Pink Sheets

They're selling the Wyoming Pine Tree-Reno Creek property for $30 million, or over 40 cents per share. That's roughly what the stock has been trading for. This changes their situation fairly dramatically on the other properties like Roca Honda. If the stock doesn't jump on Tuesday, I'd be surprised.

Stumbled into these two stocks while scanning the market...

China Education Alliance (CEU, chart)
It seems they made it to the NYSE. But then again, so did ACLN.
I dumped it all in Oct 2007 at $1.15 for fear of a fraud. It was the right thing to do. CXTI turned out to be a fraud. I'm happy to see they're still going and selling for $4.55.

So CEU announced Q2 results recently.
They're reporting 13 cents diluted vs 7 cents last year. Reporting revenue increases of 82%.

Conference call on their website. Maybe I'll look at it again up close, but there's a lot of stuff closer that's selling cheap.

Table Trac (TBTC) Here's a summary. It was 70 cents when I looked at it back in 2005. It's $1.75 now (they were over $4). They're late with the latest 10-Q. They have net cash, 36% net margins, looks like weak cash flow, very high customer concentration that varies year to year. Made a big loan to a customer. Based on a quick look at the 10-K also, I think I was right about this one.

American River Bankshares (AMRB)
FDIC #24655

summary

FDIC doesn't have Q2 up yet. Mar 31, 2009
比較 all US bank holding companies $500M to $1B
Heavily into commercial real estate (probably bad right now)
All past due looks pretty good
5.57% interest income vs 5.15%
1.01% interest exp vs 1.86%
net int income 4.56% vs 3.29%
slightly higher provision
low non-interest income
0.93% income vs 0.32% (of total assets)
higher chargeoffs
5.05% net interest margin (vs 3.60%)
0.93% ROA (vs 0.32%)
9.08% ROE
50.76% efficiency
Core capital: 8.36% vs 8.96%
Tier 1 captial: 10.55% vs 11.51%
Total risk-based capital: 11.80% vs 12.78%
$558 million ave assets

Set the wayback machine to June 2005
Seems pretty sane vs peer group

10-Q for 6/30/09
5.8 million shares on Aug 12, 2009
Lost 12 cents/sh, kept 14 cent dividend
Gained 10 cents for 6 months.
382K options outstanding ($17.19 strike, 7y)
$81 million commitments
Wow, 5.16% of total loans are non-accruing and/or 90 days late
The amount of non-performing loans jumped from 6.2 million in Dec to $21 million in June. 12 additional loans and leases.
Recoveries have been negligible.
Deposits increased by $12.6 million.
Off balance sheet stuff: credit commitments, letters of credit only. No derivatives. $72 million down from $80 million
+200basis points increase in rates would supposedly cause $323K hit.

I'd guess it's worth $15.

...the little things.

As I stated in a comment in the previous entry, I still own the same stocks and I'm still watching them. I still worry about CFRI's survival. They have been quiet for quite a while. Cameco has done well since I bought it, but then so has Strathmore, so at this point, there wasn't much difference in whether I had switched or not (I still own some Strathmore and Fission). NICK is doing well. So is CVU.

Getting back to the title above, I've been pretty clear for a long time that I saw trouble coming, but I had no idea how bad it would be. I bet against Fannie Mae, but three years too soon. In hindsight, we had a stock market bubble that peaked somewhere between 1998 and 2000 depending on what stocks you cared about. Starting in the late 1990s, everyone was amazed at how the Fed was able to dump enormous amounts of dollars into the global system without causing inflation. They could throttle the economy without any negative consequences, no? When the stock market bubble burst, they pumped dollars into the system to soften the blow and we got a housing bubble that slowly started to burst in 2005. Now, to fix that problem, they've been dumping an insane amount of dollars into the system. This won't end well.

Over the decades, I've seen lots of fear mongering over the levels of debt and I never really took them very seriously. The numbers now are bad, even the optimistic numbers. Not only is the US Government needing to borrow a massive amount of money, but it is taking a vast array of actions that have the effect of dampening the economy's future growth, killing it's ability to pay off the borrowing later. The dumb farmer eats his seed corn. The insane farmer also uses salt as fertilizer.

A while back I noticed the ominous sign of China warning the US against fiscal irresponsibility. China is currently our nation's banker. We also have a gigantic Social Security trust fund which, instead of money, has a big pile of IOUs, sort of like the suitcase in the movie Dumb and Dumber for pretty much the same reason. China has been slowly stepping up its rhetoric and their actions. They are not just making noise.

Today we see that they're planning to dump their dollar denominated IOUs and start buying big chunks of the US. They'd be crazy to just sit around and wait for the US to inflate its way out of debt. So I guess they're going to start the ball rolling.

That particular news item, just like the earlier shot across the bow, didn't get a whole lot of attention. The really big things are often like that. People don't realize how big they are until they look back after the fact and convince themselves they knew it was important. Go back and read the New York Times' account of the first Wright Brothers flight at Kitty Hawk. It was a below-the-fold minor story.

In the 1970s, people made up a new word, stagflation, to represent a phenomenon they had never seen before. Today they talk about a return of stagflation. I doubt it. The conditions today are like nothing we've ever seen before. The result will be the same, although I had no idea how it will turn out.

In the meantime, I continue to own the same stocks. I'm taking whatever actions I can to try to prepare for the future, but it's basically nothing fancy, just common sense.

Looking back at 2008, even Warren Buffett said he'd never seen anything like what he was seeing in his entire adult life. I think we're basically looking at a hundred year event right now and I don't think anyone can predict the outcome with any precision. I seem to recall Nassim Nicholas Taleb, author of The Black Swan, saying that this was not a Black Swan event, that it's a normal, infrequent type of occurance. A lot of people have been predicting something like this for many years. After a while, they just blended in with the other perpetual bears. I had expected the subprime garbage to cause a certain amount of limited damage; I mentioned it several times on this blog over the years regarding investing in NICK. But I had absolutely no idea things would get as bad as what appears will happen.

First it was the large bank bailouts, but now it appears lots of big entities are in bad financial condition, including government entities at all levels (local, state, federal), pension plans look horrendously underfunded. Some of that is the flip side of how they looked great when the market was happy. We have the possibility of an anti-business government biting the hand that feeds it (and feeds everyone else) just like in the 1930s. This seems like a longshot, but who knows? I think if stocks go up this year, it will be unlikely, as people will be worried about the government harming their re-growing 401Ks. And I think Obama is good at measuring sentiment rather than crusading for some fixed ideology.

It makes sense to see Buffett bullish on US stocks now, but you'll notice that he was still waiting for the market to get/stay worse before jumping in with both feet with his personal money. There's a lot of stuff cheap out there, but there's also a lot of stuff that's going to fail in this climate. I think the big gainers going forward are going to be the solid companies that have been tossed into the garbage pile. Behind that will be the solid companies that have not been tossed into the garbage pile.

But I think there's a lot of bad stuff that needs to play out in the future. I tend to think we're going to see big parts of the economy look like the Titanic. Things that seemed rock solid are going to sink. But it won't be everything. The US economy and big parts of the global economy are very powerful, productive engines that are flexible (especially in the US as long as we don't regulate ourselves into being like Europe) and better than they've ever been in history. The economy can handle enormous amounts of stupidity and waste and still plow ahead. Regardless of bailouts, the garbage is going to eventually flop.

It's funny that everyone is horrified that consumer spending is dropping when the big fear of the past was that people were overspending and not saving. Consumer spending should drop. That's a good thing.

I've been putting as much cash into the market as I can, but like most other people, I need to keep a significant amount aside due to the uncertainties of things now. It's clear to me that things I've personally done "right" are now extremely beneficial: having almost no debt [and having high credit ratings], keeping a solid cash flow, living a cheap lifestyle, not getting caught up in the real estate frenzy whatsoever, and focusing over the decades on solidly marketable skills. In areas where I've been "out on a limb", I've gotten hit badly: owning some stocks that relied too heavily on things going right in the future instead of cash flow now. A lot of that was chasing after high returns in a time when too many things were overpriced. Once again, Buffett was right.

I've sold most of my Strathmore Minerals and Fission Energy stock and shifted what's left of the money into Cameco. There's no question that Cameco will not have the sorts of gains that Strathmore and Fission might have going forward, so it spells a huge permanent loss. Strathmore needs to raise a lot of money going forward and in this climate it's not clear if they can do it, although Hathor and another junior have been able to raise cash. In hindsight I would have been better off waiting until yesterday to bail, but I can't predict the market in the short term.

My view on uranium in the long term hasn't changed. Everything that David Miller at Strathmore has been saying over the years has been happening: demand continues to grow (for a variety of reasons all over the world), established miners have had constant problems getting uranium out of the ground due to 20+ years of neglect, and the hundreds of uranium companies that sprouted up are falling by the wayside.

I believe that the current economic situation favors the big established players in the uranium industry. [It's not clear to me whether Strathmore can pull itself into that category.]

I've also been slowly selling shares of Conforce International (CFRI). One reason for not posting anything here for a long time is that I wanted to give myself time to slowly unload CFRI and I'll probably keep selling more. At this point, I think their success is a crapshoot. At least they have a source of cash flow.

I've been looking at several companies that I had looked at over the years (but not posting anything here). I seriously considered investing in POSCO when they dropped down below $50, I even considered Berkshire Hathaway when they dropped a lot for a while there (the "A" shares were below $80,000). I consider the price of Berkshire to be a reasonable measure of the sanity of the market. When Berkshire drops a lot, it's a reasonable indicator that the market is not sane. In this climate, Berkshire's value goes up, not down, especially with Buffett in charge.

Given how bad the market performed last year, it wouldn't surprise me to see a big gain this year. It also wouldn't surprise me to see a big drop. Who knows?

Investor shows up at the front door of Conforce. Warren Buffett did this at GEICO when he was a kid.

UPDATE Jan 29, 2008:
It's great to see that Conforce finally got an actual order for $1 million, possibly extending to $4 million. That's huge.

Yesterday the price of just about every uranium stock dropped like a rock. Lots and lots of double digit percentages. The only relevant news would be the potential Western Australia win by the Liberal (which in the US would be considered conservative) party which prefers to lift the ban on uranium mining. I don't see this impacting the short term, obviously, and I don't think has that much impact on the long term, especially given how low the market caps of the solid uranium miners are at this point. Long term demand is increasing fast and shows every sign of even accelerating beyond that, over time. A lot of babies are being tossed out with the bathwater.

As much as I don't agree with charting people, they do keep good records of what happened. Merv's Daily Commentary has the gory details.

The Merv’s Daily Uranium Index closed lower by 19.24 points or 9.85%. The AVERAGE decline of an Index component stock was 10.54%. There were a few winners, 3 of them. Losers were running wild and numbered 44 for the most that I can remember since starting this commentary. Three stocks went nowhere but in this market one might call them winners. The best winner of the three was Uranium Power with a gain of 3.0% while the worst of the losers was Tournigan Energy with a loss of 36.4%, that’s in one day. Another not so nice statistic is the fact that 50% of the Index component stocks were double digit losers.

I've been buying more Strathmore Minerals lately and I expect to buy more if the price continues down.

I've been forwarding articles about the industry and Strathmore in particular to someone understandably nervous about the price of the stock. Basically, if you go back and look, everything that has played out in the industry and with Strathmore in particular has been exactly as Strathmore has predicted. Nothing has gone otherwise. A year ago, they were saying that nearly all of these uranium companies which sprung up like mushrooms (I don't think they used that term) are going to disappear. I think the market sees this now and it's abandoning all uranium stocks.

Meanwhile the price of uranium has been remarkably stable in the mid sixties price range ($80 long term). Having a higher long term price demonstrates, as one uranium insider said somewhere, that utilities are willing to pay more for long term supply because they believe prices will/may be going up. That's a 24% premium.