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AquaResearch
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I'm a full time trader, investor and researcher. I'm a Financial Management graduate and I live in Brazil. My reports and comments published on Seeking Alpha should not be taken as investment advice, they are for research and informational purposes.
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  • Why PacWest Equities Inc Stock Is Ready To Collapse

    As a stock trader one of the biggest lessons I learned about stock prices is that parabolic moves are to be sold into not bought. Human nature though is hard to overcome, when things are going parabolic our "instincts" tell us to buy, we fool ourselves that we will buy and sell it quickly and walk out with a quick profit(The so called greater fool theory). The issue is, once we have that profit its very tempting to continue to hold but the fact is that corrections from parabolic moves are usually vicious, fast. This is specially true in OTC stocks where instant fills are extremely hard to get specially during a panic

    The company is trading at about $1.92 pre-split with a market cap of about $1 billion dollars

    Infitialis and Michael Goode has both provided very solid fundamental reasons on why OTC:PWEI (OTC:PWEID) stock is almost completely worthless

    seekingalpha.com/article/927251-pacwest-...

    seekingalpha.com/article/982611-15-more-...

    I won't expand on that front because they did a great job. I don't even believe most shareholders care about the fundamentals of the company anyway. You have to understand that mindset of a OTC promo buyer "investor", this is all about a greater fool game specially when the stock has had a long period of increases. People are in just for another 10-20-30%, there don't care that the stock is completely worthless and the company has no real business. All one has to do is check places like IHub and see what kind of financial IQ most investors in the company have(Hint: Its not very high)

    What they do care though is that the momentum game continues and they can get out at a profit before everyone else sells, this is the whole game here, selling before the other people sell. I'm going to present evidence on why PWEID is now close to reaching the point where everybody will head for the exit at the same time. Lets check some of the most successful stock promotions of all time and which price action lead to their collapse

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    One thing you can notice is that when prices goes parabolic this is usually a good time to sell NOT to buy, this is specially true when a stock promotion has been going on for longer than 1 month. At some point both the promoters and "investors" will want to take profits which leads to a cascade of sellers. What is also noticeable is that slow and steady price action can be followed by huge declines, this type of price action leads to complacency from investors who just buying counting on their "sure" gains till one day things reverse and everybody heads to the exit at the same time. PWEID has only has 1 decline in all its history(And it was a huge one). Volatility expansion is also a sign that the peak is near

    Lets look at PWEID action and see what can be inferred

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    Chart is adjusted for the split. You can notice that the stock had a long period of slow and steady action then went parabolic after the stock split on monday(When the stock rose about 40%), this is VERY worrying price action, specially when combined with yesterdays decline, that was the second decline ever for the stock and the first in a long-time. As people start to think the stock is headed for a correction, we could see an avalanche of sellers. Contrary to what the promoters say this stock is NOT heavily shorted because it is in Reg SHO, its very hard to get a borrow and short it, as a result once it collapses you won't have short covering rallies to any meaningful degree

    This promotion has been running now for about a month, successful promos don't usually run for much longer than that. You can check old promos and see that after 1 month most of the gains have been realized and the stock faces a large wave of selling at some point

    Furthermore the market cap of the stock is now over $1 Billion dollars(Once you factor in shares outstanding plus issued for acquisitions), this is probably the highest market cap for a pump and dump scheme of all time. High market caps act as resistance for the stock since it permits stock promoters and insiders of the company to sell worthless stock and realize a very large profit

    Conclusion:

    PWEID now has gone parabolic and its volatility has expanded, judging by how this type of price action has been met with selling(Usually large and quick selling) most of PWEID gains look like they have been realized. The greater fool game is now coming to a point where the people will actually have to face the fact that virtually everybody knows that this company is fundamentally worthless and they will all try to sell at the same time, whether they will be able to is another question but history has not been kind to this type of speculative game. The complacency of investors due to the slow and steady action combined with large quick gains will only feed into the selling because that kind of action draws a lot of people into playing the momentum game but at some point everybody will try to realize their gains and the stock won't have enough short sellers and true fundamental investors to bid for the stock once it collapses. The correction is likely to be vicious and large

    We rate the stock a strong sell

    Disclosure: I am short OTC:PWEI.

    Tags: PWEID
    Nov 09 6:35 AM | Link | Comment!
  • This Might Be Why People Are So Nervous To Lend To OSG

    OSG stock is tanking on liquidity fears over the last few days. Put buying has been rampant. Looking at the company's website you can see the fleet that they own and understand what is going on

    http://www.osg.com/index.cfm?pageid=20

    If you check that excel file you will see that the avg age of their ships is 5 years(2007), their main ships VLCC and MR have an avg age of 2003 and 2006 respectively(For fully owned ships, 2002 and 2006 for all VLCC and MR ships fully owned or not). Prices of tankers have been declining for years

    This blog offers a chart for up to end of 2011

    http://pragcap.com/shipping-is-a-leading-deflationary-indicator

    This site has a chart of VLCC ship prices

    http://cottonclubdc.org/documents/pdf/gg12.pdf

    You can see that the bread and butter of OSG, VLCC and Handysize(NYSE:MR) have tumbled a lot over the last few years. And in 2012 prices have declined further. Do not be mislead by $1.5B in equity shows in its balance sheet, those numbers reflect accounting rules that allow the company to mark ships at cost and not have to update them(Until sale)

    If you apply a generous decline of 35% in value to OSG fleet, and decrease that from the Property Plant and Equipment item on the balance sheet(Which seem compromised mostly by ships), OSG equity would decline by $1B. They would have $500M in equity against $2.6B in liabilities and 35% is a generous mark, prices of tankers are down more than that. They are currently losing money and have generated some operating cashflow over the past few quarters, however they are expected to lose cash from operations going forward(It seems that they generated cash by getting payments upfront and faster then normal, but cashflows should converge to earnings overtime as the payment cycle evens out)

    This might be just the reason why they are having a hard time raising money. They are very close to insolvency in a market to market basis. This could be why the company is so reluctant to sell more ships. The interest rate required to finance their operations going forward, even if secured, could make their business unprofitable even after the tide turns for them. This on top of issues regarding covenants which management has not been entirely transparent about. They even refused to discuss liquidity issues in the last conference call.

    Because of those factors we rate the stock a sell and have a short position in the stock

    Disclosure: I am short OSG.

    Oct 17 11:28 AM | Link | 2 Comments
  • PVTA: A Massively Inflated PinkSheets Stock That Is Selling A Dream

    How much would you pay for a company with $0 tangible assets $0 revenues that is listed in the Pink sheet markets(That is home to a whole host of frauds and pump and dump schemes)?

    If you ask the shareholders of PVTA the answer is $250M(Per Yahoo and Google but its actually $300M, check their latest 10Q). Preventia describes their business model as

    Preventia, Inc., a cognitive learning and development company, builds software tools for enhancing occupational and brain health and performance. It is developing a series of computer-based exercises for adults and children to improve working memory capacity. The company was founded in 2010 and is based in Toronto, Canada.

    They never made a dime in their whole history and have also back in July engaged in a number of stock promoters for a promotion involving their ticker symbol(Always a red flag). It worked, their shares went from 20 cents to almost 80 cents. Currently they trade at 68 cents

    This is straight from their 10Q

    "For the three months ended June 30, 2012, we did not generate any revenues. We had amortization expenses of $0, bad debt expenses of $0, bank service charges of $0, consulting expenses of $0, accounting expenses of $4,000, office expenses of $0, legal and professional expenses of $7,437, and rent expenses of $0. As a result, we had total operating expenses of $11,437. We had interest expense of $0, resulting in net loss of $11,437 for the three months ended June 30, 2012."

    That's for a company with a $300 million market cap

    They took advantage of their inflated market cap and started to engage a bank Madison Street Capital to initiate a equity offering. They recently announced they are going to raise $10M from Magna group. We don't expect them to stop there, why even try to run a successful business when you can just tap in a clearly overvalued market cap and keep the cash around(to pay salaries and bonuses)

    The vast majority of companies listed in the pk and OTC markets do not succeed. At current prices the upside to the stock has already been delivered, if the management doesn't create an amazing business without dilution pretty soon, shareholders will be stuck with that downside

    Think of the following possibilities

    The company is a fraud - Stock is worth $0

    The company has a real business plan but it fails - Stock is worth $0

    The company has a real business plan, succeeds but dilutes shareholders in the process(Remember they have very little assets and will need cash to operate) - Stock is worth perhaps 10 cents

    The company has a real business plan and succeeds without dilution - Stock MIGHT be fairly valued, there won't be much upside from here since its NOT easy to create a billion dollar company. MAYBE the stock can go higher but as said previously that vast majority of pink sheet companies do not succeed

    At current prices shares of PVTA are massively inflated likely due support from stock promoters, the company has no assets, no cash and is basically selling a dream to investors(Who will get shares at prices and terms public investors will never get) so they can use the cash to try to justify the market cap

    We expect more equity offerings and insider selling to act as resistance to the stock leaving all the downside to shareholders. It is just too tempting for the management to cash in a $300M market cap. There are a lot of insiders that got in at less than 1 cent a share back in 2011

    "On June 16, 2011, the Company issued 1,253,000 common shares (post split) at a price of $0.25 per share, for gross proceeds of $156,625, through a private placement. The Company paid $9,500 in offering costs in connection with this private placement."

    They did a 40-1 split in 2012 so 0.25 is less than 1 cent per share. Insiders are sitting on a huge profit and we expect them to cash in on that

    We are short PVTA and plan to add to our position

    Oct 02 4:10 PM | Link | Comment!
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