Ziopharm - No short squeeze and no buyout

I have been accused of being obsessed with Ziopharm, and there is certainly some merit to that opinion.  I have a passion for the stock market in general, and right now Ziopharm is an ongoing fixation that's lasted a little over a year.  

Before ZIOP those who follow me on stocktwits' (where I post as growacet) will remember that it was MOBI that occupied my bearish attention, being a stock I viewed as a hyped up pump job.  

Both MOBI and Ziopharm came onto my radar the same way, from an email blasting chop shop. This outfit has hyped a number of stocks, LEJU, SBOT and CLDN spring immediately to mind on top of the aforementioned MOBI and ZIOP.  

Touted as investments, citing forward looking promise....but you can check the charts to see how well they did as long term holds.  CLDN was pumped by this shop in early 2015, but don't look for it now, it doesn't exist.  After a 1:15 reverse split it merged with a company called Eiger Biopharmaceuticals.  

Puke, frankly this type of promotion turns my stomach.  

I had a friend named Dave.  I use the past tense because Dave (not his real name) isn't around anymore, not for his wife, not for his two daughters.  I'll never know the precise reasons Dave decided to take his leave, but I'm pretty sure I know why.  He played the market, and was just the type of guy that email blasting chop shops rope in.  He had a good job with a good salary, but dreamed of winning the market game and getting rich beyond his wildest dreams.

People can and do get hurt playing the stock market, gambling with money they can't afford to lose. And these promotional outfits couldn't give a rat's rosy rear end.  To quote Gordon Gekko:  ''Greed is good''.  So long as these slime make money, they don't care.  

I want to make one point very clear here, the shop I'm referring to is one of the best in my experience, and that's what makes them dangerous for newbie and unseasoned investors and/or traders.  What do I mean by good?  

What I mean is the stocks they tout often make very quick and sizable gains after they start pumping them.  Here's the chart for LEJU which stockreversals (hell I might as well include their name) started pumping shortly after it started trading.  In August of 2014, they recommended it at $12 to their email sucke...errr, subscribers.

That's pretty typical for the stocks this outfit hypes.  After touting it at $12 it quickly climbed up around $18.  Then over the ensuing months it crashed hard, falling all the way as low as $3 and change, today its worth somewhere around $5.

Someone who bought 10,000 shares at $12 would have been in for $120,000 and now they'd be getting somewhere around $50,000....a $70,000 loss.  And don't think those kind of losses don't happen.  

Of course they've long since moved on from promoting LEJU, and ZIOP for that matter.  

Their latest ''hot stock'' is KTOV', another relatively new issue like LEJU was.  Does the climb look familiar?

Can I say with certainty that KTOV will follow the same pattern that LEJU, ZIOP, CLDN, SBOT and all the others did?  Nope, I can't.....but I would not bet against it either.  I have no doubt that those promoting KTOV will say, ''this one is different'', it always is.

Now, again....let me be clear.  I know that apologists for stockreversals and other promotional outfits of this ilk will say, and rightfully so, that these stocks all did make gains from the prices at which they were profiled.  

In so far as I am able to verify that information, it is a true claim.

But I also understand the mentality of retail investors, as do promoters.  Retail investors have a bad habit of actually becoming attached to their stocks, of reading every news item and opinion piece that comes out.  Its not long before the average retail investor believes the forward looking promises. Especially with speculative companies with a history of burning through cash and diluting.

The professionals and the chop shop boys know this, they know how retailers think, and they profit from it.  I used to work as a financial consultant, and I know all too well that average investors, investing in individual stocks, that they overload and don't have proper diversification.  

Retail investors end up being the fulcrum around which the professionals make bank, alternately pumping and dumping, and then shorting and distorting.  Joe Retail (my chosen sobriquet here) wants to find quality stocks that he can buy and hold, ones that will deliver long term value.  Some volatility is to be expected of course, but not the kind that leads to charts like the one above for LEJU and all the others if you want to check them out.

So what happens?  Whether its MOBI two years ago, or LEJU or ZIOP, retail investors are left holding the bag, unable or unwilling to take a loss.  They become convinced they've been scammed. Not by the jokers who sent out the emails, but by dark market forces determined to hold their stock down.  

That's what's happening with ZIOP right now in my opinion.  Many shareholders are unwilling to acknowledge even the remote possibility that they were roped in by promotional hype.  And if they go to social media, places like InvestorVillage for example, they find others telling them what a wise choice they made.  Even if their shares are now worth half of what they paid for them.

Everyone can read the filings.  Ziopharm has not misrepresented anything.  They have nothing in late stage development.  And they're projecting that they won't have enough cash to get them beyond 2017.  Ziopharm's 10Q and 10K filings are very clear in saying that they're going to be in need of raising yet more money.  And they allow that their current resources may not even last til the end of 2017, that expenses could increase meaning they would run out even sooner.  The risks are fully disclosed.  

The quarterly and annual filings use terms like expectation, and words like may and could.  But expectations are often not met, and what ''may be'' and what ''could be'' can also be expressed with equal accuracy by saying ''may not be'' and ''could not be''.

The hope that many ZIOP shareholders seem to be clinging to now is that of either a buyout or a short squeeze.  Or both.

Again, this is only opinion because we're talking about the future here....but to use the vernacular of my youth growing up in NYC and NJ, ''FUGHEDDABODIT''!!!.

Firstly on the buyout side.  Yes, RJ Kirk has orchestrated some blockbuster deals in this space.  He did an incredible job in selling both Scios and New River to big pharma companies .  But Scios and New River had drugs that were either approved or in late stage development.  Ziopharm by contrast is probably 5+ years away from even being close to anything, and as noted before they don't have enough Do Re Mi to last that long.

On top of that the buyers of Scios and New River....they definitely got the raw end of the deal in my opinion.. Johnson and Johnson has had to take write downs for Nacretor, the drug developed by Scios.  I could be wrong, but the old adage....''fool me once'' springs immediately to mind.  

Maybe RJ can convince someone to buy Ziopharm, but I can't see why they'd pay anything even close to the current MC of $900 odd million for a cash burning company with nothing in late stage development.  

Finally there's the case of short interest, which for Ziopharm sits at about 30% of the float as of the most recent update to April 29th 2016 according to WSJ.com.  This is nothing new for Ziopharm of course, the short interest has been high for a long time.  

Shorts didn't rush to cover the 35 odd million they were short in November 2015 when the price was pushing up near $15.  Why they'd all of a sudden be forced into covering at less than half that price now is beyond my ability to comprehend.  I think those touting a pending short squeeze, that they're either naive novice investors, or industry hacks trying to keep the retail monkeys holding their bags.

Full disclosure, I like to have some skin in the game about the stocks I write about...and with ZIOP I do own put contracts.  All the other stocks previously mentioned in this posting though, I have no position long or short in any of them and no futures contracts.  

I'm going to close this off, but I want to write about one last thing, my faith.  I am Christian, and as most people will be aware, a central tenet of the Christian faith is to 'do unto others....'.  I don't want to overstate this, I'm not one of those guys you are going to see standing on a street corner trying to get people to accept Jesus as their personal Lord and Savior, I'm not an evangelical nor a fundamentalist.  But I do have a strong faith in the teachings of Jesus of the Bible, in particular those which appear in more than just one Gospel.

Writing this blog is somewhat cathartic for me, and it helps me sort out my own thinking.  And one thing I know is that I might just have a log in my own eye while I rant about the sliver in the eyes of email blasting chop shops.  I've written about some companies that I believe have good prospects for price appreciation, but I have not fallen in love with them and if they make big gains I fully intend to dump them.

EGT.V certainly falls into that category.  And LAC.TO is another that I'm watching closely for irrational exuberance.  So far the only stock I've written about that I genuinely believe has excellent prospects as a buy, hold and prosper investment is HMPR for the reasons enumerated in my posting on that company.  I'll be writing about another soon, Extendicare a dividend paying retirement-nursing home.

Peace.

Ziopharm - The Wall Street Sting

Have you seen ''The Sting''?

Its a movie from 1973 about con-artists in the 1930s starring Robert Redford and Paul Newman, among many other notable actors including Robert Earl Jones, the father of James Earl Jones.

Here's the Cliff Notes version, or Coles Notes for Canadians like me :-)

Two small time hustlers, Hooker played by Robert Redford and Luther played by Robert Earl Jones, pull a con on a guy charged with delivering money from an illegal gambling outfit.  They play out a little scheme  and succeed in switching his envelope filled with about $10,000 for another stuffed with tissue paper.  They score big.  The only problem is that the 'bag man' they hustled was a runner for one of the biggest crime bosses in the city, Doyle Lonnegan, an Irish mobster.

Lonnegan has Luther killed and has a contract put out on Redford's character Hooker.  Wanting revenge on the big crime boss Lonnegan, Hooker seeks out legendary con-artist Henry Gondorf, played by Paul Newman, who is also a friend of the now deceased Luther.  They concoct an elaborate scam to swindle Doyle Lonnegan out of $500,000.

But here is the central point.  Newman's character Gondorf explains to Hooker that the con has to be played all the way through.  After they've taken Lonnegan's cash the old Irishman still can't know he was swindled.  Its a great movie and here's a spoiler, they succeed.  But knowing that won't ruin the movie, its all about how its done.

What does this have to do with Ziopharm you ask?

Allow me to explain.  But please note, this runs deeper than Ziopharm, this is just the way the big Wall Street type players operate a lot of the time, especially when it comes to speculative money burning companies.

The Company

Let's go back in time, all the way to 2014.  Ziopharm closes out the year with a closing price of $5.07 on December 31st 2014, which is actually a big improvement over where it was a few months earlier in October when shares could have been had for just $2 and change.

All the way back in 2011 Ziopharm entered into a channel partner agreement with Intrexon, not that it ever had much affect on the share price.  Between January 2011 when the agreement was signed and the end of 2014 ZIOP's share price never once touched even a mere $8.

As 2014 closed out the 10K filing for that year reveals Ziopharm was down to about $42 million in cash and equivalents, with cumulative net losses totaling over $370 million to that point in its history. This amount may seem large, but take note of the fact that this company has been around since 1998 when it was incorporated under the name Net Escapes Inc. which was later changed to Easy Web in 1999.  Ziopharm was born in 2005 via a ''reverse acquisition'' of Ziopharm Inc.

Shares issued up to December 31st 2014 were a little over 104.4 million, with the company authorized to issue as many as 250 million in total.  Basic and diluted net losses per share for the year ended 2014 came it at (-$0.31).  The line item for stockholders equity shows $33.8 million, or about 33 cents per share.  In terms of a clinical pipeline, at the end of 2014 it appears there was nothing undergoing any clinical trials, just plans  for 2015.

So let's sum up.  at the end of 2014 Ziopharm was a company that:

• Started out as an outfit called Net Escapes then later changed it name to Easy Web.
• Had over 100 million shares issued and outstanding
• Net losses for the year came in at over $31.7 million
• The accumulated deficit at the end of 2014 was approximately $372 million
• Had no current trials developing any drugs or therapies.
• Their only late stage (ph-III) trial had failed in 2013 for palifosfamide.

I've seen OTC penny stocks that looked better strictly from a fundamental and financial perspective. If you want to verify any of the information I've just provided you can read Ziopharms 10K filing for the year 2014, in fact I encourage it:

http://secfilings.nasdaq.com/filingFrameset.asp?FilingID=10519440&RcvdDate=2/26/2015&CoName=ZIOPHARM%20ONCOLOGY%20INC&FormType=10-K&View=html

So how did a company with this type of history go on such a wild ride, climbing from less that $3 in October of 2014 to highs of near $15 in 2015?  And how did the company raise the money needed to continue operating?

Wall Street to the rescue!!!

Enter J.P. Mogan Securities LLC as the lead underwriter for a secondary offering of 10,000,000 shares priced at $8.75 for the public in February of 2015.  In fact they over subscribed, taking an additional 1,500,000 shares under the same price conditions.  $8.75 as noted was the price to the public, the underwriters paid $8.225 per.  That filled Ziopharm's cash register to the tune of about $90 million after discounts and expenses.  

Thanks to the cash infusion Ziopharm was now well capitalized, and they projected their resources might be enough to finance the company into the fourth quarter of next year.  After that their filings say they will require further financing.

But how could the underwriters get the public excited enough to pay $8.75 or more for the 

secondary offering?

J.P. Morgan Securities LLC was the sole book running manager for the offering, and BMO Capital Markets acted as the senior lead manager.  Then there was Griffin Securities, Maxim Group and Mizuho Securities U.S.A. all of whom acted as co-managers for the offering.

That's quite a team, with analysts to provide coverage and clients numbering likely in the hundreds of thousands.  Still though it probably would have been a tough sell, a biotech/pharma company with nothing in late stage development and burning through cash with over 100,000,000 shares issued at the end of 2014 and more on the way.

But by the time those 11,500,000 shares started trading big news had already been announced.

The MD Anderson feeding frenzy

Thanks to an agreement with the MD Anderson Cancer Center,  Ziopharm made a big splash in the hot CAR-T space. Companies like Juno and Kite had already seen explosive growth in their share prices thanks in major part to their CAR-T initiatives, and now Ziopharm was set to join the  party.

Of course the partnership with Anderson didn't come cheap, Ziopharm and Intrexon ponied up $100 million large for the deal, split evenly between the two.  Thankfully MD Anderson took payment from both in shares, because let's face it, the way Ziopharm burns through cash they didn't have a lot left over.

Even better, JP Morgan was hosting their 33rd annual Health Care Conference in January of 2015. What better place to announce the MD Anderson news?  Apparently MD Anderson was a willing partner, and was okay with accelerating the agreement to accommodate Ziopharm and Intrexon, but not for free.  It required an additional payment of $15 million split equally between the two companies, all in shares again of course.

What was the effect of announcing the Anderson deal at the JP Morgan Healthcare conference?  You be the judge, on the day Ziopharm's CEO made his presentation over 38.7 million shares of ZIOP traded hands with the price closing at $8.87 after closing at just $5.74 the previous day for a one day gain of 55%.

And that was just the start, Wall Street was just getting warmed up.  After all, the secondary offering which JP Morgan was leading was slated for February.  But now they had a compelling story. Ziopharm had just been "chosen" by the most prestigious cancer centers in the United States, and maybe even in the world.  This was a story that needed an audience, and with some major players in the financial markets on board you know the story was going to be told.

Enter the analysts

Remember the firms involved in the public offering of an eventual 11,500,000 shares?

JP Morgan's Cory Kasimov rated the stock as neutral following his firm's Healthcare Conference and did not provide a price target.  Other companies working the secondary offering however were far more bullish.

• BMO came out with an outperform rating and a price target of $15 after the conference saying that the Rheo Switch technology "could" be a game changer.  
• Griffin rated ZIOP a buy and put a price target of $12 on the stock, which was later raised to $21 in March.

Bring on the promoters

It wasn't long before ZIOP became the darling of social media.  Interest exploded with the Ziopharm thread on InvestorVillage becoming the most active forum led by some guy with the user name RobCos assuming the role of chief cheer leader.  On Stocktwits thousands of user IDs put Ziopharm on their watch lists.  

Anonymous emailing shops like stockreversals started hyping Ziopharm to their book. Some outfit called "Medical Technology Stock Letter" through its website Bioinvest included Ziopharm in its reccomended portfolio and alerted its email subscribers.  

The games had begun and ZIOP's share price did what would be expected, it soared, taking three or four runs at the $15 mark in 2015 but never able to break through that barrier.

And now?  As of this past Friday May 13th 2016 the PPS closed at just $7.25, even less than where it was following all the excitement of early 2015.

So what happens now?

Many of those investors who bought into the hype and excitement are likely hunkering down, convinced in the long term potential for Ziopharm to develop a cancer treatment or cure.  According to the projected timelines included in Ziopharms own SEC filings clinical trials take between 1 and 2 years for phase I, between 2 and 3 years for phase II and between 2 and 4 years for phase III.

Given the early stage that Ziopharm is at shareholders are looking at between 5 and 9 years from start to finish before the company projects that a drug approval "could" be obtained.  I use the word could because Ziopharm could fail again like they did 2013 with palifosfamide.  And the company anticipates having only enough cash to get them into late 2017, next year.

After the secondary share offering in 2015 the investment machine went to work, analyst targets of up to $21 per share, email blasts, social media types all over twitter, stocktwits, yahoo and other sites. All that activity brought in a lot of buyers obviously.  But is there any incentive now to bring in a huge level of buying interest?

I'm sure there are individuals posting in social media who believe they can spur interest in the company, but realistically nothing can compare to the hurricane winds that come from a stock that has the big boys of Wall Street working their magic.

Maybe sometime next year though, when Ziopharm is again running low on cash, maybe then another tsunami of promotion will come to bear and push the PPS higher.  Until that time I see the PPS drifting.  Ziopharm has a huge following and I have no doubt that there are Hedge Fund types pushing it around, pumping it up and dumping then shorting and distorting, that's their game.

Perhaps they could make their existing cash last a bit longer with some austerity measures.  It certainly had to by eye popping when American Business Journals came out with the story that Ziopharms CEO earned more money in 2015 than the CEOs of major pharma companies like Novartis and Roche.  (STORY HERE)

In the meantime retail buy and hold longs will be told..."Ahh well, that's the market, you can't win them all".  Retailers are the marks, and nobody is gonna yell GOTCHA when the bag closes.  After all, this is nothing new....and  the machine that is "The Street" will want them coming back for the next big show and investing more money.  

If its shares of Ziopharm that are being sold again the story will have to be even better than it was at the start of 2015 in my opinion.  Now its a company with an accumulated deficit of over half a billion dollars, billion with a B.  And instead of a 104 million odd shares there are now over 130 million.

The comment field, as always, is open.  But no profanity or attacks will be tolerated, keep it mature.

Full disclosure, I own ZIOP put contracts so my opinions and views are not without bias.

Life lessons from the stereo store

After I finished high school I decided to take a break from the world of academia before going on to University.  I ended up taking a job in a stereo store as a salesperson.  If you're wondering how far back this was, well the place sold quite a few items that hardly exist now.  Stereo receivers, amplifiers, tape decks and turntables were some of the products, along with televisions and a relatively new invention called the microwave oven.

One day while I was still relatively new a young couple walked in, they were right around my age, maybe 17 or 18.  They had just moved in together and were looking to buy a TV Set.  There was one problem, they didn't have any money, and were attracted to the store I worked at by a sign that promised easy financing.  

After settling on a TV that cost two or three hundred dollars I had them fill out a credit application with one of those lending institutions that specialized in that type of loan.  A short phone call later and they were approved.  They would be paying something like $15 or $20 per month for the next two or three years.  

All seemed well and good, a sale....hot dog.  

Then my manager Winston stepped in and asked me:  "How much are they good for"?  I didn't know what he meant, so he took me back to the phone and said:  "Watch".  He proceeded to call the financing company and found out that they were approved for up to $500 or thereabouts.  The next thing he said was:  "Watch this".

Winston walked over and grabbed a random VCR costing somewhere around $200.  He walked up to the couple and said: "Look what I'm gonna do for you".  He explained that for just $10 more per month they could have both the TV and a VCR.  

The guy lit up like a Christmas tree, probably envisioning watching XXX videos with his girlfriend. But as is so often the case, his girlfriend looked worried.  She asked Winston if they could talk to me. My manager retired behind the counter and the young couple and I went into a corner of the store. She was worried, I had explained to her that the interest rate was high, but that it was a small purchase that would help establish a good credit rating.  That was when it was just a TV.  

Sensing her concern I advised them to buy the TV, and to stick a a few bucks aside each month and then to come back in a few months and pay cash for the VCR.  

Winston took it all right, I explained to him that with rent, gas for the car, insurance, phone and all the other expenses that come with independent living, that the girlfriend was worried about them overextending themselves, and she had good reason to be concerned.

Marketing and sales people love to break things down to a low monthly payment, some will break it down to "just pennies a day".  But those small monthly expenses add up, $5 here, $25 there, an extra $10 for this and another $30 for that, before you know it you're spending and additional $200 or more per month and putting nothing aside for savings.  

What's the point of this little bit of personal history?  None really....its just life experience.  But whether its TVs and VCR, or stocks and other financial instruments....most sales and marketing people only care about the sale and the commission that goes with it.

Peace :-)

Hampton Roads Bankshares (HMPR) A great play for retail investors?

All stocks are speculative in nature.   Whether its a penny stock with 100,000,000 or more shares issued and an accumulated deficit in the hundreds of millions, or a profitable dividend paying company included on a major index. 

Speculation centers around the share price.  Just because a company has never achieved positive earnings doesn't mean its share price can't soar.  And likewise just because a company has a history of profitable operations and perhaps even pays dividends, that doesn't mean that its PPS can't fall. 

For my own part I view speculation as being a matter of degree.  A company with actual profits I view as being less speculative than a company that is currently losing money.   But from my experience its typically companies that have the worst histories in terms of bottom line performance that experience the biggest gains.  However those gains often evaporate within a very short period of time, often in just a few weeks or a couple months, and sometimes in mere days.

The difficulties for retail investors are numerous when dealing with highly speculative stocks.  The volatility can be both exhilarating and devastating, with retailers almost feeling the need to babysit their investment, watching it in real time every trading day.  That kind of attention isn't easy, even in our hyper-connected world.  And it plays on people's emotions in classic market fashion, alternately triggering greed and fear.

Let's say its a penny stock that was bought at 10 cents that goes up to $1.00 for an eye popping 1,000% gain.  Imagine you bought 50,000 shares at a dime for total investment of $5,000 + brokerage fees.  The stock goes to a buck meaning that $5,000 has turned into $50,000....But what if you're in a meeting, or at an appointment when it hits that dollar mark.  And what if instead of closing at $1.00 it finishes at 85 cents for the trading day.  You still have an awesome gain if you sell for 85 cents, but instead of getting $50,000 for your shares you have to be willing to "settle" for a mere $42,500.  

Now let me be clear here, turning $5,000 into $42,500 is awesome, but $42,500 isn't $50,000....and its greed that so often nabs retailers and leaves them holding the bag, even when its overflowing with profits.  

Which brings me to Hampton Roads Bankshares, HMPR.  Yes I know my musings have a lot of preamble, but that's a function of my age.  I'm a long winded old bastid...un vieux schnook comme on dit en français.  

If you've been tracking this nearly invisible and pathetic little blog, or if you followed me over at SeekingAlpha then you should know my style.  I'm not about to start pounding the table screaming buy Buy BUY with lots of hyperbole about "OUT SIZED GROWTH POTENTIAL" or any of that other crap, because that's exactly what it is....CRAP.

HMPR represents a speculative investment for me, but comparatively speaking I consider it much less risky than many companies out there because it has positive earnings.  

If you're looking for a stock with a big following with millions of shares trading each day, then you're not gonna like HMPR.  On stocktwits where I post as growacet you won't find thousands of users following HMPR like some cash burning speculative biotech.  There are only 70 or so IDs watching it. If you check the Yahoo Message boards for pumping and bashing, you'll see me...krill66 offering up an opinion every now and again, and one other user telling me I'm an idiot and that HMPR is a waste of time.  

As far as I'm aware there are no email blasting chop shops hyping it, or any stock promotion IR firms working to attract investors.  But that shouldn't come as a surprise.  When a company is losing money and is using its shares as capital to keep the lights on and pay salaries, then engaging in promotion makes a lot of sense.  A company like HMPR that has + earnings doesn't need to play those games.

Besides, as per Nasdaq's Site almost 65% of the outstanding shares are held by institutions.  

Those who read my most recent blog posting, Why short interest matters - The danger of betting against Dah Bears, will probably want to know the degree of short interest.  As per WSJ its not much, just 2.16 million or less than 3% of the outstanding, that number is current up to April 29th 2016.   

A note of caution though about the low short interest.  With 3 month average volume of just 120K or so per day, it doesn't take a lot of volume to push HMPR around.  The public float here is only about 77 million shares, and if a big player is looking to inject a little fear into retail longs, then raiding 1,000,000 shares and selling them short could have a big negative impact on the PPS.  I don't think the chances of that happening are big, but I do think its possible.

As regular readers know (all 3 of you) I'm not big on fundamentals, viewing it as old data which is already priced into the stock.  While past performance does provide a guideline its no guarantee about the future.  As I noted HMPR is earnings positive with a significant number of shares in the hands of institutions.  

What do shareholders have to look forward to going forward?  

There's a pending merger with another Virginia based bank, Xenith Bankshares, that was announced this past February. (NEWS STORY HERE).  Of course that news is months old and constitutes part of the fundamental picture, so I assume it to be already priced in.

In my opinion the greatest potential for HMPR rests with the possibility of a return to paying dividends.  HMPR used to pay a quarterly dividend, but that ended in 2009 in the wake of the Great Financial Crisis.  From the GFC forward HMPR entered survival mode, suspending dividend payments and effecting a reverse split.  

Even without a dividend HMPR offers great risk vs reward potential to these eyes.  After years of rate cutting we have finally entered a period of climbing interest rates in my opinion, and I consider the banking/financial sector to have excellent prospects for growth going forward.  Interest rates have been so low for so long that many US regional banks like Hampton Roads had to struggle to survive, and many didn't.  

In my opinion HMPR has emerged from that cloudy period with the return to positive earnings and the lifting of regulatory restrictions which prevented them from paying shareholders in the form of dividend distributions.  There is no assurance that they will once again start with distributions, but with the restriction removed its at least possible now.  

I will end this blog posting with the chart.  I consider a long flat base to be an excellent indicator, and in my opinion the longer the base the better in terms of the potential for an eventual breakout.  This is a 5 year chart showing a 3+ year base pattern.  If it does play out and does break out from this base pattern it might not be for a while, but in the interim I don't think HMPR will see any wild swings downward.

As always take note of the disclaimer at the bottom.  I have been holding and buying HMPR for almost 3 years now so my opinions are extremely biased.  I eat my own cooking in other words, and sometimes I cook up masterpieces while other times I burn the food to a crisp.  Here's hoping HMPR is a slow cooked succulent delight.

Why short interest matters - The danger of betting against Dah Bears

I have had many conversations with retail shareholders over the years, and one thing I've found is that a lot of people have little or no understanding of how short selling works.  Pretty much everyone gets that its a ''bet'' that a share price is going to go down, and that short sellers make money when a stock drops.  But ask people the mechanics of how a short sale works and often its deer in the headlights time.

Short selling is a big part of the market game.  Not knowing how it works to me is like stepping onto a basketball court without knowing that you have to dribble the ball with one hand, and not two.

When explaining it to people I often use something removed from the market.  If someone is wearing a nice watch I'll use that as an example.  Let's say I have a friend who owns an expensive watch that sells for $5,000.  But let's also say that I have learned that an announcement is about to be made that this same watch contains an element that has been proven to cause cancer.  I know that once this news comes out, that my friend who is always bragging about his $5,000 watch...that he'd be lucky to get $5 for it.

So how might I profit in this made up example?

Simple.  I borrow my friend's watch, maybe give him $100 to loan it to me for a couple weeks while I go on vacation.  I then take his watch and sell it for the $5,000 it is currently worth.  In a few days the news comes out, the metal on the backing of the watch has some coating that has been proven to cause cancer.  I am then able to buy that same watch back for $5, if not the exact same one then another which is identical.  I give my friend back his watch and have profited to the tune of $4,895 with something I never even owned.

That's exactly how it works in the stock market.  But instead of a watch its done with shares.

I'll use the example of Nortel, a darling of many Canadian tech stock lovers in the 1990s.  If memory serves it traded up around $180 at its highs, but for this example I will say its trading at $100.

Someone we'll call Mr. Bear is convinced that Nortel is a bloated pig at $100.  He can go to a brokerage and ask to borrow shares of Nortel.  Shareholders don't have physical possession of their actual shares, they're held in street name.  Let's say there's a shareholder named Bob who is using a discount broker charging him $5 a trade.  In his account sit 1,000 shares of Nortel, trading at $100 and worth $100,000 at current market prices.

The brokerage will lend the shares out, at a fee of course.  Mr Bear then takes the 1,000 shares and sells them for $100 each, netting himself $100,000 from the trade.  But of course Mr. Bear has to give those shares back at some point...unless Nortel declares bankruptcy and stops trading in which case he doesn't have to buy them back because they'd be worth $0.  

Mr. Bear is counting on Nortel going down obviously.  But remember I said Nortel traded as high as $180?  This is where it gets fun.

When Mr. Bear sells the 1,000 shares he borrowed for $100 each he doesn't immediately get to take the money and run, the funds are held in a margin account.  On top of that he'll be required to have extra money tied up in that margin account in case the PPS starts climbing.  And if the PPS does start climbing the broker he owes will require him to put even more cash in his margin account.  Let's say the margin requirement is 50%.  After netting $100,000 from the sale of the 1,000 shares he needs to add in $50,000....if Nortel climbs to $200 per share he'll need to have $300,000 in the account.

This is where dreams of a short squeeze dance in the heads of longs.  If the PPS climbs and Mr. Bear can't come up with the extra funds for his margin account then the broker will simply take the money in the account and use it to buy back the shares.  Let's say Nortel goes to $200 and Mr. Bear comes up with the $300,000 to hold his position.  But then it goes to $250 and the broker tells him to ante up another $100,000.....But Mr. Bear can't, he's tapped out.  The broker then takes $250,000 out of the margin account and buys the shares back,  In this hypothetical situation Mr. Bear just lost $150,000 large.

That is what longs dream of, but as happens with many dreams.....it rarely plays out that way.

Short sellers know the risks they're taking, and because of the enormous risk Bears are known to be hyper active when it comes to research.  Do some searching on the Net about notorious hedge funds and you'll see stories about people going through trash bins to get the inside scoop.  

That's why it dangerous to bet against 'Dah bears'.  Never underestimate an opponent.  That wisdom applies on the battlefield, in the sporting arena, and in the public markets.  Longs would do well to check their egos at the door when seeing a stock they're holding having a large % of short interest.  

Some short interest is to be expected with any stock, sometimes its hedge funds pushing a stock up and down, scalping for 1 or 2 points, maybe 5.  But when you see a stock with 10, 20, 30% or more short interest....you might want to ask yourself, ''Do they maybe know something I don't''?  

PPHM recently tanked, going from in and around $1 to about 30 cents in the wake of a cancelled phase III clinical trial.  But just before it tanked news came out that shares of PPHM had triggered something called a ''Stop Loss'', which meant that so many shares had been sold short that few to none were available for further shorting.  

For me that should have been a flag given what I know about short selling.  But I was blinded by greed and dreamed of Bears overplaying their hands....a monster short squeeze had me envisioning big profits.  Hindsight being 20/20 I realize the mistake I made.  In my opinion what happened was obvious, word of the cancelled trial was leaked and smart Bears borrowed all they could until there was nothing left available for shorting.  

That's enough for now....comments are always welcomed, just keep it polite.  I realize this is very remedial for long time traders, but its something basic that many retailers don't grasp.

My next post is going to be a long idea, Hampton Roads Bankshares (HMPR) which as of April 29th 2016 had less than 3% of its shares shorted.

RYU Apparel - Beware the lure of celebrity

One of the benefits of watching the markets over an extended period of time is that everything old becomes new again.  Bubbles spring up and get burst, promoters and talking heads tout stocks that become a flavor of the month before crashing, and different angles are used to try and grab the investing public's attention.

Back over 10 years ago a company called Warning Model Management started buzzing over news that they were going to be representing Paris Hilton, sending their stock on a wild ride.  It was a classic penny stock ''Pump and Dump'' scheme in my opinion.  Hilton was already represented at that time by the Ford Modeling agency, but that didn't matter as the stock for Warning Model Management went up over 1,000% with one individual reportedly pocketing over half a million dollars in profits:  (NY POST STORY).

More recently sports drink maker Fuse Science caught fire in 2011 with news that Tiger Woods was putting Fuse Science ''on his bag''.  He even did an interview about it that aired on CNBC:

Celebrity is a great thing, it can attract all kinds of novices to invest in a company as fans of the star buy in.  Which brings me to RYU Apparel.

Last week on a social media site called Stockhouse, which is popular for Canadian listed companies, users started spamming the boards about RYU Apparel.  One prolific user with the ID ''venturestockpicks'' went onto at least a dozen threads for different stocks with this message.

• Gwyneth Paltrow Promoting RYU.VN! Game changing news today out of V.RYU. Gwyneth Paltrow and her lifestyle brand is going to be promoting RYU clothing. RYU is a fast growing tech clothing brand that in their first month of opening outsold LULU Lemons first year of sales!  Very under the radar. Celebs coming on board now. This one will breakout over .20 very soon!

As noted before, the Paris Hilton news didn't lead to long term price appreciation for Warning Model Management, and notwithstanding Tiger's endorsement Fuse Science now trades for fractions of a single penny.  

Will RYU Apparel be different?  In my opinion, no.

If you check the filings for RYU at SEDAR you will see they have the usual ''Going Concern'' warning with respect to their ability to continue as a going concern.  In reading over their filings you will see that the company has been securing financing by garnering cash from private placements of their shares.

Do note that my opinion is for the longer term.  In the coming weeks perhaps RYU will spike higher. History certainly suggests that's possible.  But I have to question how much pull the name Gwyneth Paltrow will have.  

The actress is probably best known for the film Shakespeare In Love, which was made all the way back in the 90s. I'm old enough to remember it very well though, and I thought Ms Paltrow's performance was brilliant, I'm a fan.  But not  a big enough fan to invest in RYU.  

Lithium Americas (LAC.TO / LACDF) Added to Global X Lithium ETF (LIT)

As far as I am aware there is only one ETF (Exchange Traded Fund) that focuses solely on Lithium, and that is the Global X Lithium ETF which trades under the symbol LIT on the NYSE.

If you go to the Fund's website you'll see a listing of the Top 10 Holdings, and up to the right of the list you will see an arrow and the words: FULL HOLDINGS (.CSV) all in orange lettering.

Click on that and it provides a full list in word format, here is the list cut and pasted:

"Global X Lithium ETF",,,,
"Fund Holdings Data as of 05/05/2016",,,,
"% of Net Assets",Name,"Market Price ($)","Shares Held","Market Value ($)"
21.619,"FMC CORP",47.54,"259,956.00","12,358,308.24"
9.674,"QUIMICA Y MINERA CHIL-SP",21.06,"262,591.00","5,530,166.46"
5.955,"OROCOBRE LTD",2.53,"1,344,297.00","3,404,198.75"
5.430,"ALBEMARLE CORP",67.10,"46,258.00","3,103,911.80"
4.490,"SAMSUNG SDI CO LTD",100.05,"25,651.00","2,566,433.21"
4.131,"LG CHEM LTD",249.91,"9,450.00","2,361,681.39"
4.123,"GALAXY RESOURCES LTD",0.28,"8,528,272.00","2,357,125.73"
4.052,"GS YUASA CORP",4.08,"567,894.00","2,316,100.12"
3.945,"SIMPLO TECHNOLOGY CO LTD",3.38,"666,700.00","2,255,356.98"
3.942,"TESLA MOTORS INC",211.53,"10,652.00","2,253,217.56"
3.928,"JOHNSON CONTROLS INC",40.50,"55,441.00","2,245,360.50"
3.878,"BYD COMPANY (144A)",5.66,"392,000.00","2,216,814.70"
3.771,"SAFT GROUPE SA",30.61,"70,432.00","2,155,762.11"
3.520,"FDG ELECTRIC VEHICLES LTD",0.06,"34,711,800.00","2,012,187.53"
3.319,"PANASONIC CORP",8.58,"221,220.00","1,897,348.50"
3.276,"DYNAPACK INTERNATIONAL TE",1.49,"1,256,300.00","1,872,670.61"
2.153,"ADVANCED LITHIUM ELECTROC",1.06,"1,158,129.00","1,230,796.06"
1.989,"LITHIUM AMERICAS CORP",0.54,"2,118,067.00","1,136,885.44" *
1.494,"VITZROCELL CO LTD",9.66,"88,408.00","853,906.10"
1.492,"CHANGS ASCENDING ENTERPRI",2.29,"373,151.00","853,074.67"
0.883,"BLUE SOLUTIONS",16.23,"31,108.00","504,973.52"
0.845,"BACANORA MINERALS LTD",1.15,"418,958.00","482,789.44"
0.789,"COSLIGHT TECHNOLOGY INTL",0.34,"1,326,973.00","451,278.68"
0.696,"ULTRALIFE CORP",4.09,"97,272.00","397,842.48"
0.384,"CHINA BAK BATTERY INC",2.59,"84,722.00","219,429.98"
0.146,CASH,1.00,"83,930.11","83,728.96"

(* My Bolding)

Lithium America's isn't the only Jr. Lithium Miner included in the fund,  there are two others.

• Bacanora trades in Canada on the Venture Exchange under the symbol BCN.V
• Orocobre trades on Canada's big board TSX under the symbol ORL.TO

And of course the so called "Big 3" of  FMC, SQM and Albemarle Corp are included. They however are not Juniors, but actual producers. Lithium though is just a minor component of each one's overall mining and business operations.

There are so many Jr. Miners out there right now vying for attention in the Lithium space, and I for one am convinced that a lot of them will never develop anything and that they're just looking to ride the wave the way so many penny stock companies tried to cash in on all the Medical Marijuana hype a couple years back.

With LAC.TO, BCN,V and ORL.TO being included in this ETF it suggests to me a level of validation from the market for these three.  

One final note on the overall fund itself LIT.  After languishing for much of the past 2 years it has finally started to climb off the bottom it hit around February of this year.  But even with that positive movement the growth pales in comparison to what's been achieved with some Jr. Lithium mining stocks.  A big reason for that of course is the companies that make up most of the fund....companies, even mining companies, for which Lithium is just one small component of their overall business operations.

I will keep an eye on this fund to see if they add more Jrs, but for now as an owner of Lithium America's shares its good to see that this fund bought in.

Disclosure, as a shareholder in LAC my views and opinions are not without bias.  Also please verify all information provided.  I would never knowingly post something false, however I can make mistakes so verify all information.