend. Although the bank is currently under scrutiny, the fundamentals are still very strong and apparently senior executives are willing to stand by their company and not to jump ship. There hasn’t been a single internal sale of stock since the subpoena, in fact, executives are buying.

Of course, the stock is very bearish , with an RSI at 30, BUT, here’s something interesting, the Short Interest Ratio is 27.7%, which means 27.7% of the daily average volume is shorted. Doesn’t that mean pessimism? Well if the short ratio is 3% or 4%, yes it indicates pessimism, but, if its that high, then it’s highly bullish, and let’s examine why.

Consider the following scenario, the stock goes up slightly, and shorters will have to start buying the stock in order to return it back to the lender. The stock goes up again, and now more investors will have to run for cover and buy the stock in order to limit their losses, and then the stock will go up more, as demand increases. This will create an avalanche that may potentially cause the stock to skyrocket in a few days.

The stock closed at $7.56 on the Friday, and the book price for this stock is $6.33 (the stock is trading slightly above its book price, BIOS, anyone?), the bank is doing very well, and insiders believe in it. What’s there to fear?

VIP, the stock of a Russian telecommunication company with operations covering several countries in the former Soviet Union, had 2.4 times the normal volume on Friday (5.75 million shares changed hands). Not something that may raise an eyebrow, but when you read the news today about a possible merger between Vimptel and Orascom Telecom, you will get a bit skeptical. The stock lately had some unusual volume, and is now bearish from a technical perspective, with an RSI below 35.

Additionally, the stock on Thursday had a large Put volume, which means that someone started taking some action anticipating a drop in price, which means that someone, somewhere knew that there were talks about the merger even before it was public end of the day on Friday. Hmmm…

From what it seems, it doesn’t look like it’s a merger to me, it looks like Vimptel is actually buying Orascom, a heavily indebted Egyptian company by Middle Eastern standards. Orascom has a debt of $4.61 billion and about 88 million subscribers with a very low and shrinking ARPU (ARPU is Average Revenue Per User). Clearly there seems to be a lot of mismanagement when it comes to Orascom, who tried to sell first to South African MTN, but the talks collapsed 2 months ago, maybe because the Algerian government strongly opposed it, or maybe because MTN found out that it was on the sucker end of the deal.

Expect VIP, that closed on Friday at $14.77 (funny name for a stock) to go down at least 3% tomorrow on these news and expect some very heavy volume, the stock will probably go down for the foreseeable future, as this is a very bad deal that will do more harm than good, although the number of subscribers from this “merger” will be 200 million, there’s a lot of debt, competition, and again, the ARPU in the countries where Orascom is operating is consistently shrinking. But who knows, maybe Algeria will block this merger as well?

August 21, 2010 | In: Financial

Having Fun with FAS and FAZ

FAS and FAZ are probably two of the most interesting stocks I’ve seen (but never traded, yet I will definitely trade them as soon as I have some money). They mirror each other (following graphs are for yesterday, courtesy of Yahoo Finance):

FAS is a stock that measures the market sentiment and goes up if it’s bullish (and goes down if it’s bearish), FAS, on the other hand, goes up if it’s bearish (and goes down if it’s bullish).

Having followed these 2 stocks I can tell you that the FAZ is at a very high price right now, while FAS is at a very low price. Buying FAS is an excellent investment, if you don’t believe that the world is going to end in a few weeks. FAS will almost certainly go up next week, it’s easy to notice that it changed the trend during the last few trading hours.

Now how can someone make profit from two stocks that exactly mirror each other?

I would do the following, since FAS is now very low, I would buy 1/3 of my position (of both FAS and FAZ) on Monday morning, buy another 1/3 if it goes down $2, and buy another 1/3 if it goes down another $4, and then wait until it goes up again.

Another scenario is to buy 1/3 of my position on Monday morning, and if it goes up $2, then I’ll sell half my FAS stocks and buy FAZ instead, and if it goes up another $2, I’ll buy more FAZ stocks. I’ll sell all my FAS stocks when it goes up $6 from my original price.

FAS is almost at its yearly low, so it’s a great time to buy.

These 2 stocks are very interesting, and again, I will start experimenting with them once I have sold some of my equities.

Have you ever seen these ads such as:

- Know your IQ?
- Is the actor moving left or right?
- Is the picture moving?

And other dumb tests where if you win, you’ll get the glorious ipad (at one point it was a PS3, WII, iphone, etc…) for free (of course, nobody wins). The thing is you answer the first question, which is about clicking on a image (you can know directly it’s nonsense, as both answers are about clicking on the same image, and the link is always the same, but anyway…), then after you click on the answer on the image, you are redirected to a place where you have to answer 4-5 stupid questions. Now after answering these questions, this where the scam starts:

- You are asked to enter your phone number
- You will receive a PIN on your phone number
- You enter the PIN on the website where you are told in minuscule, unnoticeable, and unreadable letters that you are subscribing to a paid service.
- And there you go, you are now a proud subscriber of a useless service, charging you (even if you are on prepaid) $10/week (or /2 weeks). The service consists of them sending you stupid messages to your phones every week, for example: “The longest distance ever flown by a chicken is 13 meters”. Hmmmm…
- Of course, eventually, you will catch the SCAM, and call them to cancel the service.

This business model is what made Zynga, the maker of addictive and IQ lowering games such as farmville and fishville, valued at 1 billion.

The thing is Mobile companies are acting as a payment gateway, they are the ones charging the customer for this nonsense service, and then paying something between 20% to 50% to the other scammer, depending on the volume. Clearly, the mobile companies are getting the lion’s share out of this, and they shouldn’t pretend like it’s not their fault when customers call them and complain.

I am very open to making money the easy way, but this is just plain stealing. Governments need to step down and regulate this industry that apparently thinks it’s above the law.

First of all, here’s my opinion about the two companies. Intel is a top technology company mainly creating the best, and most sold, processors in the world. It is by far the best in its field, and light years ahead of competition. Now McAfee is a company creating viruses that will infect your PC, and then updating its garbage software to erase those viruses. The anti-virus software that it creates consists of a spyware application that will monitor your PC, and will make it impossible for you to install a lot of applications. Not to mention, of course, that sometimes this anti-virus crashes, and will make your PC unbootable (I’m talking about real life example here). People are duped into thinking that this anti-virus software is the solution, not the problem, and that nuclear proof computer viruses are being created by 15 year olds, sitting in their parents’ basement, and not at the headquarters of an anti-virus company to make you buy the software.

Now that the world knows my opinion about both companies, let’s examine the main reason of why Intel bought McAfee at 60% premium. Apparently Intel wants to embed the software directly on its chips, which for me (someone knowledgeable about both software and hardware) is one of the craziest ideas ever. If they are going to do this, then why not buy Microsoft, and embed their Windows application directly on the chip.

McAfee is a software, and depends on the operating system to run, and there’s a large variety out there, with different service packs. I suspect Intel will just disable the hardware anti-virus feature if the OS is not compatible. But installing a software on the hardware is, in my opinion, a bad idea, as you just can’t get rid of this thing, and whether Intel admits this or not, this will create overhead on the processing power, and may very well lead to crashes. Then again, I’m sure that the Intel people did their homework properly before venturing into this.

Now why would you need another anti-virus if one is now provided in 80% (Intel’s share) of the processors? Most probably you don’t, which is something will kill the competition (I see lawsuits building up, watch up INTC).

Apparently, it’s not only me who’s not convinced with this, most Intel investors aren’t, that’s why INTC dropped 3.22% today. MFE went up almost 60%.

Now this deal created a rumor that Symantec may be targeted next, which caused a trading activity 5 times the normal volume, and the stock ended up closing 6.2% higher, at $13.37. To all the suckers who bought SYMC today: who’s going to buy this company, AMD? I’m sure they’d love to, but seeing how AMD’s market capitalization is worth 40% of that of Symantec’s, I don’t think it’ll be the case. Or maybe Apple? But when was the last time Apple acquired a company (actually forget about it, Steve Jobs will never buy such a company, not in a million years).

Let’s list the suckers, in order of insanity:

- Intel
- People who bought SYMC today and did not sell it today to make a profit
- People who bought MFE in the morning at $47.30
- People who buy McAfee or Symantec anti-virus software, to get rid of the viruses that these companies created in the first place

A quick note to Intel, people hate spyware on their hard disk, and I can assure you they’ll hate it more when it’s on their processor.

August 19, 2010 | In: Opinion

The Market Is Overreacting

The jobless claims increased to 500,000, highest since November, and the DOW is down 150 points (until now). Most investors apparently that we’re all going to die! Not!

It’s odd that nobody thought about the oil spill, and all the mess it created. The oil spill caused large unemployment in several states, but these unemployed people are or will get money from BP, as part of the $20 billion plan to compensate those legitimately damaged. Of course, these same people will also apply for unemployment, so that they can get the best of the 2 worlds, or make that the best of 3 worlds: money from BP, money from the government, and not having to work.

The jobless claims increased by 12,000 from last month. If you think about it, you can see that much more people lost their jobs than 12,000 because of the oil spill, especially those dependent whether directly or indirectly on the tourism in the affected states. Take those people out of the equation, and you’ll see that the numbers are much better. But again, who cares? Buy the rumor, sell the truth: this is the motto of Wall Street nowadays.

3 weeks ago, the SEC charged Citigroup for misleading investors back in 2007 about the bank’s exposure to the subprime mortages. Citigroup agreed to pay $75 million in penalty. SEC felt triumphant, and Citigroup felt relieved.

Apparently an investor felt that the penalty was not sufficient, and that Citigroup should have been charged more, raising some questions about a sweetheart deal between the SEC and Citigroup. The investor’s lawyer apparently found a sympathetic judge, who was more than willing to listen. Now the investor is not the important story here, after all, what he only cares about is fame, glory, and probably a lot of money. What’s really important is that the integrity of the SEC is on the line, and if that integrity proves to be no more, then it may be determined that the SEC should be regulated, in one way or another, creating a precedent that will jeopardize both its autonomy and its independence. Let’s see how this story will unfold.

C, an always bullish stock, was up only 1 cent on a relatively good day, and it went down that cent in after hours. Clearly, the market didn’t like the news a lot (otherwise the stock would have been up at least 5 cents), but also didn’t care (which explains why the stock didn’t go down).

Note: I noticed that there was a very large volume when the stock hit $3.87 at 11:44 today. The stock had a volume of over 20 million shares.

If there is a technology company that relies on revenue by selling obsolete technology, has no vision, loathed by its users, and spending money on useless acquisitions and then selling them for a fraction of the price, it must be AOL. Yet some people still buy it, even George Soros bought it and now he’s selling it.

The stock is selling right now at $22, which looks like a peak to me when you look at the stock movement since its IPO in the beginning of this year. For some reason beyond my comprehension, the stock is bullish on the medium and the long term. What is AOL doing that investors think will add so much value to the company and bring revenue? The stock even went up 7% 2 weeks ago, the day they reported a $1 billion loss. I am clueless…

Let’s look at history and present YHOO, a stock that I will never every buy, and let’s try to analyze the future by examining what’s currently happening at Yahoo.

YHOO was a leader in the NASDAQ crash of 2000, the stocked peaked at $108 on December 31, 2009, and it was only a downward journey afterward. The stock never recovered to even half that price. YHOO’s price was slashed to half to almost $10 during the peak of the crisis in 2008 (it could’ve been much worse but Microsoft was trying to buy Yahoo at that time, so the stock was overvalued), but it never really recovered to a decent level, although most stocks did. Reason: Yahoo is a technology company that is no longer about cutting edge technology. Let us examine Yahoo closer in order to understand:

Yahoo’s revenue model is very similar to Google (online advertising), with some differences:

- Yahoo’s ads are not very relevant to the search term, Google’s ads are highly relevant.
- Yahoo serves contextual ads on only select partner websites, and they have a deterring requirement of having a US SSN. Google is open to partner websites in most important markets, and has hundreds of thousands of partner websites serving Google’s ads.
- Yahoo tries to screw the websites serving its ads, by following the model: We get the dollar, you get the penny. Google pay about 80% of the net revenue to partner websites.

Now let us see why Yahoo is no longer about cutting edge technology:

- Although Google’s failure ratio with new products is high, they still try to do things and improve. Yahoo, on the other hand, they do these subtle changes to their websites (things that people really don’t care about), and that’s it. There is no innovation. Nothing.
- Yahoo’s core search algorithm is probably a decade old (if not older). It doesn’t take account of blogs, tweets, social networks and the need to take into consideration emerging trends.

No wonder why Yahoo’s traffic is literally flat year over year (and it’ll be much worse as of this week as I will explain later):

I am seriously amazed that they were able to maintain their traffic as it was a year ago when their search results are probably second worst only to Bing, which takes us to the future of Yahoo.

Apparently Yahoo struck a deal with Microsoft in 2009 to have their searches powered by Bing (the worst large search engine), and they are now rolling over the changes this week to use Bing (Note: I commented on their post, giving my personal opinion that it was a bad decision, but of course, my comment was not published, they chose to publish that of a spammer’s instead). What will that mean? It means that Yahoo’s search will become worse as it will use the Bing engine, developed by Microsoft, a company that never did and never will understand what good search engines are like. Of course, the quality of search results will affect the perception of Yahoo by loyal visitors who still think that Yahoo is great. At one point, these loyal visitors will start flocking to the much better, and the only alternative: Google. This means that Yahoo will have less visitors, and therefore less impressions, and consequently less revenue.

The market reacted slightly positively today to this very bad news with YHOO up 5 cents. I wonder why. Buyers beware, this move is horrible and will make Yahoo obsolete in a couple of years.

I never ever short stocks, but YHOO seems tempting when it’s overpriced at $14. Just take a look at their technical analysis and RSI.

POT (Potash Corporation) had a volume of 47 million yesterday. And today it might be even higher. Here’s why, a company called BHP, trying to purchase Potash, has made a hostile bid to buy the company at $130/share (or $40 billion). The deal will make BHP the largest fertilizer producer. Of course, Potash doesn’t want to sell at this price, claiming that the company is largely undervalued. Are they playing hard to get, or is it really the case?

Potash is a successful fertilizer and is produced in mines in Saskatchewan (Canada). Fertilizers are increasingly in demand right now because of all the natural catastrophes in the world, especially drought. Additionally, world wealth is increasing, China and India is richer, and so are most developing countries. This means that people will consume more food. More food needs more crops, and more crops need fertilizers.

POT peaked 2 years ago at $230, could we have a similar rally right now? Nothing is certain. Is $230 a fair or exaggerated value? Apparently 2 years ago it was exaggerated, as the stock went down in a few months to almost 25% of that price. But how about now? Well clearly the whole world needs more food at the moment, but a surge to $230 is less likely to happen, until the world economy really picks up.

Now the important question is, where will the stock go in a month from now?

The stock is currently trading at $147, up $4 from yesterday, and $35 from 2 days ago (that’s 32%). BHP’s hostile bid is at $130/share. This means that BHP will have trouble acquiring the company at this price, and it needs to raise the bid. Apparently $160 might be a reasonable offer from Potash’s perspective, but probably not for the market. Further negotiations might lift the price up beyond the $160, which means that the bid has to be probably increased. A vicious circle for BHP if Potash keeps playing the “I’m worth much more than you think” game.

But what will happen if BHP gives up on the stock? Major selloffs will happen, and the stock probably will erase all the gains. And what will happen if BHP maintains its position? One might think that it may end up like PLA (which was on the verge of going private a bit more than a month ago), slowly losing value every day. But Potash is not losing money like Playboy, it’s making money, so it might slowly go up.

Whatever it is, $147 is just too much for an entry point to this stock. If you’re buying now then you’re buying at peak. The stock is trading now at 32 times the earnings, compare that to a bullish and steady stock like AAPL, trading at 20 times its earnings. Consider that in your calculations.