As Ben Bernanke relentlessly pushes the pedal to the metal, ever more unrealistic schemes pop up to take advantage of the resulting euphoria. In a way reminiscent of the dotcom bubble or the 2007 credit bubble, speculative operators gun for a mixture of pumped up stories and massive short squeezes, for the public is receptive and you get to make hay while the sun shines.
The guiding principle
Every one of these stocks will have some kind of incredible story behind them. The story is used to sell the stock and ever more fantastic claims will be made in spite of reality showing little progress. Also common will be the near-vertical charts and high short interest. The near vertical charts are needed because of the intense promotion based on fiction which won't pay out, and the short interest happens both because of the obviousness of the sham, and the fact that part of the promotion relies on squeezing the shorts.
There are a couple of stocks which I've seen recently which clearly seem to fit the bill of what I'm talking about here. These are:
UNXL tells a story of readying a new type of touch sensor technology, based on a fine metallic mesh. Such a sensor would arguably be cheaper and better than the current ITO technology. The story goes that as Windows 8 massively migrates PCs towards touch-enabled devices, a touch sensor technology able to be used in larger-format screens will have huge demand.
The story is realistic. There is even a competitor, Atmel (NASDAQ:ATML) launching the exact same technology - xSense - into the market right now. The problem is that UNXL seemingly can be promoting this technology as it could be promoting any other - its past is filled with broken promises of massive technological advance and large revenues just around the corner, the most notorious of which was TMOS, a new display technology which would supposedly put LCD and OLED to shame. As it stands, UNLX seems like a serial maker of promises it can't keep.
Parametric Sound (PAMT)
Parametric sound promises another near-feasible technology - directed sound. Directed sound is certainly possible, and there's even a quoted company selling such products today: LRAD Corporation (NASDAQ:LRAD). LRAD is selling $14 million of these products per year and is getting a market capitalization of less than $34 million. PAMT, on the other hand, isn't doing even $1 million in revenues, yet is already awarded $138 million in market cap.
There are also three other common features between PAMT and UNXL:
- First, both promise a giant ramp-up at the end of 2013 and into 2014;
- Second, both are investments of MDB Capital;
- And third, both speak about fantastic deals with supposed partners - but don't name them.
There is a reason why the great rivers of wine and honey are said to be flowing by the end of 2013 or 2014, because by then, whoever organizes these pumps will be long gone.
MDB Capital's presence is relevant in that it has a track record of similar pump and dump schemes, in such names as Microvision (NASDAQ:MVIS) or Crossroads Systems (NASDAQ:CRDS). There, too, the "modus operandi" was similar - with MDB Capital taking a stake, hyping the stocks with research and conferences, there being large revenues just around the corner and huge unnamed partners. The end result was that the stocks popped and dropped within months, much like it's likely to happen now with UNXL and PAMT. A more detailed exposé can be found here.
These promotions are similar to another famous episode I uncovered back in 2007/2008, which I will explain next.
Tobin Smith back in 2007/2008
Back in 2007-2008 Tobin Smith was a resident talkhead in Fox News Channel's Bull & Bear feature. In that capacity, as well as through his Changewave Alliance, he had the ability to influence a large number of investors.
- All of them were story stocks, nearly devoid of revenues but all carrying an incredible story of how they were going to revolutionize something;
- All were being promoted by Tobin Smith;
- All were being financed by Cornell Capital Partners.
Not only that, but Tobin Smith then became Chief Investment Officer of Emerge Capital, which turned into Turnaround Partners. And guess what, a significant portion of that company's business came from … Cornell Capital Partners.
So what happened to all these companies? They all went to zero. And, though on a slightly different subject, Cornell Capital Partners, now renamed Yorkville Advisors, ended up being charged by the SEC for wrongdoing regarding its accounting.
Buyer beware the most that can be said in these situations. In every one of them there will be true believers mixed up with paid pumpers. At the same time, shorting these stocks while they still haven't shown weakness is very dangerous, even though the ultimate destiny for many of these pumps is a big round zero as the Tobin Smith promotions from 5 years ago so clearly show.