A tale of two Canadian stocks - RVX.TO & LAC.TO

Resverlogix (RVX.TO) is a development stage biotech and Lithium Americas (LAC.TO) is a junior lithium mining company.  At first glance you might think the two have absolutely nothing in common, but dig a little deeper and I can see some definite similarities.

I view both of them as miners.  LAC is the more obvious, seeking to mine lithium to meet exploding demand at a time of limited supply.  Resverlogix is also mining, but in a more metaphorical sense. This development stage Canadian biotech is ''mining'' for a treatment of cardio vascular disease (CVD) for patients with diseases like diabetes.  

I engaged in a little trading today (Thursday Aug 25, 2016), taking some profits on LAC with some of the proceeds being used to increase my position in RVX.  Both (sic) of my regular readers are well aware of my favourite bromide, ''you'll never go broke taking profits''.  I sometimes need to remind myself of that when I'm sitting on significant gains, which was the case with my LAC holdings.  I didn't sell out my entire position, a little over one third.

I still like Lithium Americas, a lot.  But the junior lithium mining space has become very crowded with a number of recent entries engaging in heavy promotion to attract investment.  LAC has seen its PPS falter meanwhile after spending a few weeks over $1.00 in June and July.  

Meanwhile there are a few newly minted Lithium juniors making jumps despite a lack of feasibility studies, construction permits or partnerships with established players.  But that's life with high risk speculative penny stocks.  The dust will settle and there will be big winners and big losers.  Many will find the stock that they saw being touted by an email blast or from a flashy ad that showed up on a sidebar....that it wasn't the pot of gold they thought it was.

SQM has been getting some press of late, and given the 50/50 joint venture they have with LAC I still like the chances for their Argentinian mine to enter production and for LAC to really catch fire. But it could be a while before that happens, and there are always risks....it might not happen at all. So taking some profits made sense to me.

Resverlogix is another matter,  I view RVX as being incredibly undervalued right now.  And there have been some recent developments that have caused me to raise an eyebrow.  The first thing that caught my attention was the cancellation of the Annual General Meeting (AGM) which was slated for Oct. 5th.  The cancellation was announced without a PR, instead a filing on SEDAR was issued.

There has been nothing further from the company, however some message board participants have reported receiving word from the company that the AGM has been rescheduled, but that the details are not going to be released until the agenda is finalized.  I take message board chatter with a big grain of salt and sent a message to the company myself yesterday that hasn't yet been answered, I sent another today.

Then today at 1:05 PM I saw some trading activity that caught my eye.  A firm by the name of AltaCorp engaged in 14 trades by my count on the buy side.  I tabulated it at 10,500 shares with the buys starting at $1.20 and ending at $1.24.  I'd never seen or heard of this AltaCorp before and it turns out, like Resverlogix itself, they are based in Alberta....hence the Alta part of their name I assume, a common short form for Alberta.

In looking over AltaCorp's website in the about section, I didn't find anything about them providing brokerage services to individual investors,  They seem more focused on the investment banking side with M&A and equity financing type activities.  The sudden appearance of AltaCorp on the day's reported trading along with the cancelled AGM led me to speculate that maybe something was and is brewing.  

That combined with a check of the chart pushed me to take some profits on LAC and to use some of the proceeds to increase my RVX position.

Its all mining in my view, whether its to find lithium or an effective treatment for Diabetes patients....here's hoping they both strike pay dirt.  

Resverlogix Cancels Annual General Meeting

On Monday August 22nd 2016 a ''Notice of the meeting and record date (amended) - English'' was filed with SEDAR by Computershare acting as agent for Resverlogix.

This notice advises that the Annual General Meeting that was slated to take place on October 5th 2016 in Calgary has been cancelled.  Here is a cut and paste:

To: All Canadian Securities Regulatory Authorities 
Subject: RESVERLOGIX CORP. 

Dear Sir/Madam: 

We advise of the following with respect to the upcoming Meeting of Security Holders for the subject Issuer: 

Meeting Type : Annual General and Special Meeting 

Record Date for Notice of Meeting : August 22, 2016-CANCELLED 

Record Date for Voting (if applicable) : August 22, 2016-CANCELLED 

Beneficial Ownership Determination Date : August 22, 2016-CANCELLED 

Meeting Date : October 05, 2016-CANCELLED 

Meeting Location (if available) : Calgary, 

AB Issuer sending proxy related materials directly to NOBO:  No 

Issuer paying for delivery to OBO: No 

Notice and Access (NAA) Requirements: 
NAA for Beneficial Holders Yes 

Beneficial Holders Stratification Criteria: Not Applicable 

NAA for Registered Holders No 

Voting Security Details: 

Description                          CUSIP Number           ISIN 
COMMON SHARES               76128M108                 CA76128M1086

Sincerely, 
Computershare 
Agent for RESVERLOGIX CORP.

SEDAR stands for ''System for Electronic Document Analysis and Retrieval''.  I have at times likened it to EDGAR.  Canada has a very convoluted regulatory make up consisting of Security Commissions in every province and territory.  As such SEDAR can serve as a repository for investors conducting research as well as for regulators.  

When seeking out annual and quarterly filings like U.S. 10Qs, 10Ks or 8Ks, SEDAR basically fulfills the same function for Canadian companies.

As to why the AGM was cancelled, I have absolutely zero idea.  Yes I have some idle speculation, but it is just that. Some social media participants have posted information saying the AGM is merely being postponed as per phone conversations with the company...but that is not something I am relying on.

The last news put out was on August 11, 2016 reporting that the company had received a positive recommendation from the Data Safety Monitoring Board overseeing the phase III BETonMACE trial. 

Lithium - A bubble within a bubble?

Okay, first things first.  All you Lithium bulls, pumpers and shills.....relax.  If you're hell bent on reading this little blog piece then take a chill pill.  Grab a beer or a glass of wine and try not to get worked up.  

Yes I am going to express the opinion that Lithium right now is bubbling, but don't worry.  This is a teeny tiny obscure little blog, I'm not on CNBC or ABC Nightly News or anything like that.  

Think of the market as being a hurricane, with the winds and rain representing the torrent of news and information available.  Within that hurricane I'm a guy with a squirt gun, and not a big one, not one of those super soaker thingies.  All I have is a one of those little hand held water shooters, the kind with four little finger slots that allow you to hide it from the teacher in the palm of your hand.

Bubble markets are funny things....those who suggest a bubble when prices are still percolating, they're usually attacked as being idiotic morons who don't have a clue.  Watch Peter Schiff get attacked for expressing the view that the United States was heading for a huge correction in the housing market and a massive recession back in 2006.  

The guy saying Schiff is out to lunch....to me he sounds like the guys who hype speculative stocks, supremely confident and as it often turns out...supremely wrong.  Those who listened to Schiff and acted accordingly were in in the pink.  But I bet most listened to the permabull instead.  He was strong forceful and confident, telling people what they wanted to hear....and that's what the sheep love.

So why do I think Lithium is a bubble?  And what do I mean by a bubble within a bubble?  Of course I will explain.

Markets are all about supply and demand, that's obvious.  And with Lithium demand exploding there is a supply constraint currently, however I don't expect that constraint to last.  While it does however Lithium prices will continue to be robust.   But I do expect supply to catch up to demand and for prices to fall sometime within the next two to three years.  

The reason I think prices will fall is because of the second bubble, the explosion in Jr Lithium miners bringing new supply to the market.  Some like Orocobre have already started producing, with Galaxy slated to be shipping within perhaps mere weeks.  Others like Neometals, Nemaska and Lithium Americas are getting close.

Now, some will suggest that with Tesla and other car manufacturers jumping into the EV space...that these companies will buy every gram of Lithium that comes on stream now and for at least a decade or more. I however disagree.  

That's what American housing bulls were saying in 2006, that "this time its different"....demand will not abate. Everyone needs a place to live, immigration and tightening supply will drive prices higher and higher they said...and they were wrong.

That's the pumper narrative with any and all bubbles "this is different".  Those who profit from the bubble want the party to go on forever, and some probably even believe it, that the music will never stop playing.  

Do note that I see the music continuing for another 24 months or so, and that there will be winners. The big 3 incumbants: Sociedad Quimica y Minera S.A.  Albermarle, and FMC Corp as well as newer producers like Orocobre and Galaxy.  Of course with those big 3, Lithium is but a small component of diversified businesses, so they probably will not perform as well as some smaller "pure play" miners.  But with that being said, they also won't correct as severely as the smaller players when the bubble inevitably bursts in my opinion.  

Those companies that are able to bring Lithium to market before supply explodes should also do well I believe.  Juniors able to start selling Lithium before the supply crunch ends will probably do better than existing producers over the next couple of years I believe.  

There will be losers too of course.  Those companies that came late to the party, that were too busy buying an outfit and getting their hair done....they'll show up just as the excitement wears down.  I'm talking about companies that are currently touting their "Lithium Projects" but who don't have things like resource estimates, feasability studies, building or mining permits.  These late comers have a huge game of catch up to play, and even if they succeed in bringing a mine or mines to production, the supply crunch fueling the Lithium pricing bubble I perceive currently...I expect it will have largely disappeared by the time they start delivering product, if they even get that far.

Comments are welcome....however they are screened before being posted.  All I ask is for a mature respectful tone, and if you have an opinion express it as such....not as fact.  I have expressed my opinion on what is coming in the next couple of years for the Lithium space, but it is just opinion and it could be wrong.  

Momo Inc. - Another hyped up China stock?

I always have my ear to the ground for hyped up stocks, and Momo Inc (Nasdaq MOMO) is the latest to pop up on my radar.  

It caught my attention in the usual way, being touted by one of those outfits that sends out email blasts.  Quite often shops that pump stocks via email, they churn through them pretty quick....claiming to be a swing trading or momentum group.  Still they hype the fundamentals and often give the impression that the companies they're touting, that they're solid long term investments.

When it comes to the markets I think its important for individuals to decide whether they want to focus on trading or investing.  For those looking to invest I would suggest that greater caution is needed, with a deeper look at fundamental performance and valutations.  Traders conversely should focus more on price volume movements and the technical picture, worrying less about a company's long term prospects for success or failure.  

After all, any stock can catch fire....and often its those grossly overvalued companies, or those with less than stellar fundamentals, that make the biggest short term gains.  Players with a long term investment perspective often storm into a stock excited about future "potential" focusing on things like revenue growth, while ignoring things like current valuation and expenses.  Newbie investors see a stock climbing and think it will keep on going.

You're not limited however, you don't have to be either a short term swing trader or someone with a buy and hold strategy, you can do both. You can decide that some stocks are worthy as long term holds, while viewing others as trading vehicles.  But I would argue that if you're looking at a stock as a trading vehicle, that it helps to have others who "drink the Kool-Ade" and believe in the long term prospects.  

So what about MOMO?

Momo Inc is a Chinese based company, and I've seen the market fall in love with Chinese stocks before. LEJU and MOBI spring immediately to mind.  Both made substantial gains and then collapsed. 

According to WSJ.com MOMO has 143.7 million shares outstanding and a market cap of over $3 billion USD.  The PE ratio on that site is reported at an eye popping 195.61 based on EPS for the trailing 12 months of $0.08 cents.

Momo is a Chinese social networking company, and if you haven't heard of it that shouldn't come as a surprise.  That's because Communist China doesn't allow social networking sites like Facebook and Twitter.  In fact the entire Chinese market can almost be equated to an intranet as opposed to the world wide internet.  I've heard the Chinese net referred to as a lagoon off the greater internet ocean. Still its a massive lagoon with close to 1 billion users, more than double the entire U.S. population.

Here's a link to an article which lists the "Top 10 Chinese Social Media Sites":

http://linkfluence.com/en/2016/02/08/top-10-chinese-social-media-sites/

Interestingly, Momo Inc is not on it.

Doing a google search of top social media companies and platforms in China I don't find Momo Inc anywhere.  The big player, one that I had already heard of and seen videos about, is WeChat which seems to combine Face Book, Twitter, Instagram, E-commerce and more all into one app.  

Of course if you're simply looking to flip a stock based on momentum, swinging in and out on the tips and dips, then none of the fundamentals really matter.  Excepting of course that those looking to dump on the highs need others buying and when those highs are achieved.  

Looking at the chart there have been plenty of chances as MOMO has swung wildly since in began trading in late in 2015, fluctuating between $19 on the high end and $7.50 to the down side.  As I often repeat though, its a zero sum game. Those looking to trade shares for money on the highs need others willing to trade their cash for shares.

For those interested in the social networking space in the Chinese Market I would suggest a look at Tencent Holdings Inc. the owner of WeChat and China's most valuable tech company as per a report on CNBC this past week.  Tencent trades in the US on the OTC foreign exchange with the symbol TCTZF. 

http://www.cnbc.com/2016/08/17/tencent-overtakes-alibaba-as-chinas-most-valuable-tech-company-as-wechat-owner-posts-strong-results.html

When it comes to riding momentum and swinging in and out of a stocks its almost like that children's game "hot potato" where a potato on spoon is passed around while music plays.  The kid left holding the potato when the music stops loses and is kicked out of the game.  With stocks those that buy the highs before the promotional music stops and the bottom falls out...they don't get kicked out of the game until they've gone broke.  

It would seem to me that those holding a hot potato with a PE ratio nearing 200, that they might just be looking to pass it along before the music stops playing.  That might explain all the buzz and chatter for MOMO on stock boards and social media sites.

It doesn't make sense to start pounding the table and ringing the dinner bell for buyers unless you're looking to sell.  

Disclosure:  I have no position in any of the stocks mentioned here although I might look to go long on TCTZF.  

Resverlogix - Short interest climbs for a 5th consecutive period

Canadian stocks listed on the TSX and TSX Venture report short interest twice per month, once on the 15th  and again on the last day, with the number being disseminated three days later.

On May 31st 2016 short interest for RVX was reported at a mere 1,500 shares....basically nothing. With each subsequent update the number has climbed slightly: First to 23,200 then 27,000...then 30,633....and then 33,500 shares.  The number is now reported at 43,400 up to August 15th 2016.

43,400 isn't a big number, only 0.04% of the 105.2 million outstanding shares...hardly worth worrying about.  Of note however is that Yahoo Finance shows average daily volume over the past 3 months as just 17,612....so 43,400 represents over 2 days of trading on the TSX for RVX.

Why there would be any short selling of a company in a Phase III trial for patients with Diabetes Mellitus, one that's trading for less than $1 US, is beyond me.  But it is a question worth considering in my opinion.

Short selling is generally considered to be a "bet" that a stock is going to fall in price.  Shares are borrowed and sold, with the goal being to buy them back at a lower price, with the short seller pocketing the difference.  The best case scenario for a short seller is if a stock goes to $0.00, which means 100% profit.

For the sake of argument we'll say that all 43,400 shares that have been shorted...that they were sold for $1 US by one individual.  That would mean that in the best case scenario the short seller could make a profit of a whopping $43,400 USD less brokerage fees if Reservlogix were to go to $0.00

Given the risks with shorting, why even bother?  While a stock can't fall below $0, theoretically there is no limit to how high it can go.  Being long I consider it very positive that short interest is so low. If around 10 million shares were shorted...or more, that would be a red flag for me.

I would consider it very possible that maybe those selling RVX short, that maybe they know something I do not.  But .004% is almost meaningless.

It may simply be that Market Maker Broker Dealers haven't had shares to sell when buy orders have come in, and it could suggest that RVX is tightly held.  It could also be there are bullish longs trying to accumulate who are selling a small number of shares short in an effort to keep a lid on the PPS and to test the patience of retail shareholders in my opinion.

The last news RVX put out was on August 11th after the Data Safety Monitoring Board (DSMB) gave the company a positive recommendation for the continuation of the phase III BETonMACE trial, the goal of which is to prove that Apabetalone will positively impact the occurrence of Major Adverse Cardiac Events in Diabetic patients.

The DSMB reported no safety or efficacy concerns.

http://finance.yahoo.com/news/resverlogix-announces-positive-recommendation-data-110000475.html  

Going forward there are some events coming up:  

• Aug 27 to 31 European Society of Cardiology Congress
• Sept 11 to 13 Rodman & Renshaw
• Sept 12 to 16 European Association for the Study of Diabetes (EASD) 
• Sept 13 to 15 Biopharm America

In my opinion though, the biggest potential catalyst will come from the futility analysis for the BETonMACE trial.  The trial is events based and will be completed when 250 Major Adverse Cardiac Events occur.  In this trial MACE is defined as stroke, heart attack or death.  The futility analysis is due at the halfway point, 125 events.  

If the futility analysis is positive and the trial continues, then in my opinion there is real potential for an explosive move in the PPS from current levels.  Of course as a shareholder my opinions should be considered extremely biased....in fact I added a small number of shares to my existing position today.

Good luck

Resverlogix - Grossly undervalued in my opinion, if they succeed....

My most recent post was about story stocks and "The Emperor's New Clothes".  Basically I wrote that any company with negative earnings and little to no revenues....that they're clothed in rags, and that Investor Relations types endeavour to create the impression that these rags are in fact a gorgeous outfit worthy of attention and investment.  

The "story" is what these companies wear in the absence of solid financials, and if the promotion works a company's PPS can soar if investors see a spectacular outfit instead of dirty cheap threads. But ultimately and long term, a story can only do so much. Eventually the chickens come home to roost and to deliver long term shareholder value the story has to come true.

Resverlogix has a story, but its not being promoted far and wide.  You won't see cheesy podcasts with the CEO being interviewed by someone with scripted questions.  Of course current shareholders, especially retail investors, they want news and information, and the company has been very forthcoming in keeping those who've risked capital in the loop.  

Here's a video the company put out itself and uploaded to their own YouTube channel:

Currently Resverlogix has a market cap of about $130 million CDN or about $100 million USD.  Is that a fair value?  In my view its a mug's game trying to assign a valuation to a company that is highly speculative, $100 million, $25 million....$250 million, $2 billion....pick a number.  

Resverlogix is attempting to prove that its drug Apabetalone can reduce the occurrence of Major Adverse Cardiac Events, or MACE, in patients with a form of Diabetes called Dibates Mellitus.  The company is currently engaged in a phase III trial the goal of which is to prove just that.  Beyond Diabetes there are also other diseases which Apabetalone may be able to address such as Alzheimers, Cardio Vascular disease and Thrombosis.  With our aging population  the number of people suffering from diseases such as these is only going to increase. 

Why do I think trying to assign a market valuation is a "mug's game"?  

As a point of comparison I would suggest looking at Esperion Therapeutics, (ESPR on Nasdaq). Esperion is engaged in the development of, among other things, the treatment of patients suffering from Cardio Vascular Disease and with elevated levels of bad cholesterol or LDL.  Its not a perfect comparison but I think its close, especially considering both companies are development stage.

Shares of ESPR went on a wild ride in 2015, going from less than $20 for most of 2014 to over $100 by the summer of 2015.  With about 22.5 million shares outstanding at the time, at $100 per share ESPR's market capitalization climbed to over $2.2 billion.  Currently shares have been trading in the range of $10 to $11 over the past couple of months with the MC falling all the way down to about $250 million USD.

How did a development stage company go on such a wild ride and attain such an incredible market cap?  I would argue they had a really good story about lowering bad cholesterol and told it well at events like conferences sponsored by investment firms.  They had good top line results in phase II studies and investors got excited over the potential market and the share price was pushed higher and higher accordingly.  

Why did it all fall apart and come crashing down so hard?  To be perfectly candid I don't know, I suspect that the excitement wore off, ESPR is advancing in its efforts to combat Cardio Vascular Disease (CVD) by trying to reduce LDL.  But CVD trials take a long time and are probably among the most expensive treatments to pursue.  It may be that investors simply lost patience.  

I do think that if Esperion succeeds that a MC in the billions is not unreasonable, I feel the same with with Resverlogix.  In terms of Resverlogix I'm glad to see them targeting a disease like Diabetes Mellitus instead of CVD given the time and cost associated with conducting trials for Cardio Vascular indications. 

Success or failure though is the ultimate litmus test.  Investor roadshows and conferences can do a lot to raise a company's profile and also its share price, but as the ESPR roller coaster ride shows, share appreciation can be fleeting.  

Here's hoping both companies achieve ultimate success, that neither will need IR tailors to convince the great unwashed that the clothes these companies are wearing are in fact worthy of attention  

Story stocks and the Emperor's new clothes....

If you'e unfamiliar with the fable "The Emperor's New Clothes" its an old tale about an Emperor who engages a couple of new tailors who promise to outfit him in the most exquisite outfit imaginable. 

They tell the monarch that the fabrics they are using will be totally invisible to those who are not fit to be in their positions, that or totally stupid.  Of course there is no fabric, but when they pantomime dressing the Emperor in his new outfit he praises the skill of the tailors and the beauty of the rainment because he doesn't want anyone to think he is unfit for the position of Emperor.  Likewise his ministers, advisers and other members of the court, they too praise the outfit, falling over each other to describe how incredible it is.  

Word spreads throughut the kingdom that anyone unable to see the Emperor's wonderful new clothes, that they will be judged unfit for the position they hold.  And so the King leaves the palace and marches among his people with everyone applauding and cheering, until a young boy proclaims that the Emperor is naked.

Sometimes I feel like that young boy.

With public companies there are those that are clothed wonderfully with profits and dividends that get distributed to shareholders.  Others are not so well attired, but they perhaps have robust revenues and its just that expenses are greater than what is coming in.  Bring expenses down or increase revenues sufficiently and they too will get an upgrade in their wardrobes.  

And some companies have nothing.  Little or no revenue and zero profits, only losses.  All they have on are the rags of an accumulated deficit.  But they have a story, a wonderful story.  It might be a miracle drug that's going to cure cancer or some other disease, or a potential mine that will overflow with precious metals, or a new technology or application which will revolutionize the world or at least an industry, a new clothing line, an incredible new beverage....the list is almost endless.

And some will succeed.  Some will develop that drug, or that mine, or that killer application....but many more will fail.  

In my opinion the fable about the Emperor's New Clothes comes into play when there's an abundance of:  Promotion, News and Hype.  When too much effort is employed to make shareholders and prospective investors believe that the Emperor is wearing the most exquisite outfit imaginable, its time to be cynical.  If social media pundits attack anyone who doesn't declare the outfit to be the finest they've ever seen, calling them stupid or unfit to be investing in public companies....My advice would be to run.

There are lots of Investor Relations Rumpelstiltskins out there trying to spin worthless straw into gold so be careful and suspicious.  And pull out a book of old children's fables like those by Aesop and Hans Christian Anderson, you might find some lessons that still apply today.

Are shares of Lithium X Energy "Jumping the Shark"? (LIX.V - LIXXF)

For those unfamiliar with the term "Jumping The Shark" it comes from a TV show called "Happy Days" that aired between 1974 and 1984.  Even if you're under 40 you've probably at least heard of it.

The most popular character on the show was 'The Fonz', a tough guy mechanic with a soft heart and a way with the ladies.  All he had to do was snap his fingers and girls came running.  When he wanted to play a song on the Juke Box he just gave it a rap with a closed fist.  Here's a YouTube video which shows why Fonzie was so cool:

Happy Days was a top rated show.  The most watched episode involved the Fonz jumping garbage cans with his motorcycle.  Nothing lasts forever and after a few seasons ratings started falling.  So the producers decided to try the same ploy again, but instead of jumping garbage cans with his motorcycle, this time Fonzie jumped a shark on waterskis while on vacation in California.

While the show got a temporary boost it didn't last.  Ratings continued falling and the show was eventually cancelled.  And from that time forward the term "Jumping The Shark" has come to signify a last ditch effort that ultimately fails.

So why do I ask if Lithium X Energy is "Jumping The Shark"?

I have started getting email blasts from "The Outsider Club" that are touting an investment in Lithium X (LIX.V or LIXXF OTC).  The author is Nick Hodge and here's what it says about Lithium X at the end of the latest email:  

• It’s gone up several thousand percent in the past six months. And I think it can do it again. It’s putting a project into production in South America, owns the largest lithium land package in Nevada, and has the best management and board I can find in the space.
• It also still trades with a tiny market cap of $100 million.
• If you’d like to see my full report on the lithium sector, what to avoid, and all the details on my tiny top pick… just click this link.
• Call it like you see it,                                                                                                                Nick Hodge

Call it like I see it?  Okay....I will.

Firstly LIX is not up several thousand percent in the past 6 months, that's a falsehood right off the bat Mr. Hodge.  Lithium X put out a PR announcing the commencement of trading of LIX on the Canadian Venture Exchange on November 30th 2015.  The stock initially raised at 15 cents and opened at double that, 30 cents.

For those lucky enough to get in on the initial 15 cent raise that equals an eye popping gain of over 1,300% by my calculations...That's incredible, so why overstate things? It did not go up "several thousand percent"???   Right off the bat that might be enough to send potential investors running if Mr. Hodge's email is their first introduction to this company.  Who would listen to a guy so lacking in basic math skills.

And secondly, while its great to say it could go up several percent more....responsible market professionals do not ignore the risks, and the fact is that LIX investors buying at current levels could also lose some or all of their investment.  I'm not saying LIX will fall signficcantly, merely that it could.

Then there's the bit about putting a project "into production" in South America.  Uhm, not exactly. As per a Press Release put out by the company on July 20th, the company doesn't even have construction permits for pilot ponding facilities.  In fact investors are still waiting for an updated resource estimate on that proposed mine.  Production, if it comes, is still years away.

I don't want to go on too much about email blasting stock promotional outfits, they are what they are. If you're sufficiently intrigued you can research this Outsider Group outfit yourself and see if you can find some penny stock they promoted that actually went on to deliver long term shareholder value....If you do leave a comment, I haven't been able to find one yet.  

That's not to say companies promoted by Outsider Club haven't gone on wild rides.

Stellar Biotechnologies is probably as good an example as any of the penny stocks this Outsider Group has promoted.  SBOT saw its PPS pumped up to a split adjusted (a 1:10 consolidation)  $20+ per share from just $2 - $5 and now its back down under $3....that's 20-50 cents pumped to $2+ adjusting for the reverse split.

Besides, there are other promotional efforts being employed to attract investors to risk money on LIX.V or LIXXF OTC.  Oilprice.com is also playing up the Tesla angle, suggesting that the nascent electric car company is scrambling to lock up as much of the Lithium supply as possible.

Whether its oilprice.com or outsiderclub or any other promotional outfit I strongly suggest reading the disclaimer statements, usually there's a link at the very bottom of the web page.

Now regular readers (the huge multitude of devoted Avoid The Bag fans, both of them) know that I view some promotion as being part and parcel of development stage companies, it comes with the territory.  Cash strapped prospective businesses need to raise capital to execute a business plan. There are a number of options of course, they can raise money privately, attempt to secure bank loans or seek out so called "Angel Investors".

And then of course there's the public markets, and it can be hard for a small company long on dreams but short on capital to get noticed.  So some promotion is to be expected.  

So do I think Lithium X is "jumping the shark"?  I do.

Beyond the promotional effort and email blasting Lithium X is also popping up on Google Ads on a lot of sites I visit.  I assume its because of all the searching for stories on both investing and Lithium that I do. The ads take you Lithium X's website and a recent Press Release. 

For me its that old line about a market needing buyers and sellers  The stock market is ultimately a zero sum game, buyers get shares and sellers get cash.  When I see a lot of activity designed to entice people to buy shares I have to ask myself who the sellers are....and if maybe they're the smart ones.

Call it the canary in the coal mine, or the shoeshine boy analogy.  When I start seeing a stock getting promoted and profiled almost EVERYWHERE....my Spidey Sense starts tingling.  JFK's father Joe was lucky to get out the stock market before the big crash....When asked about it later he claimed he knew it was time to cash out when a kid shining his shoes started suggesting to buy certain stocks.  

Do note though....I'm using the present tense with the verb "jumping".  I do believe that there is likely some more upside from current levels for shares of Lithium X Energy.  As with the shark jump on Happy Days, there was a ratings boost that came from putting Fonzie on water-skis and sending him through the air with Jaws waiting if he failed.  

It would have been easier to write something like this after waiting to see if LIX.V - LIXXF trades significantly lower in the coming weeks and months.  Then I could have said...."back then, in the summer....that's when shares of Lithium X "jumped" the shark"....but that's boring and too easy. Trying to predict what's coming is more fun.

Ultimately and longer term I think somewhere around $2.50 to $3.00 will prove to be a high water mark as dilution in my opinion will play a big part in weighing down the share price. 

Longer term though, based on their properties and management experience....I do actually think they have a chance to make a go of things.  In another two or three years, 2018/2019 if they are able to clear the many hurdles they'll undoubtedly face.....then I think they could bring a working mine or mines into actual production.  In the interim though I expect shares of Lithium X whether traded on the Canadian Venture or in the U.S. OTC....in my opinion its going to be a roller coaster ride. 

And if the company does bring a working mine to production, then I think those who've been buying LIX.V (CDN) for $2+ currently, that they might end up being lucky to just break even.  

Good luck

Ziopharm - What happens when the excitement wears off?

I have been following Ziopharm since March of 2015 when it popped onto a lot of radar screens. After paying the MD Anderson Cancer Center $50 million in stock for a partnership agreement (and another $7.5 million to expedite the deal) the ZIOP symbol started showing up all over message boards and social media sites where public companies are discussed.

We all know what happened of course, after getting up near $15 in 2015 shares of ZIOP cratered, recently trading for less than $5.  That is until today.

The company released its 10Q yesterday (after market close Aug 9th) and conducted a conference call, the transcript for which is available on Seeking Alpha HERE.  Pre-market activity likely got some excited in my opinion, as the PPS climbed back over $5.  Shares traded as high as $5.30 before the open, and when the bell rang at 9:30 the climb continued.  ZIOP quickly jumped as high as $5.48 for a gain over over 12% from the previous day's close of $4.86

Whether you're invested in ZIOP or not (either long or short) this type of activity is instructive I believe.  When companies are burning cash and selling forward looking promise excitement is almost a commodity in of itself.  And Ziopharm has a long history of generating excitement, in tandem with a massive accumulated deficit that is now over $600 million and growing.

Overall ZIOP finished the day in positive territory, closing at $5.14, after retreating from that $5.48 inter-day high.

Retail investors have a reputation for being focused on price, to the exclusion of almost everything else.  If someone shows up on CNBC and starts screaming BUY BUY BUY for a stock, and if it starts climbing....typical retail players get excited and don't even worry about who is selling or why.  

Conference Calls are a great way to drum up buyers, especially with purely speculative money burning companies relying on forward looking promise to attract investors in my opinion. 

I'm not suggesting there weren't solid positives on the CC, there were.  There's some pre-clinical initiatives which I assume will be with mice, and that's good news for the rodent world.  And the company seems to be progressing with its phase I safety trial which clinicaltrials.gov shows as having a "study completion date" of December 2018, or about one year after the company projects its financial resources will run out.

On the financial side there was very little said, but that is something I expect with speculative companies seeking financing.  A Conference Call is about stressing the positives, so I wasn't suprised to see very little discussion of something so mundane and depressing as raising capital.  According to the transcript of the call this is what was said:

"We have cash, we have a cash runway through essentially the end of 2017..." (emphasis mine)

So all in all, at least in the short term, there's plenty to be excited about.  Obviously going forward they're going to be needing to raise cash, but that's in the actual 10Q filing and a lot of retailers can't be bothered to read it I bet.

We shall see what happens if and when the excitement that gave the share price this little bump wears off.  Or was there enough to sustain it for a while?  Like when they made the Anderson announcement at JP Morgan's Healthcare conference.  Personally I don't think so, but that is opinion....an opinion based partly on the lack of significant analyst participation.  

Companies like JUNO and KITE are getting analysts from the JP Morgans, Citibanks, and Goldman Sachs of the street.  Both Juno and Kite had over 10 analysts on their recent calls including those big boys.  Ziopharm on the other hand only had two, from Raymond James and Griffin, which in my view don't have near the profile and reach of the analysts covering the CAR T leaders.  

Lithium Americas - Short Interest Continues to Climb....

Short interest for Lithium Americas isn't huge by any stretch, up to July 31st 2016 its only 1.42% of the total outstanding, or 4,254,140 shares.  Still that represents an increase of 691,631 from the last update of July 15th when the total was 3,562,509 shares.

I sometimes refer to short selling as "artificial dilution".  There are just shy of 299.5 million shares of LAC that have been issued, current up to July 31st.  However there are another 4,254,140 on top of those 299.5 million shares sitting in people's brokerage accounts, because some people have bought shares that don't physically exist.

I want to be perfectly clear on one point here.  I am not one of those commentators who is going to tout a possible short squeeze as a reason for being bullish and to encourage others to buy shares of Lithium Americas.  Why?  Quite simply because short sellers are frequently right, not always, but they have a very good batting average.  Better than longs in my opinion, that's why Hedge Funds are the whales of 'The Street'.   

I do not view short players as evil or "out to destroy shareholder value" as you often see on message boards and investor forums.  For me they are an essential part of the game.  Bears do two vital things, they provide for an orderly market and they improve liquidity. Without short selling the volatility in the markets would be insane, and buyers might find it difficult to locate willing sellers.

Thankfully, (for me) as noted at the beginning, the short position in Lithium Americas is small.  If it were in and around 10% of the OS count or higher, then I would have to reevaluate my position.  But at less than 2% of the total, I view it as noteworthy but not something to worry too much about.

Why noteworthy?

To short any stock a bear needs to have a big bank roll because of margin requirements.  And to short a stock like LAC, (trading at less than one Northern Peso or only about 72 US pennies) not only does a player need deep pockets but also cajones made of near 100% cast iron.

Short interest for LAC has been climbing steadily for months.  Back on March 31st it was just 769,200 shares.  By May 31st it had climbed to over 1.9 million and now it sits at over 4.2 million. And during this time LAC has gone from around 50 cents a share at the end of March to 96 cents currently...nearly doubling.

Bears must be hurting.  

But remember, for a long player holding a stock that has dropped...a paper loss isn't a capital loss until the shares are sold.  And for a short seller a loss on a rising stock isn't a capital loss until the position is covered, or bought back.

Many longs, if they buy 10,000 shares of a stock at a dollar....and if they see it drop to 75 cents, they'll buy another 10,000 to lower their average cost to .875.....And if the price drops further to 50 cents they'll buy another 10,000 shares to  bring their average cost down to 75 cents.  Of course that's just an example but you get the idea, its called averaging down.  If someone is convinced that a company will be a long term winner, and assuming he or she has the capacity to do it....averaging down can be great strategy if the company being invested in succeeds.

Bears can do the same thing, just in reverse.  

Someone who shorted 500,000 shares of LAC at 50 cents, could short another 500,000 at 75 cents and another 500,000 at $1.00.  Now our notional bear would be short a total of 1.5 million shares of LAC at an average selling price of 75 cents.  Those sales would have netted Mr. Bear $1,125,000 but if forced to buy them back at a buck, they would cost him $1.5 million for a loss of $375,000 plus brokerage fees.  But it isn't a loss until he either chooses or is forced to cover.  If he can ride out the rising share price, and if the company he's short on ultimately fails....then he can still be a big winner.

See what I mean about short sellers needing to have deep pockets?  Margin requirements for shorting a penny stock like LAC can be huge.  Yes it trades on Canada's big board TSX and not the riskier Venture, and yes they have the JV with SQM and are a holding in the only Lithium ETF, but its still a penny stock.  And shorting a penny stock can mean margin requirements of as much as 100%.

Let me put that in perspective for you.

Using the previous example of someone who's short 1.5 million shares of LAC at an average selling price of 75 cents CDN.  That means the short seller netted $1,125,000 from the sales.  But if LAC is trading for $1.00 CDN a broker can require the short seller to have $3,000,000 on deposit in a margin account, $1.5 million for the current share value plus an additional 100% on top.  And if LAC climbs to $1.25 then the amount of money in the margin account would have to go up another 25% to $3,750,000 in total....and so it goes.  

Now, it could be that there are long players looking to accumulate LAC who have used short selling as a means to "shake the tree".  Retail investors are notoriously price sensitive, so seeing LAC drop from $1.10 down to 90-95 cents, its reasonable to expect that some likely decided to sell.

But there are many commentators out there who are calling the overall Jr Lithium mining space a bubble.  I do not consider it unreasonable to expect that there might just be a Hedge Fund out there, and maybe more than one, that have decided to play Lithium Americas to the short side.

Canadian Hedge Funds are smaller than their American cousins, but still sources like the Financial Post report many with $100 million or more in assets, and a few with over $1 billion.  Those are very deep pockets.  And if LAC does start moving higher again they may just be able to ride it out in hopes that the longer term bubble thesis proves accurate.   

There are a number of expected events that could drive buy side interest in the coming weeks and months:

• Project update for the Argentinian mine
• An updated Feasibility Study (FS) with more current Li prices
• Updates on the Nevada property
• The start of construction at Cauchari-Olaroz

Anyway we'll see how it all plays out.  I'm a shareholder here so my opinions are not without bias. And with that being said I still consider the risks here to be substantial, with a very real possibility for losses from current levels.  And should the PPS take off causing a Hedge Fund to find its survival threatened?  I won't cry, I don't dislike short players....they're part of the game, and I'm sure they don't cry when retail investors lose money.

Iceberg orders - Why you can't always trust L-II

You've probably heard of an ancient Chinese book called "The Art of War" written by Sun Tzu in the 5th century.  Although  it was designed to explain military strategy its also very popular as a text for how to succeed in the business world.  

A key principle in the book is about deception, here is what it says:

All warfare is based on deception. Hence, when we are able to attack, we must seem unable; when using our forces, we must appear inactive; when we are near, we must make the enemy believe we are far away; when far away, we must make him believe we are near. 

Many view the public markets as a war, a battle between longs and short...dah bulls versus the bears. I also view it as a David and Goliath struggle pitting small retailers against big industry players. A war between the lunch bucket crowd logged into discount brokerage accounts on one side, pitted against an army of market professionals.  And unlike the Biblical account where David slays the giant, in the market game its the Goliaths that usually win.

And one reason they're able to win in my opinion?  Deception.

When a retail player logs in with their discount broker and places a limit order, either a buy or a sell...BING, it pops up on the order book and can be seen on L-II.  Maybe you've checked it yourself. You decide to place a buy order for my favorite fictional stock, ABC which show 10 lots on the bid at $2.00 and 10 lots on the ask for $2.10.  You put in a bid for 10 lots at $2.05 and...BING...you see your 10 lot order pop up on Level II as the highest bid.  

When a Goliath puts an order in however, he has some other options, one of which is an "iceberg" order.

What is an iceberg order?  With a real iceberg floating in the ocean, you can only see a small potion of the ice, most of it is hidden below the water line.  With an iceberg order a large player can have 10 lots showing at the bid at say $2.00, but another 1,000 lots on the bid at the same price, but hidden from view.  

Why would someone want to hide their interest in buying?  Pretty simple and obvious.  The big player doesn't want everyone knowing that they have major interest in a stock.  After all, if the big buyer thinks $2.00 is a good price for ABC and everyone sees a massive order for 1,000 lots (that's 100,0000 shares) on Level II, then those selling might think...."Damn, maybe something is coming, maybe I should hold on...or maybe even buy some more".  

And the same thing works when selling.  Rather than "advertise" that he wants to dump 100,000 shares after ABC has climbed to $10, instead the iceberg is used on the sell side, with only 10 lots showing and the rest hidden.  

If you pay attention to message boards for a stock that's getting a big run you've probably seen messages like:  "Only 10 lots available at $10, once those get taken out this is gonna fly"!!!  It happens all the time....usually in tandem with some bullish news combined with promotion and lots of hype.  

The game is deceptive, but also necessary I would argue, otherwise there wouldn't be fortunes to be made, and of course it follows.....fortunes to be lost.  Its a zero sum game and not everyone can win, some will get shares while others get cash.  And knowing about the deceptive games is still only half the battle, there are so many traps designed to ensnare the naive and greedy that no retailer no matter how good can win all the time.....just try to win more often than you lose and don't be shy about taking profits in my opinion.  

And that goes double when you're dealing with shares in a company that is losing money currently but promising big things down the road.....all too often the road stretches out forever and is littered with freshly printed shares.

Good luck.