The IPO market has taken a breather, it has become more difficult for private capital to cash out through the public markets, the technology market has been largely boring (no replacement cycle, hot new product trends, etc.), the ethanol market has taken a dive, the housing market remains ambiguous (consumption high, but producers continue to warn), and there are no large discernible secular trends. Does that mean we are stuck in a sideways market, on the first leg of a major downturn, or basing for a resurgent upturn?

I have always found investing based on broad demographic changes to be difficult, as shorter term exogenous factors, as well as the usual business management factors, can derail the effectiveness of the overall shift. We'll just acknowledge that demographics probably are in PSA's favor, and see if we can make a case for them based on shorter term criteria as well.

There are a couple of things we would anecdotally add to the story, before launching in to the company: First, it is easier today to efficiently get rid of stuff via eBay (EBAY) or Craigslist, but that isn't as true of large items like furniture. But the disincentive to divest isn't always motivated by economics, as opposed to psychology. Storing, as opposed to selling, allows for putting off those psychologically jarring decisions to a later date. Second, there has been some anecdotal discussion of a shift from "large homes" (4000 sq. ft.) to "smaller homes" (2500 sq. ft.). By historic standards, both of those are huge, and both provide ample storage space. But a cluttered 4000 ft. home will not fit in a 2500 sq. ft. space, so retiring or downsizing baby-boomers may help the storage market. On the other hand, a lot of that excess stuff can go to the kids as they get set up, or can be moved to the vacation home. Both of those trends are likely slow moving ones.

Which brings me to two points:

For example, if:

* You buy on the way down, and it keeps going down (should have waited), or
* You sell on the way up and it keeps going up (should have waited), or
* You buy on the way up and it keeps going up (you should have bought earlier), or
* You sell on the way down to stop losses and it turns around, or
* You don't buy at all (opportunity loss), or
* You don't sell at all and hold those losses, or...

You can always view whatever action you take (profitable or not) as poor.

In a word: No!

The theory behind it is that rising interest rates inhibit general economic activity, lowing economic activity across the board, and thus stemming inflation. But economic activity today is pretty much segregated from the oil sector. About 85% of GDP depends on electrical energy, with the remaining 15% dependant on oil/gas.

From 2003-2005 they had aggregate revenue of $1,112M, total operating costs (including interest payments, which are necessary for their leased operations) of $888.8M, and resulting total operating income of $223M. Over that same 3-year time frame, they produced (prospectus, p. 11) 30.477M Boe (combined barrels of oil and barrels of oil equivalents for natural gas production). That gives them about $36/Boe revenue, $29/Boe operating costs, and $7.32/Boe operating income.

Story: Here's a nitty gritty back office play. InnerWorkings (NOT these guys) tag themselves as a "print procurement technology company." Every company has significant printing needs. Most companies satisfy some of that need in-house (e.g. the corner LaserJet), while some is outsourced (e.g. marketing materials or corporate reports, etc.). The outsourced printing market has traditionally been served by local players, and the market is quite distributed. In almost any town you will a printer, and perhaps many.

So the market has existed for many years, satisfied by small or distributed players. More recently, we have seen a lot of increased information efficiency due to the internet (vertical portals and B2B was all the rage in the dot-com blowup). Some of that seems to now be hitting both the printing industry and the public market. We liked VistaPrint (VPRT) for its ability to profitably serve the printing needs of small businesses.

That is likely due to a greater customer purchasing during the Christmas season (when the step up occurs), but the interesting feature is that the increased revenue level persists for the remainder of the following year. That may just be a direct return on the somewhat increased marketing budgets, but it's good regardless of the reason. In short, they are showing nice consistent growth.

* Currently into first 9 months of fiscal 2006.

Story: Credit cards. You surely know who these guys are, and I have little to say about the sector overall -- just that the Japanese barely use them (credit cards), so there is plenty of international growth left even in some industrialized countries, and that the form factor (credit card) may have more options soon (key fobs, cell phones, etc).

Story: Wintegra (WNTG) makes "network access processing semiconductors." Huh? If you are going to get on a network (via WiFi, GSM, WiMax, Ethernet, etc.) some chip somewhere is going to have to do some processing to make that happen. These guys make some of those. As such, they have big competitors (Broadcom, Intel, Cisco, etc.), and their products are almost commodities.

But they have the advantage of being fabless, giving them low overhead, and having pretty good product positioning (WiMax, DSL, 3G chips). We'll let the market tell us whether they are winning or losing.

Story: A reader made me aware of SunOpta (STKL), primarily because of its organic food lines, but also because it has some marginal business in ethanol. 90% of revenue comes from the SunOpta Food Group, 9% of revenue comes from Opta Minerals, and 1% comes from the SunOpta BioProcess Group. That last one is the one exploring cellulosic ethanol.

Organic produce has been a bit of a market darling for a few years now. We'll avoid the politics, the balkanizing turf wars, and the hype, since the only thing we care about here is the market direction for organic produce. The two best known plays on that are Whole Foods (WFMI) and Wild Oats (OATS). WFMI shows a steady smooth stock price increase for many years, until it broke down at the start of this year. OATS has a much choppier history, but generally trades between $10 and $15 until a breakout earlier this year from which it is now pulling back. So, that was a quick-and-dirty way to say that the easy growth in the organic food sector is probably over.

We'll ignore, at our peril, the mineral stuff. The BioProcess group doesn't actually produce ethanol. The main thing that they do is provide the equipment necessary to process any raw materials for downstream ethanol production. The main game here is surface area, so their systems are designed to pulverize, wash, explode, powder, or otherwise process the feedstock for maximum contact with the reagents that will be used for the production of the desired chemicals (ethanol being one possible target). That makes them sort of a picks-and-shovels play on the ethanol industry, although I have no handle whatsoever on how (we suspect very) competitive or balkanized this side (engineering of processors) of the market is. In addition, they don't have to mess with the whole enzyme issue, since they are upstream from that. On the other hand, they are likely to only get one-time, rather than recurring, revenue from each of their ethanol plant installations, since they profit from sales of the plant equipment, not the plant product.

In fermentation, yeast consumes sugar, and produces alcohol (e.g. ethanol) and CO2 as waste products. When making wine, the high concentrations of alcohol eventually kill off the yeast and terminate the fermentation. When making leavened (rising) bread, the consumption of the sugar eventually terminates the fermentation process (where the desired product is the CO2, which makes the bread rise), or it is ended by baking. Table sugar is sucrose, which is a two part (disaccharide) sugar easily cleaved into glucose and fructose. Fructose is one of the most digestible sugar for yeast. Honey, along with a bunch of impurities that give it flavor, is a nearly equal mixture of glucose and fructose derived from the cleavage of sucrose.

Corn is high in starch, which is a polymer (polysaccharide) of glucose, meaning starch is made up of a bunch of glucose molecules linked together. Cellulose - the structural component of green plants - is a slightly different polymer of glucose. Wood contains cellulose as well as lignin and many other non-sugar related compounds. So, to use fermentation to get alcohol, as all ethanol production does, you need to start with some digestible sugar for the yeast. But the raw materials at your disposal (corn starch, cellulose, wood) are not those sugars, but rather polymers of those sugars. Think of the sugars as bricks, and the polymers as walls made of bricks. For the yeast to get at the bricks, you have to break the walls - cleave the polymers into their basic sugar monomer units. One of the basic ways to do that is using enzymes, which are very complicated molecules that have just the right structure to take large, stable molecules and cleave them at just the right place. Think of enzymes as a really smart construction guy with a jackhammer. You don't want to break all the bricks, you just want to separate them. You can do dumb things like run into the wall with a truck (an analogy to acid or base baths, etc), but that will break a lot of the bricks, and leave big sections of the wall intact. If that were good enough, it would already be done (and it is as a precursor step). But it's not good enough for a profitable business (as history proves), so the smart (enzyme) approach is mandatory. But enzymes are complicated (difficult to manufacture), and finicky molecules that demand to be treated right (precise chemical conditions).

Story: They make wire. All kinds of wire.

Company: Why be interested? For one, we were so sick of looking at crap companies with crap financials, that it's just sort of exciting to find a company coming public these days that actually deserves the financial help -- having proven that they have a functioning business model. That is, they've been profitable for 3 years. The sector is boring, but there is a particular little spin on their financials I'm going to highlight that makes them worth a look. Bear with me a minute.

We're not going to bother to find out, since they lost $3.29 a share (page 5) in just the first 9 months of 2005. Nice story -- mold abatement through polymer coatings during new construction -- but atrocious financials.

Story: Not our usual cup of tea (we usually like to have some insight into the growth prospects of a sector), Goodman Global Inc. makes HVAC (heating, ventilation, air conditioning) equipment marketed under the Goodman and Amana brand names.

We generally don't pay too much attention to industrial type companies as they are often slow growth and low margin in competitive industries, but GGL just came public (11Apr06), priced at the upper end of its expected range ($16-$18), and opened up on a very big deal ($423M). So somebody thinks they are worth a look, and because of that we'll do a quick scan of their numbers.

Story: The Human Genome Project began in 1990 with federal funding and took 10 years to map out 1 full human DNA sequence. Toward the latter part of that methodical exercise, Craig Ventnor formed Celera Genomics (CRA) to do the same thing using a 'shot-gun' approach, that instead of progressively, methodically, and accurately reading and transcribing a DNA strand, chopped it up into tiny bits, transcribed as fast as possible those tiny bits, then put them back together in the right order using complex pattern matching algorithms based on Single Nucleotide Pairs [SNP's].

Well, yeah, except for one little niggling bit about them both being completely uncompetitive with coal based on price alone. So there are lots of market manipulations (taxes, 'total environmental impact accounting', etc.) to try and make the 'green' energy sources look price competitive with the 'dirty' sources. But at the same time, there has been 30 years of work (since the 1971 Clean Air Act) to make those 'dirty' sources clean, and those efforts have been enormously successful.

Today, the drivers toward 'clean' energy are not really pollution derived, since almost any energy source can be used today in a relatively pollution-free fashion. They are rather price-based, and more nebulously political. On the political front there is the environmental contingent that is wedded to particular 1970's based ideas (that are seeing a current resurgence), and not wholly disjointed from that movement there is a wider dislike for sending petro-dollars to distasteful foreign regimes. That's the 'energy independence' crowd. Coal dovetails with both those desires.

The last quarterly report they filed was for calendar Q2 2005, pretty outdated, but it will give us something. For the 6 months ending with that quarter they showed $1.1626B in revenue with Y/Y growth of 8%, and $0.2685B coming from "Lens Care" also with 8% Y/Y growth in that segment. The WSJ reports (sub. req.) that so far they have reported about $9M in sales reductions over 3 1/2 years due to accounting errors, and that they typically trade at a P/E of 20, although it is now 13. There have been 30 confirmed eye infections, 26 of which used ReNu, and ReNu was used by 10M Americans.