14 Charts for Monday December 27, 2010

This weekend I went through all my watch lists and ran all ten of my custom screens at dailygraphs.com. I came up with a rather extensive list about 100 stocks long. I then narrowed this list down to 14 charts worth posting in a blog. There are numerous other charts I like, but these 14 are the easiest to draw. I also include a little bit about the fundamentals of each company, which can further narrow the decision when the time comes to pick which one to buy. I am going to post these in alphabetical order, so there is no ranking per se, but if I had to pick one overall best set up between fundamentals and technicals, I am looking at WWIN.


Disclaimer: Neither I nor my clients own any of these, but may perhaps buy one of them at any given time.
Charts courtesy of stockcharts.com
Clicking on the company's name will take you to the company's website.


Note the charts have been removed to make way for charts on later posts. Stockcharts will only allow 25 charts for free.
China Wind Systems Inc. (CHWY.ob)
China Wind Systems has been gaining momentum fundamentally. Trailing 12 months comprehensive earnings per share, which include gains on the translation of currency, amount to $0.43, on about 15 million shares. In this number the gains on foreign currency are not too dramatic, amounting to a few pennies a share. In previous years, the number was much larger, distorting comparable earnings. Suffice it to say, the company is growing both the top and bottom line on the income statement. At $0.43 per share, the company's PE is 12. So we have a growing company, with a relatively low PE, which is in the wind sector, and in China. There are many things right with this company fundamentally. The balance sheet shows negligible long term debt and a current ratio near 2. Early this next year the company intends to open a new manufacturing facility, for which it has already sold some product contractually.

The chart is fairly impressive as well. On December 9th the company announced the aforementioned deal to sell product and the stock gained both volume and price movement as a result. Since, the stock has made a handle of sorts and close $0.07 out of the handle on Christmas Eve, with large and increased volume despite the shortened session. There is still time to buy unless it becomes a Monday gapper.

China Sun Group High Tech Co. (CSGH.ob)
China Sun Group is not a solar company, despite the name. The company is actually into lithium ion batteries, specifically the excitement is centered around lithium ion batteries for electric vehicles. The company has signed multiple agreements to produce and sell batteries and has the second largest production facility of its type in China. Historically the company has grown sales from $8.3 to $25.3 to $37.0 million for fiscal years ended May 31 2007-2009. Profits were $0.01, $0.13, $0.16 on 53.4 million shares. The real growth phase of the company is yet to come and should manifest itself this coming year.

The chart features a nice basing period over the last three months and a handle which has developed over the last 7 days. A breakout above $1.90 on good volume would make this one hard not to buy.

Commtouch Software Ltd. (CTCH)

Commtouch Software is an Israeli company making messsaging, anti-spam, and anti-virus software for businesses. The company first became profitable in fiscal year 2006 and has grown earnings from $0.03 to $0.11 to $0.14 in fiscal 2008. Earnings are currently accelerating as are sales. Sales read 6% 4% 4% and 8% over the last four quarters while earnings accelerate from -25% to 0% 0% +25%. The balance sheet is clean with negligible debt and the company has been buying back shares, reducing share count by 3.4% year over year as of the most recent quarterly report. There are about 25.3 million shares fully diluted.

The chart for Commtouch is a nice looking cup with handle. The actual pivot may be anywhere between $3.85 and $4.00, since there are often asks stacked at even dollar amounts. A large volume up move from here would pretty much signal the breakout.  

Dynex Capital, Inc. (DX)

Dynex Capital is a REIT investing in residential mortgages. The current yield is 10.4%. I am not going to delve into the balance sheet and income statement of Dynex, rather I will simply say the company appears to be solid, but who really knows in the mortgage market?
The chart, however, is a very nice, tight flag. The exceptionally large volume in the flag can either become support or resistance in the future, depending on if the the chart breaks out or fails. The trade up at $9.30 is likely an errant trade as the stock did not trade up to $9.33 and back down. Disregard the tick. If the stock trades into the upper $8.90's and approaches $9 it becomes very interesting.

Duoyuan Printing, Inc. (DYP)

Duoyuan is a recent IPO which makes off-set printing equipment. Trailing earnings give DYP a PE of 8 and I'm sure the balance sheet is in good shape after the recent IPO. The company has managed to grow earnings in each of the last 4 years. Solid fundamentals at first glance, but usually IPOs have a lot of pro forma issues and etc.. to fully sort out the earnings picture. Something I have not done yet.
Technically speaking, DYP has made a new issue base. The pivot point is $8.80. I have removed the IPO day on this chart in order to better see the volume.

iGATE Corp (IGTE)

From the iGATE website: "iGATE provides IT consulting; application development and maintenance; data warehousing; business intelligence solutions; ERP/ enterprise solutions; BPO/business service provisioning; infrastructure management; independent verification and validation; KPO and contact center services." In other words, they provide outsourced services. The company has grown earnings each of the last three years and is currently two quarters away from the bottom in earnings and sales, with 7% earnings growth in the most recent quarter and sequential sales growth in the previous two quarters after three quarters of declines. On the balance sheet there are plenty of current assets to cover current liabilities and negligible long term debt, nothing to worry about there.

The chart features consolidating closes for the last 7 days as volume has dried up in a sort of high handle to a rough looking W pattern. The overall pattern is pretty rough, but the handle is very nice indeed, especially with the volume drying up.

Jinpan International Ltd. (JST)

Jinpan is the second wind company and the fourth Chinese company on this list. China is seeing excellent growth, even with the struggling United States and Europe trying to hinder growth. China is also stimulating the wind and solar industry to a much larger degree than in the developed world. Jinpan has been one of my favorites for many years, though it is not solely a wind company. The company makes transistors for medium to high voltage transmission situations. In the most recent quarter 18.5% of net sales came from out of China, versus only 13% a year earlier, with sales to the wind industry representing 18% of the total versus 14% a year earlier. The balance sheet is healthy and the company is on pace to add over $25 million in cash during the year. Shares total around 8.1 million with 4.75 million float.

The chart features a typical flag which may be formed after a big run, with the price holding above the 20 day moving average. If the stock breaks above $46 on volume it has some room to run, though there is a roughly drawn upper up trend line which roughly parallels the lower up trend line. This stock tends to make large moves on earnings reports. The moves in May, August, and November were all due to earnings reports. This week will be interesting watching to see if it breaks below the 20 day moving average, or breaks out of this flag and moves on to new all time highs.

Liquidity Services Inc. (LQDT)

Liquidity Services is operates an online auction services directed towards wholesale and liquidation of salvaged and surplus assets, catering to professional buyers and sellers. The company does not consistently grow earnings every single year, but is on a steady pace upwards. Starting in fiscal 2003 earnings were $0.10, $0.19, $0.15, $0.32, $0.43, $0.51, and $0.31 in fiscal 2009. Sales bottomed in the quarter ended December 2008 and have since rebounded off the lows, but are still not growing year over year. In a current earnings basis, LQDT is a below par. However, the company's business has done well over time and there is over $2.00 per share of cash and short term investments on the balance sheet, with only deferred tax liabilities for long term liabilities. A small uptick in business can go a long way when a company has a clean balance sheet.

Although the fundamentals are not exactly top notch, given the previous year's down turn during the recession, the chart is excellent. The stock powered itself off of recent lows, creating the right side of the base. The last 12 days have featured consolidating closes with the high volume day in the handle being the Russell 2000 rebalance volume day. The pivot point lies somewhere in the $12.50 to $12.67 area. Any move with volume over $12.50 would be a break out. One can clearly see there is a handle formed at previous resistance which also holds above the base building area off the bottom.

Libbey, Inc. (LYBI)

Libbey makes items for the dinner table, such as ceramic, glass, metal, and plastic dishes. This is by far the weakest company from a fundamentals perspective in this blog entry. There is farm more debt than I would like to see on a company's balance sheet. The company has negative shareholder equity and has over $1.00 per share in quarterly interest expense. One slip and this company goes under.

However, the chart has been great for a long time. First, the company made a very nice base in August, September, and October, holding the 20 day moving average throughout the long handle. The company began moving out of the base three days before their latest earnings report and gapped up on earnings. The company is again consolidating on the 20 day moving average with a move higher on good volume being a buy indication.

Newtek Business Services (NEWT)

Newtek is another company with a balance sheet and fundamentals which are not impressive. However, the company does have some potential with some recent deals in place and a quarter of profitability, though the company's guidance for next year is still for a loss. I would not buy this company based on fundamentals.

Again, though, the chart is something to mention. NEWT has made a high tight flag with a very clear $0.98 pivot point. A break of $0.98 and then the psychological resistance at $1.00 would be worth a buy, but not a large buy and not a buy I would hold through too many closes.

Pennantpark Investment (PNNT)

Pennant is a business development company, required to pay out the vast majority of profits in dividends. The current yield is 11.3%. For the purposes of this post I will not delve into the fundamentals of the company, but will not that they have grown earnings in each of the last 8 quarters.

The chart is a little tricky given some chart services include last week's ex dividend adjustment and some do not. The chart I have here is one which does include the ex dividend adjustment to previous day's trading. This chart shows a clear base breakout and since the stock has sat right on top of the base. A chart without the adjustment would show the stock still in the handle. Either way, the company is in a nice consolidating pattern which may get some room to run if it can trade up in the $9's on heavy volume. To add to the confusion on the chart, the largest volume day in the handle/consolidation was the Russell rebalancing day.

Radware Limited (RDWR)

Radware is the second Israeli company in this post, providing integrated application delivery services to nearly 10,000 enterprises and carriers. The company has accelerating earnings after two years of losses and reported record quarterly revenues in the most recent quarter, up 24% year over year. The company has more cash and short term investments than total debt, with over $3.00 per share in liquid assets and over $7.50 per share in equity. Overall the company looks to be on solid ground with good potential going forward. There are roughly 15.5 million shares float.

The chart is another one greatly altered by the Russell 2000 rebalance. The rebalance caused the stock to break out of a consolidation or another step in an overall stair step pattern. The next two days crashed the stock down to the 50 day moving average area, but the stock bounced and closed up on the second day. I'd like to read this chart as able to break out at any time, but I have no idea what to put as a pivot. There is a clear uptrend and the stock likes to hold the 50 day moving average area, leading me to believe it should go higher from here.

Teltronics, Inc. (TELT)

Teltronics makes equipment and software to improve communications networks. It would be difficult to tease out a trailing 12 months earnings and sales picture so I'll give the nine months. The trailing nine months picture has the company producing $0.48 per share in earnings versus a loss in the previous year of ($0.26). Sales grew 36%. The balance sheet is not pretty, with current assets less than current liabilities and a negative shareholders equity. The company needs a few solid years of growth to fully dig the balance sheet out of the hole, but with a PE of around 3 on trailing 9 months earnings, it is well on its way.

TELT has built a high tight flag on the chart. Volume has dried up in the flag nicely, present a clear idea of what a break out would look like. Any movement out of the flag on good volume could be considered the start of a breakout. This flag could very easily go on for weeks or months, but I would not be surprised if the stock broke out this week or the first week of the year as the small cap rally continues onwards.

Winner Medical Group, Inc. (WINN)

Lastly, I present what is my favorite set up of this blog post. Winner Medical develops dressings and disposables for medical care, wound care, and home care. The company does so in China, marking the fifth of fourteen Chinese companies in this post. Their main product is a 100% cotton dressings, which appears to be gaining momentum. The previous four quarters earnings grew 40%, 133%, 75%, and 86% with sales growth in each quarter. The company has been profitable in each of the last six years, but not until recently have earnings really taken off. The company has a current ratio over 2, negligible long-term debt, and over $3.50 per share in equity. The last statistic of note is a meager 4 million shares in the float.

Winner Medical Group's stock has made a nice cup with handle base. One might try a bigcharts.com chart to see a more complete history, as the company moved from the bulletin board to the NYSE Amex exchange in early October. Since then, the company has formed a very nice cup with handle base, featuring volume drying up in the handle, after increasing on the right side of the base. The pivot for this company is around $6.60 and for sure at $6.75. I would expect another day or two of handle development, preferably on increased volume, before a breakout late in the week or early in the new year. However, this does not rule out a break down in pattern, or a large one day break out at any point.

Conclusion

The Russell 2000 small cap index led the market over the previous few weeks, plowing strongly into new highs. The Santa Claus rally was on and soon the New Year's rally should continue to push small caps higher. In my search through likely 1500 charts this weekend, I encountered an overwhelming sense small caps are going to go higher very soon. Lost of stocks are bouncing off of support or major moving averages, while many others have developed nice bases during the last three months and are either about to break out or have broken out recently. Looks to be a good trading environment in the near future. Good luck and happy New Year everyone.

feraldo

My first Celsius experience

The Celsius Website
I took the 32 mile trek to the second closest retailer carrying Celsius. My first attempt to acquire Celsius was thwarted by poor information on the Celisus.com website. The website had told me there were two Krogers in the town I live in which sold Celsius. Not the case. The Celsius website has since posted a bit of info saying it has cleaned out some bad locations. However, the website still lists a GNC in my town which no longer exists. I'd have to give the website, all things considered, a very poor C- with F being no website and D being a barely functional site. Booooooo!!

Marketing
Below I have attached 4 pictures of varying angles of the can for reference. These were 12 ounce cans and I purchased them for $2.19 per can, before taxes. The convenience store/gas station had a 5 door cooler system. 1 Coke, 1 Pepsi, 1 energy drink/water, 1 tea/juice/misc/, and 1 milk/cheese random foodstuffs door. Celsius was located one shelf below what I would consider eye level, with five flavors taking up 5 slots. The flavors I can remember are Lemon Lime, Orange, Green Tea, and Green Tea Raspberry Acai. The can resembles a Red Bull, only a little larger and with more colors. At $2.19, it seemed much more expensive than the drinks in the same door, but would have been at home in the energy drink door. So far, however, Celsius does not seem to be marketing itself as an energy drink, but more as a weight loss supplement. I give the marketing team a B, since after all they are actually starting to be in coolers now.

In The Can
What stands out on the can are the ingedients. We have 100% of vitamin C, Riboflavin, niacin, B6, B12, biotin, and pentothetic acid. There is also 5% calcium, 41% chromium and 1810 mg of their proprietary mix of taurine, guarana extract, green tea leaf extract, caffeine, glucuronolactone, and ginger root extract. Reads like an energy drink, but marketed as a diet drink. After two drinks I feel a bit more energetic than before, but I am not overwhelmed like I would be with a Monster or other energy drink.As far as weight loss, there are a lot cheaper ways to lose weight than to drink Celsius.

What I was really after here was the taste. I have seen scores of drinks go through retailers over the years with a whole bunch of different marketing ploys. So renting an ad in Times Square and plastering Mario Lopez all over the place is not going to sell the drink if it tastes like crap. The Green Tea Raspberry Acai was pleasant and good enough for an energy drink/weight loss drink. Was it worth $2.19 plus tax for 12 ounces? Heck no. But I am not one to regularly buy such things. In front of me in line was a lady buying multiple Monster coffee drinks which cost $2.99, though the can was larger. Next my wife and I tried the Orange flavored Celsius. My wife gave it a big thumbs down and would not drink more than the first sip. She basically called it a powdered orange drink mixed with seltzer water. My reaction was Tang meets ginger ale. Tang is the forerunner to every powdered drink we know of today. I drank the rest of the can, but it is not a flavor I would prefer. I like ginger ale and I like, to some extent, tang. But the two together is just not what I have in mind for $2.19 per can. I give what is inside the can a C for high cost and a flavor which will undoubtedly turn off some people on the first can.

Conclusion
My first Celsius experience was sub par. The drive to get the drink was enjoyable and we got to see an average Indiana winter sunset. The drink itself disappointed me due to a surprisingly poor flavor and a high cost for 12 ounces of liquid. The website I give a very big thumbs down to and does nothing from my perspective to better the company's chances of succeeding. Overall I like the chances of this company succeeding less now than before my first experience trying the product.

Dow % bullish Indicator for 12/8/09 close

The indicator stood at -15.71% at the close on Tuesday. We could easily see some bearish action after such a readying, but its not a very bearish reading. Looking through the Dow there is very little bullishness and just enough bearishness to turn it negative. Mostly, Dow stocks are holding moving averages and not significantly breaking down, though there are a few.

I take today's reading as a reason to increase caution. If the Dow closes down significantly today we are likely to revisit lower up trend lines and moving averages.

Dow % bullish Indicator for 12/7/09 close

The indicator is still heavily weighed by neutral readings, which count as a 0. This makes the trend overall increasingly bearish. Here at 2:00 p.m. eastern the Dow is down around 100 points. A lot of the neutrals could easily become bearish and a big pull back in the bullish looking charts would turn them into neutrals. So far today this is the general trend. The indicator hovering around 0 is not something new. Last year in the end of year doldrums the same situation occurred. Between 12/2 and 12/30 there were only three days where indicator was more than 40% bullish or bearish. If the indicator should spend consecutive days outside of the -40% to 40% range, I would be much more tempted to trade a leveraged ETN one way or the other, but for now we are predictably range bound here at the end of the year.

Dow % Bullish Indicator for 12/1/09 close

The Dow % bullish indicator stood at 47.89 at the close on Tuesday. This is almost a return to the bullish strength shown pre-Dubai. A big down move in the Dow today could easily reverse this number back to bearish again as many Dow stocks hovered around 0 for the previous two days. There were pull backs to support levels across most of the Dow and Tuesday featured a nice bounce off these levels. Volume is still not great on Dow stocks, but volume does tend to be higher than last week. Given past history of the indicator and the current reading, I would say bulls should not see a big downside risk, but there is precedence for the Dow to go in either direction after a two or three day period of negative readings on the Dow % bullish indicator. Of course we are either on a shoulder or a on the way to nice new highs once again on the general markets. The Russell 2000 has been the weakest cap of the markets during the November move. Today, the Russell 2000 leads. All things considered, I think there is more of a case for an afternoon rally in the markets than a case for a sell-off. Only time will tell.

Celsius Holdings (CSUH) - A second phase beverge company.

I have had the opportunity in the past to watch three very distinct beverage companies go from relative obscurity, to relative success, each with three very distinct end results. From watching these three companies, along with several other beverage companies which never really made it, I have developed a general 4 phase cycle idea for beverage companies. This blog post will outline these 4 phases and discuss the past three examples, ending in an evaluation of Celsius and where it stands in the path of a typical beverage company.

Snapple, the poster child 

Some people may already know the Snapple story, but for those of you who don't, its a wonderful history. Carbonated soft drinks (CSD's in industry speak) dominated the single serve beverage market in convenience stores and super markets and still to this day command a rather large swath of cooler space. There were a handful of other items available, but the incentives for the store owner clearly centered around CSD's. Along came Snapple. When Snapple entered the market, other types of beverages began to get more door space in convenience stores and began seeing more shelf space in supermarkets. Snapple was a phenomena. I don't remember how many flavors the company ended up marketing, but at one point it was over 48 different flavors. I myself tried perhaps 40 of them and used to collect the bottles. The beverage was a hit and forced retailers to rearrange their coolers. Now teas and juices command a whole door of a typical convenience store cooler, versus the bottom shelf of decades past.

Eventually Snapple would be bought out and shuffled around as an asset to much larger beverage companies. Before this happened, Snapple went through some very distinct phases. It started out small, with hardly anyone knowing about Snapple and there was not a full national footprint (to be sure I never saw a place with all 48 flavors). Next the company expanded to a much larger footprint, then a national footprint complete with TV ads. Finally the company was everywhere and its big growth stage was over. This is when they were bought out and the story ends. The stock of Snapple followed a similarly spectacular path. Going from relative obscurity, to a big winner everyone was talking about, to a has been in the stock world. By the time the Snapple was the buzz, most of the stock performance had been played out, such is the case with most big winners in the market.


Hansen's Natural, a rerun of the rise of Snapple



Hansen's Natural followed a very similar path to Snapple. Before Hansen's there was an energy drink called Red Bull which occupied some shelf space in convenience stores and became part of many a mixed drink. But there was no push for energy drinks to gain any significant dominance in a retailer's cooler. There was CSD's, juices, milks and teas, water, but not a whole cooler door full of energy drinks. Along came Monster energy drinks and the various forms the company has created to infuse energy into the consumer. Hansen's took a similar rise to fame as Snapple. For 70 years, according to the Hansen's website, Hansen's has produced beverages, but in relative obscurity. There was no craze, no grand taking over of shelf space, nothing spectacular. Then all of a sudden the energy drink craze begins and Monster gets a larger distribution footprint. The third stage for Hansen's was about taking over nearly a full cooler door in convenience stores all on its own. Piggybacking on Monster, Hansen's marketed a total of four energy drink lines and a range of energized coffee drinks.

All of a sudden the beverage industry is completely changed once again. In days past one could go to a convenience store and expect one whole cooler door of nothing but Coca Cola in its various forms: diet, cherry, diet cherry, caffeine free, diet caffeine free. The next cooler door would be other Coke products like Sprite and etc.. Then the next two doors were Pepsi, Mountain Dew and Dr. Pepper/Seven Up products. Finally the last few doors were for milks, juices, teas, snacks, microwavable quick meals, cheese, just about everything else. Also, there is typically a contingent of random CSD's shoved in somewhere away from the Coke and Pepsi products so as to shield Coke and Pepsi from competition. Now one expects 1 door for Coke, 1 door for Pepsi and Dr. Pepper/Seven Up, one door for energy drinks and hydration drinks (water, Gatorade, Powerade) 1 door for fruit drinks and teas, and the last door or two will contain milk, other random drinks, and various food products. With the Snapple craze and the energy drink craze as book ends, Coke and Pepsi have lost a very large swath of convenience store cooler space.

Just like Snapple, the stock of Hansen's mirrored the growth pattern of the drink. The company went from relative obscurity, to a winner, to a big winner as the product penetrated more and more of the shelve space allotted to cold drinks. Now, however, the company is in what I would call stage 4 of the growth phase, which is past the peak of the company's success. Here companies typically get taken over, under perform due to lack of growth, or fail miserably when their product does not have staying power. This brings me to my third case study, if you will.

Jones Soda, what went wrong?

The case of Jones Soda is very peculiar indeed, when compared to Snapple and Hansen's. The company went through all 4 stages of growth, yet came out the other side a failure. What happened?

As Hansen's was changing nearly a full cooler door (typically 15-25% of a convenience store shelf space), Jones was working its own strategy to gain cooler space. Jones Soda makes CSD's (carbonated soft drinks), which would in theory be competing against Coke, Pepsi, Dr. Pepper/Seven Up, Faygo, the purple stuff, and all the other hundreds of small CSD makers all over the country. As Jones began its rise, the intent of the company seemed to be just to start shaving off small slices of Coke and Pepsi market share. Sure they admitted they competed against the other products in the cooler, but one going in for a water is not usually going to drink the heavily sugared (with natural sugar cane) CSD produced by Jones. Jones was after an inlet, or a finger of a very large pond. The idea was to get people to drink the more natural CSD's produced by the company. Their gimmick was to have more and better flavors than the established competition.

Jones rose to fame in such a meteoric fashion as Hansen's and Snapple. Out of nowhere Jones went from relative obscurity, to a few flavors in some stores, to a few shelves in most stores, to an exclusive promotion with Target, to shelf space in the largest of them all Wal-Mart. For a while Jones Soda was delivering on its vision. Then, unlike Hansen's and Snapple, whose influence on the beverage industry is still evident today, Jones failed. From my perspective Jones failed because of price and location within the cooler. Instead of being stacked up against Coke and Pepsi, essentially in the same door of the cooler, Jones was relegated to the juice and tea door or the energy drink door. Jones was not placed in a spot which would draw consumers from other CSD's to Jones. Additionally, Jones was expensive. At a time when a Coke or Pepsi bottle could be bought for roughly $1.29, Jones was selling smaller bottles for $2.19 or more. The larger bottles of Jones would go even higher in price (of course).

Jones went through all four stages of growth in the beverage industry and failed. The stock took a similar path to Snapple and Hansen's during the first three stages of growth, but in stage four the stock failed with the product. Hansen's stock is not at all times highs but it has also not failed. No company every offered to take over Jones, like was the case with Snapple. However, as a stock trader we are not interested in stage 4, we are interested in stages 2 and 3, which brings me to an outline of the 4 phases.

Phase 1, Relative Obscurity

Relative obscurity is where nearly every company starts out. Even Hansen's which produced beverages for 65 years before making it big was still in relative obscurity prior to the energy drink craze. After the energy drink craze, one would still be hard pressed to find people who drink the old Hansen's Natural drinks, but they are on the shelves of major grocery store chains. In phase one companies are not making money on their products, but they do have a product which they are testing. Quite often the product is on the shelves of several small regional chains, maybe featured in some, maybe just stuck over to the side in others. Phase 1 is often a period where the company's stock is also not going to go anywhere and quite possibly might not even trade but a few thousand shares a week.


Phase 2, Gaining a Distribution Footprint


Phase 2 is the phase where the company has made a name for itself in the original convenience stores and retail sites and has begun to get a much larger distribution footprint. Quite often the company will issue press releases monthly, or even weekly, of new distribution partners. In late stage 2 the company will begin a national advertising campaign on the radio, in print, and on TV. The company also tries to find an event to sponsor or a celebrity to endorse the product to create brand association. Snapple gave us the slogan "Made from the best stuff on earth." Hansen's promotes Monster with a life style saying on the Monster website "at Monster all our guys walk the walk in action sports, punk rock music, partying, hangin’ with the girls, and living life on the edge."

The company, behind the scenes, is often trying to move from the Bulletin Board trading system to the Nasdaq or Amex. The stock will often rise a few hundred percent or more out of relative obscurity, but will not become a big name everyone is talking about. In stage 2 the company has not made it to the big time yet, but there is a clear path established ahead in an attempt to be a major beverage company. Lastly, the company is likely not to make any profits during this phase and if so they will be small and sporadic. Expenses will ramp up to cover an increased distribution network and increased advertising, thus these companies are going to be issuing shares and raising money through debt and other means.


Stage 3, The Promised Land



Stage three is the most exciting phase for consumers, investors, and the company. To be sure not all companies are going to make it out of phase 2, nor will most even make it out of stage 1. Stage 3 the company has a brand which may be recognized as new. The brand may be talked about in social circles, news programs, and may even be labeled as the latest fad. For evidence one needs to look no further than the penetration of energy drinks into our lives and the talk for years now of how people pay to drink bottled water, for better or for worse. In this stage the company will have penetrated a large percentage of major convenience stores and super markets and will have expanded its shelf space.

From a company perspective there is now a critical mass for the company to turn a profit on. Sales have been skyrocketing for a while and reach some sort of parabolic state for a few quarters, if not a few years. The stock is now listed on a major stock exchange, has a high volume run rate, moves up several hundred percent more, and becomes a name bandied about in stock trading circles. The phrase, "I wish I had bought back then," or some derivation of the phrase is uttered by many a stock trader. Expectations are very high and there is talk of a whole new type of beverage company. Analysts discuss the impacts of the company on Coke and Pepsi and the CEO is on CNBC promoting his meteoric rise to success.

The next part of phase 3 is the kicker. Its the part of phase three which signals ultimate success, but quite often is the end of the rise to stardom. For Jones Soda, it was a very clear signal. The company gets a deal with Wal-Mart, Target, Costco, Kroger, and all the other large behemoths. Just getting initial shipments to these big companies will be a very large sales increase for the beverage maker. These deals represent the most rapid phase of growth for the beverage maker and therefore mark the end of hoopla.

Stage 4, The Come Down

Stage 4 is market by one of three events. First, a company may be taken over, such as in the case of Snapple. Second, a company, such as Hansen's, may have made it big and will continue to sell large quantities of beverages, but the rapid growth phase is over. In this scenario there won't be a whole lot of 200%, 300%, 1000% gains in the stock, because the company's growth rate is likely to be 25%, 10%, or even negative. Simply put, the market has been penetrated. The third event is the failure, which is the case of Jones Soda. Jones had its shot, threw all its chips in, but came out a loser. The company had the national roll out, the Wal-Mart, Target, Costco deal, but the drink did not have staying power. Most companies fail in stages one or two, so making it to stage four means success at some point along the way, but not long term success. In stage 4, these companies are not going to be exciting investments.

Celsius Holdings (CSUH) - A second phase beverage company

Now to the reason I have expounded all this is to explain where I think Celsisus is in their growth phase. The company has begun distributing beverages to many super markets and convenience store chains, but has not struck the big deal with Wal-Mart or Costco, etc...Since the company does not have any huge national distribution accounts to serve, there is plenty of room for the hyper growth of phase three to occur. The company recently signed Mario Lopez as national spokesperson and has launched at least one ad campaign, while working on another. The company also recently filed to issue more shares to raise money for the advertising campaign and to expand the business. The company is not currently making money, but sales are increasingly swiftly as it expands its distribution foot print. Lastly, the company is trying to move from the Bulletin Board to the Amex stock exchange. Everything is set up for the company to enter stage three within the next year and become a big winner, a more recognized name by consumers, and to gain distribution with the behemoths of the retail world. I think CSUH will be one ticker to keep an eye on for the next year or two.

I am not sure if Celsius will make it in the long run. They have a different sort of product which really isn't currently on the shelves. A beverage which burns calories is likely to be stuck next to Hansen's products and therefore be in the energy drink and rehydration door of the convenience store cooler. Thus, it will not directly compete with CSD's, teas, or fruit drinks. There is no direct competition currently as far as drinks which burn calories, so there is some space for Celsius to become a fad or a whole new line up of beverages to unfold with Celsius being the clear leader. Only time shall tell, but I do think stage 3 is achievable so we will see an answer to these musings down the road.

disclosure: a client owns shares of CSUH but I do not own any myself.

Summary and comments on the Fed minutes from Nov 3-4

The full minutes can be found at the Federal Reserve's website. Since the fed in its attempts to record and explain their actions is still confusing to most, I'll summarize, comment, and extrapolate upon these minutes.

Ability to reverse its policy

One of the most important things for the Federal Reserve is the ability to be able to reverse its policy. Right now the fed has an "accommodative" stance on the economy. The people in charge are doing whatever they can to foster growth and get money moving. The fed is just about as accommodative as its ever been, with interest rates near 0 and a $2 trillion balance sheet. The famed $2 trillion balance sheet contains U.S. Treasury bonds, various forms of corporate and public debt, and other instruments I will not attempt to explain. The fed believes, if needed, they could reverse their policy by raising interest rates, selling some of these "assets," or letting the U.S. Treasury and other entities repay their loans. Remember, the Federal Reserve is just a giant bank. The "assets" of the fed are for the most part loans it gives out to various entities at various interest rates. Since the Fed is the largest bank, it gets to set its own interest rates. Oh, and the Fed can create its own money too, so if you wonder where the $2 trillion came from.......

The Fed's summary of the economy

The Fed rehashes a lot of what we know. The labor market is bad, but its not getting as bad as fast as it did before. Here they use the term "albeit", a word Jim Cramer featured in a Mad Money show on CNBC. Good job Cramer, you identified a buzz word, which is even used by the Fed now. The Fed says "The length of the average workweek for production and nonsupervisory workers decreased, and the index of aggregate hours worked for this group fell, albeit more slowly than earlier in the year." One can sum up the labor market in much the same way: getting worse, but not as fast as before.

Businesses, however, are having a whale of a time. CNBC mentioned this morning 25% of S&P 500 companies reported record profits in the 3rd quarter. Industrial production is expanding, retail sales are strong. Seems businesses, especially large businesses, are doing quite well. After cutting 3 million workers and much excess fat, businesses are thriving. Except, when they want to expand and need to borrow money for expansion. Consumers are finding it equally hard to borrow money. One can look at this as a bad thing in the short term, because it hinders economic growth now, but good in the long run. With consumers and businesses carrying less debt, the economy will have less of a burden in the future. In fact, businesses and consumers have been shrinking their debt load for many months now. My guess is this is due to tight credit markets and job losses which shut the door on consumers seeking credit.

Inflation is pretty much non existent. Makes it easier on consumers, but a bit harder for businesses to grow profits. Some inflation is good for businesses. Pricing power means more profits. The Fed seems very subdued in its forecast for inflation over the next few quarters.

My opinions of these statements

Despite the crazy run in gold recently, the supper accommodative policy of the governments around the world, oil which is back to expensive levels relative to just a few years ago, and health care costs which will continue to hinder consumers with or without government intervention, the fed sees little risk to high inflation any time soon. The low inflation stance may be missing the mark. Oil could easily take off back to $100 and we could have hyper inflation. Oil prices are not controlled by the U.S., but rather the world. The high population centers of the world are still growing and still consuming more fossil fuels, while the amount of oil the world pumps out of the ground is back to declining. The situation is ripe for inflation. So the fed reports a relative lack of inflation pressure and an outlook for relatively low inflation, but I disagree in this regard.

The fed's ability to pull money out of the economy and therefore stem the tide of inflation dwindles as the months go by. As the U.S. becomes less of a percentage of the global economy, the prices we pay for items are less influenced by the supply and demand picture naturally occurring in the U.S. and created by our governments. The government has no ability to just turn on an oil spigot if prices should sky rocket again. No government has the ability to adjust oil supply in large ways in the short run. So while the government may have the ability to adjust the inflation picture to some degree using instruments such as the money supply (print money or just delete it quite literally with one mouse click) and interest rates, the U.S. government does not have the ability to adjust the global economy quite like it could just ten years ago.

I agree with Cramer and his rants on the word "albeit." The economy is still shrinking, albeit at a slower rate. Year over year the new estimate for real GDP change was -2.4%, released this morning. That's not as bad as it was last quarter or even the quarter before. But, we are not growing. The consumer is just about dead in the water and the Fed will not come out and say so, but instead danced around saying so again in this release. They remain worried about the consumer and they tell us the consumer has less and less credit, less and less income, less and less of everything, but they won't wrap it up in one succinct statement. I'll give it a shot

     "The consumer is in bad and worsening shape. Consumers are getting worse much more slowly, but there are no indications the consumer will be getting better any time soon."

And that, my friends, is my summary and comments on today's fed minutes release. They were a lot less revealing as in, say, their August minutes, but still very insightful.

Dow % Bull for 11/20/09 close

The indicator came in at 9.87 at Friday's close. Still just slightly bullish. A lot of neutral readings and a lot of Dow stocks sitting on the 10 day moving average. Options Friday kept the market fairly range bound Friday. Monday and Tuesday the market should loosen up to one direction or the other. Let's hope its buillish. Then again, we could be "range bound" for the rest of the year and make no progress on the market. There still exists a significant divergence between small caps and large caps, with the Russell 2000 a good ways off the highs.

Dow % Bull for 11/19/09 close

The reading came in at 16.84 Thursday, well below the Monday peak of 85.90. Historically a reading as high as 85.90 has resulted in a pullback or correction of some sort. Thursday's reading of 16.84 means we are just barely buillish on the Dow. Friday morning futures are indicating a gap down for the Dow of 80ish points. Such a level is probably enough to flip this indicator to negative and thus by the end of the day we could be in a correction mode once again. However, there is still 6 1/2 hours of trading ahead so the verdict is not in.

Please click on the chart for the full image. I have yet to figure out how to get this blog to expand out to the left and right instead of a narrow column in the center.

The Dow % Bullish Indicator

The Dow % bullish indicator declined on Wednesday from lofty peaks..The 10, 20, and 50 dma's have broken well established down trends, leaning to a bullish overall view of the indicator. If the indicator has any substance, this would mean continue to hold or buy new positions, but be cautious as bullishness has peaked in the short term.

Here is the 6 month chart as of the 11/18/2009 close and an explanation as to how the indicator is created If the blog does not allow the whole image to be shown just click on the image. I have yet to figure out how to expand the width of the blog.

For several years I have tried various ways to come up with a formula, equation, or chart which would help me time the market more precisely. I've tried broader index approaches and basket of stocks approaches. I've tried running regressions on fundamental and technical indicators to see if I can create an equation to help predict daily, weekly, six month, etc... performance. I could go on, but the point is I have tried several different approaches. My latest approach is the Dow % bullish indicator.

The indicator is a percent created by assigning a 1, 0, or -1 to each Dow stock, multiplying the number by the appropriate weight for each Dow stock, and then adding each Dow component's number together to create a % bullish indicator. 1 is bullish, 0 neutral, -1 bearish.

The Dow is price weighted, so the highest priced Dow stock has the highest weight in the Dow average. Currently IBM is running over 9% of the Dow. So if I would assign IBM a 1, let's say, then IBM would count in my indicator as 1 X 9% or 9%. So if all the other 29 Dow stocks were at 0, the Dow would then be 9% bullish.

I have tried to keep the assignment of bullish, bearish, or neutral as consistent as possible and to some extent as objective as possible.I would consider it objective to say a stock in an uptrend is bullish, but since there are those out there who would short a stock in an uptrend, this assignment cannot be entirely objective. So, I take things commonly referred to as bullish or bearish and just keep consistency.

Additionally, I am not looking at the longer term charts, rather I am trying to look as short term as possible. A 3 month chart might be enough to determine bullish/bearish/neutral and quite often the last 5-10 days will make the determination. I try to glance at the chart and assign the number within my first impression and outside of the first impression I try to stay within some guidelines outlined below.


Ways in which a stock might be assigned a bullish 1:
Stock is in an uptrend and is holding above the 10 day moving average without any large volume down days.
Stock has just cleared previous highs/broken out.
Stock has broken above a down trend line.
Stock has bounced off the 10, 20, 50, 200 day moving average.

Ways in which a stock might be assigned a neutral 0
A stock which was otherwise bullish has a large volume down day or a large down day which breaks the mold of the up trend.
A stock in a wedge, which often bounces back between 1, 0, and -1.
A stock riding a major moving average such as the 10, 20, 50, 200, where a break down would make it bearish and a bounce would make it bullish.
A stock in a downtrend which has an large volume up day or a day where the downtrend is broken

Ways in which a stock might be assigned a bearish -1

Stock is in an downtrend and is holding below the 10 day moving average without any large volume up days.
Stock has just cleared previous lows/broken down.
Stock has broken below an up trend line.
Stock has broken below the 10, 20, 50, 200 day moving average.

As one can tell it would be very hard to keep this completely objective, but more than anything I want the indicator to stay consistent. Not all stock patterns fit into the above criteria so sometimes it is required to make a judgement call. Perhaps 1-3 charts per day offer pause and I have to either refer to rules or make such a judgement call.  The idea is to say "Well the last time this happened, the Dow did this," so subjectivity must be avoided as much as possible.

Here is a mark up I did on past inflection points.

The Cream of the Crop, a Stock Watch List for 11/16/2009

Here are my top charts for 11/16/2009 at 2:00 p.m.:
LYBI  this chart has shown no sign of weakness in many days. Just needs a good up day to spark a run.
QTM  I have traded a similar chart to this one in the past. If it can clear the $2.64 high the next stop should be in the lower $3's.
ZYXI very nice bulletin board stock. Had some problems with Medicare reimbursements, but the problem looks to be fixed. Good earnings in the past and potential for nice earnings growth in the future. Chart very nice as well
JBSS very nice consolidation on this chart
MANH clears new swing highs today, but on light volume so far.
PRSP a double bottom with handle on the weekly breaking out of the handle this week. So far, though, light volume.
NICK  today looks like the beginning of a break out for NICK. Volume comes in and stock on the move today.

An Exposition of Public Debt and a Note on Some

I'm sure everyone has seen a debt clock or two. The one at http://www.usdebtclock.org is probably the most useful debt clock on the internet. I have posted in the past about how the economy is not really growing, the government just used quarter over quarter numbers instead of year over year numbers to trick people into thinking we were growing. In response, a friend brought up a question: How much of the "growth" was a result of government deficit spending? Well for the entire fiscal year ended September 30th, 2009 the government deficit was $1.42 trillion dollars or about 10% of the $14.3 trillion seasonally adjusted annual rate (SAAR) released for the end of the third quarter 2009.

To be sure, not all of the government deficit goes directly into GDP and I do not wish to get into the why's and why not's today, rather just be aware all government expenditure does not end up as GDP. So in answer to my friend's question, if we took away just the federal government's deficit, the economy would have been in very bad shape indeed. Referring to the debt clock, over 37 million Americans, over 12%, are on food stamps. So if the government did not provide those food stamps, with borrowed money from the wealthy of both the U.S. and other countries, we would have had a very, very ugly time in the third quarter and indeed most of the last year on just feeding the country.

Surprisingly it is not easy to find the deficit of the state and local governments. I wonder why it is so hard to find such a thing. Maybe I should try bing insteady of google. Oh sweet. Second result when using bing.com, after about half an hour of looking in google. Google has lost its touch on searching. Anyway, state and local governments have budget shortfalls of $178 billion or 26% of their budets. This is at least better than the 40%ish level of the federal government. So overall, approximately $1.68 trillion of government deficits in one year have helped prop up our economy to shrink at a 2.3% rate.

To be sure, in the government's defense, it has promised the U.S. citizen in times of need a place to live (unless you are homeless) something to eat (unless your disability check is too high), and a paycheck for all the taxes you have paid in (unless you can't find another job after a certain amount of time, sorry about you). So it is only right the government has spent this money. There was a contractual agreement of sorts between the government and the people. If they pay in, this is what one can expect in return. Social insurance.

Hm.... Speaking of some of the debt. Some went to AIG and other companies who paid ginormous bonuses to their employees. Same deal. I defend the pay out on the grounds there was a contract made between the employee and the employer. Was the contract itself moral? Probably not from a socialist perspective, but from a capitalist perspective the contracts were completely fine. If someone is going to make a company hundreds of millions of dollars, why should this employee not get a piece of the pie? One might say "well the company failed so no one should get anything." I'll say, if these people getting these bonuses did not do such a good job at whatever it is they did, AIG would have failed to an even more extraordinary degree. So what these employees getting the bonuses really did was to reduce the total failure of AIG by making money in their own respective divisions and as such deserve the reward originally given to them contractually by the company. ANY time a company fails the first stakeholder is always employee salaries and bonuses owed. Before bond holders, before bill collectors, it is the employees who get their due first. I'm pretty sure the company has to pay employee salaries before even taxes, to put it into perspective. So why should the rules change for AIG and other companies which failed?

A drunken rant on, among other things, the previous unemployment report

Like the economy sucks. And if you don't think it sucks, you must be in Asia.

The colts rock so that is someth...ing positive.

The government just lied to you again and you took it.

You don't even know why they did it and neither do I, but they did.

OUR ECONOMY SUCKS!!!!!

Please don't spend extravagantly. Don't buy a house. Don't buy a car. See I am unimportant so anyone reading this is o.k. because the rest of the saps (and probably you) are going to go ahead and think that the economy is o.k. You are going to think GASP!!! that the economy is growing.

NO!!!! IT IS NOT GROWING!!!

And the government wants you to think the economy is growing. That is the worst part. Because the government is run by (gasp) big companies.

Hm.............Another day.

What I want people to realize is the banking system has failed. Somberly, let's discuss this. Back in 1978 Bank of America created the mortgage backed security. The what? They took like 100 home loans and sold them to another bank. Sold them? They sold the homes? No, they sold the future income (or loss as we have found) stream to another bank. Well what is wrong with this transaction? There was no economic value created. What?

See when you want to create economic value, you create something. Didn't they create the mbs? Yes. But what is an MBS. Its a promise based on 100 promises (the number I'll use going forward). O.K., well these 100 promisers have been promising for a while and they make good on their promises. O.k. fine.

So the second bank has a pool of 100 promises of 100 promises and sells it to the next bank. So now we have 100 X 100 promises. Do the math yourself you lazy slob and refuse that calculator.

So that's a lot of promises. What happens when some of them can't make the promise. What happens when some of the promises X some of the promises, can't make some of the promises. Oh that's ripe.

But wait it is not done. What if, someone else says, wait, if they don't make their promises, I'll give you a promise that I'll give you a bunch of money. Well, they all made their promises before. So why wouldn't they make them again. So I'll promise that if they don't promise, that they don't promise that these don't promise that they don't promise. What?

And that is the problem.

And its still the problem.

What?

I thought we got rid of that? Didn't we bail out all these banks and didn't the treasury buy this and the federal reserve buy that? Yeah.

But that was this and that and the other. Sure that got taken care of at the time and those will continue to be taken care of in the future.

So what am I yapping about?

The unemployment level is, well a large number and whatever you think it is would be so wrong you don't even know. If you think it is less than 16%, you are about 3-4 months behind if not more. If you take the government numbers of the high 9% range, you really need to stop watching TV and get on the internet and find the actual report and read it. Oh wait, I have it book marked.

http://www.bls.gov/news.release/empsit.t12.htm

And from this report I want you to focus on the 10.8% number. Oh you said 16% up there, so why the 10.8% number? Because those are the people who actually count as unemployed in the official government stats. Now if you have no job, you don't get an unemployment check, you have been unemployed for a while what are you to the government. YOU DO NOT EXIST!

Yes that's right, you don't exist in these numbers. You are not unemployed if you don't get a check from the government and are not recently off the unemployment line for some reason. So let's say you have been out of a job for over year. What does the 10.8% number count you as? YOU ARE OUT OF THE WORKFORCE. You don't count. The government does not give a rat's arse about you in this number. You are not unemployed, you just don't count any more we are sorry to say.

So we go up above and we talked about promises. Back two years ago when the job market was great, the world was great, and life for the U.S. citizen was great, we made a whole bunch of promises. And I say we because I am a home owner and darn if I don't want to walk away from this promise and get my investment in this thing back. But I can't. And a whole heck of a lot of people can't. And a lot of those people who can't, bought a ridiculously expensive house. So they made a big promise based on a lot of future earnings and they lost their job. Or the value of their house dropped 40-50% in two years so even if they sold, they would owe the bank everything that they have including the underwear on their arse and then some.

But wait, everything is o.k. Some cars got sold. So a bunch of people who could not afford a new car and thus drove clunkers were induced into buying a new car likely on credit. Yeah go team go.

Housing. We had something good. I don't know what. I really don't. http://mam.econoday.com/byshoweventfull.asp?fid=438293&cust=mam&year=2009#top

Look at that graph. See that little bump there. That was the new housing market. That was the wonderful most exciting awesome recovery in the housing market. Do you see it. Maybe they should get rid of the blue line so we can see that hump a little better. Oh wait. What is that blue line. That is the plummeting mortgage rate. So what does that mean? Well when the mortgage rate crashes people buy homes and refinance. Um? Where is that on the chart? Good question.

O.K. So a bunch of these people bought houses and they aren't making new ones any more because that just does not work, so they are still selling houses right. I mean prices are going up right? Um no.

http://mam.econoday.com/byshoweventfull.asp?fid=441377&cust=mam&year=2009#top


So those people are making promises on promises on promises of people that have something that they owe money on if they sell, is worth less than they paid for it, and used to be one of the core assets of the American consumer.

Hm......

Where did all the money go.

fees.

And if you liked this, please let me know and I'll tell you about fees.

In the cold shade of the banana tree, on the rugged trail to the balcony.......

Comments on November 6 2009 Underemployment Report

Well the recovery is evident right? I mean, 10.2% Headline unemployment
http://mam.econoday.com/byshoweventfull.asp?fid=437995&cust=mam&year=2009#top

The BLS's table "Alternative measures of labor underutilization"
http://www.bls.gov/news.release/empsit.t12.htm

The U-5 number of 11.6% is what I generally focus on. I also add at least 5% since all those unemployed for too long no longer count in the labor force. Then I usually say at least. So I now say at least 16.6% unemployment. Throw in the under employed, those working part time because they can't find full time work, and we are over 20%. But really one can be confident in saying about 1 in every 6 people is unemployed.

One might even want to brain up on these things a bit and realize that Clinton threw a bunch of things out the window. Clinton decided to reduce the sampling size and the bulk was reduced in inner city areas. Likely, this is because people don't really like to go door to door in "inner city" areas. Clinton also threw anyone unemployed over a year out the windows and said they don't count any more. So yeah, the numbers looked great under Clinton during the second half of his presidency.

Another significant problem with the BLS numbers is the small business problem. When a business no longer reports its numbers, it becomes non existent. The BLS has no way of figuring out what happened to the business and its employees. They don't become unemployed, they just don't exist any more.

So if you are
A) Unemployed for over a year (and they might have adjusted this recently given changes in unemployment compensation)
B) Living in an inner city neighborhood and likely unemployed
or
C) Worked for a small business that went out of business

You don't count any more.

So when one reads that 10.2% headline number, remember even the government is willing to admit its at least 11.6%. Then make a mental note that if you are either A) B) C) you don't count either.

Oh yeah recent college and high school graduates don't count.
And farmers who stop farming don't count because they are a business.
And single teenage parents on welfare don't count.

Get the picture as to why I am really worried about the disconnect between the headlines and what is actually going on? The headlines are Newspeak. The numbers you see in the headlines are super adjusted and they only give you the numbers which sound the best. The worst part is, 99% of Americans don't give a crap (I guess) and 99% of Americans aren't going to take the time to actually read up about anything related to this optimism exuded by the Obama administration and the media.

The Commercial Real Estate Problem

When I was younger, in kindergarten to be exact, I lived in an apartment complex just outside of town. Completely surrounding the three building apartment complex were fields. There was one building, just down the road, but nothing more. One day, out of nowhere, a helicopter landed in a field next to the buildings. How exciting, a helicopter! What more could I have wanted as a five or six year old boy?

Over twenty years later, I wish said helicopter would never have landed. I wish, I could go back in time and tell the people who landed on this field to stop what they were doing and to never think of it again. However, I cannot travel through time, and the executives were very delighted indeed about the property. In time, the field across the highway, the fields around the apartment complex and in fact the whole North side of town became one big development.

Several years later, I moved to a new town to attend college and have lived in this new town for nine and a half years. This town, like my home town, probably had the same helicopter land in a field just out of town, near the same year as the helicopter which first captured my attention. This helicopter, was the start of the coming commercial real estate problem, which I will examine in this blog over the coming weeks. The idea will be to paint how the doom and gloom picture has developed, present some raw data to provide an empirical basis to further study the problem, and then to display possible solutions for digging us out of the next financial disaster we face in the United States, as well as the rest of the world.

The Town I Live In: Industrial

I moved to this town in 1999 to attend college and become, for better or worse, and economist. From my arm chair, I have observed the commercial real estate market and how it has changed during the past decade. Here in Indiana, the economy has largely been supported by farming and manufacturing. Government leaders from local to state have focused their efforts on how to create new jobs, i.e. build more factories and introduce new retail establishments. Who can fault them, its what they are supposed to do and it has worked, for the most part, since World War II.

Before I moved to this town, Crawfordsville had already experienced the first sign of things to come: a major factory closing. Many people were let go and large empty buildings in decay would dominate the heart of the city for years to come. Since I have arrived, many more have followed. The industries have been diverse, including an RV manufacturer and an optical lab. Of the factories remaining, one has ousted the union employees, closed the doors, opened back up with temporary employees, opened up with regular employees at decreased wages, put a fence around the place, repeatedly menti0ned shutting down, changed names, and sold itself. Another company came close to shutting down two or three of its four large buildings, but somehow manged to pull together enough orders, for now, to continue on. Another factory is slowly but surely consolidating its operations from two plants to one. I could go on with more problems, but the point is the factories in this town are closing slowly, but surely. They are laying off employees slowly, but surely. In their wake will be additional large, empty buildings to go with the ones already in place.

The local government during this time has come up with a great solution (hah). "Let's create a new industrial park," they say. "If we build a fancy new road, with a nice landscaped median and full utilities we can get someone to build a factory and create new jobs." But what about those other empty buildings? What about the other buildings in town which could be vacant on any given day? What about the road built specifically for a steel company, with interstate access and everything? Can't this road also support factories?

Remember the wire company? Well years ago, before I moved here, another company had looked into buying the building and its properties and running it wide open once again. This would have been great, but it never happened. The building remained an eye sore for many, many years. Just recently, in 2008 the property was cleaned up by a new owner, who now operates a recycling facility in its place. The hoops this person had to jump through were enormous. Cleaning up the old building, which included chemical waste and other unsavory items, must have cost this company a ton of money. They had to repair all the windows or brick them in. Additionally, the building had been set on fire by many groups over the years in an attempt to rid the town of an ugly heap.

Immediately after starting on the endeavor, the purchaser was wrongfully accused of tax fraud in the local papers. The rumors of scandal were rampant. Eventually the paper had to retract their accusations. All of this, from one company trying to get one building back on its feet and make it a functional property. What about the other empty buildings? What about the ones which will soon become empty? What about the brilliant new industrial boulevard to nowhere with no factories and not even a set of surveyor's stakes in the ground? These issues loom on the horizon.

The Town I Live In: Retail And Office Space

I wish the problem here and elsewhere were just limited to industrial developments, but I believe they are but one third of the overall commercial real estate problem. The next third is the retail and office sector and this third is more deep rooted in the American way of life. We take for granted the virtually unlimited amount of space we still possess in this country. The problem here lies not in the general spirit of starting new businesses, nor in the lack of people wanting to start new establishments throughout the city, region, and country. The problem lies in "cookie cutter" convenience.

Oh, the helicopter. I'm sure many can guess who was in the helicopter and perhaps glean the reason why I left the name of the company out so far. I do not want to create an idea here of bashing Wal-Mart, but indeed the Wal-Mart way of business is a piece of the commercial and industrial, and to some extend the residential real estate problem. I will leave the moral, ethical, and other practices of Wal-Mart for another blog topic. So please, set those aside and take the following as a discussion on Wal-Mart and the cookie cutter retail outlet as a discussion on real estate.

The helicopter landed and the cookie cutters rolled out their prefab buildings in my home town. Burger King, Arby's, and Taco Bell were the grand champion cookie cutters and claimed the prime spots around the Wal-Mart. In the town I live in now, Taco Bell and Shoe Show won the battle to be in front of Wal-Mart. Right in front, fresh out of the oven, stereo-typical buildings. Other companies and their prefab businesses were soon to follow. Staples, Subway, and Home Depot enjoyed the Wal-Mart push. Times were booming. The strip mall which was attached to Wal-Mart was a typical strip mall. Glass windows in front with an overhang roof to put a sign on.

The rest of Crawfordsville has not been so fortunate. In the ten years I have lived here, the town has lost a Target, JcPenny's, Hardee's, two furniture stores, Goody's, a grocery store, more mom and pop shops than I can keep up with, the aforementioned Shoe Show, and a host of chains normally occupying the strip malls of American life. Additionally, many professional offices have closed, such as insurers, brokers, lawyers, and the like. Target left not due to losses, but due to insufficient margins. Bah!

So now there are empty, desolate buildings from downtown to the strip malls next to where the old Wal-Mart stood. The old Wal-Mart? Yeah. They didn't like the building. They needed to add a grocery store. They needed to make sure Goody's closed down as they were competition, despite the fact the main competition, Target, had already left. They needed more and they needed it to look exactly like every other Super Wal-Mart in the country.

Where did they build the new building? In the field right next door! Oh what a Super idea! Another Super idea would be to, oh, let's say, rotate the building ninety degrees and not put a twenty foot section of pavement to connect the Old section with the Super section of retail establishments. Oh it was a horrible spot now. Who wants to be in the Old strip mall? The Super building had forced the town to create a new entrance to the shopping area and install a new traffic light. How horrible it is to be behind and right next to such a Super retail spot. In order to survive, the other retailers in the Old strip mall had to move 300 feet to the Super strip mall. This new spot is so much better with the Super Wal-Mart lording over the area.

But remember, this is not a knock on Wal-Mart, but a knock on all of this mess. Radioshack had to move to the news strip. Buffalo Wild Wings had to ensure a new spot across the street. Steak 'n Shake and Culver's with their completely distinct, completely cookie cutter designs had to start new franchises. Never mind the old strip mall behind the Super. Forget about all the other strip malls in town. Forget about every empty building already in existence. We need new, perfectly located buildings.

Luckily, the town found a Big R to put right behind the Super, in the former spot of the Old. Some life has been breathed into this spot. But, there still stands, two stop lights away, the Target building, the JcPenny's building, and soon the Goody's building. Oh and they leveled a Shell and there still are some cracking slabs of concrete supporting weeds and the occasional summer ice cream shack.

The other parts of town? What other parts of town? They have nearly all died or have rolled through one business after another like mad. Downtown? Luckily a bar caught fire and some of it burned down, while the remainder stares with mostly blank expressions at the void created after the fire. The same blank stare seen all over the country in down towns. Walgreen's also leveled a few buildings to drop a prefab across the street from the prefab CVS, which is four blocks away from another prefab CVS. Oh joy! Who wants to shop at stores where each one is different and nothing is the same? In the name of efficiency, lets not get creative!

The Town I Live In: Commercial Housing

Commercial housing takes two forms for my purposes, but they both boil down to a living unit where there is a tenant paying rent to a landlord. These include apartment complexes, condos, hotels, and people who own many homes which they rent out. No matter the division, the third part of commercial real estate is a bit more complicated. Commercial housing loans have their own sub-category of statistics, separate from "residential" housing and other categories of commercial real estate. The physical structures themselves compete with the other forms of real estate. Some buildings can easily be offices, apartments, or become a hotel. Ultimately, once a building loses its value in the retail, office, or industrial sector, it will often end up as apartments, if the building does not stand empty. This is just the progression of a typical building.

In Crawfordsville there are plenty of apartment complexes, duplexes, and old retail buildings converted into 2, 3, 4, or more units. There is a hotel here where many of the rooms are let out indefinitely at cheap rates. People literally live there with their 1 bedroom 1 bath "apartment." Lastly, there are a few landlords who own several houses, one with supposedly over 100 properties. In a poor town, these dwellings are the norm, and home ownership is certainly less abundant.

With the apartment complexes, the problem lies in the over zealous building programs of the real estate trusts. These companies are often publicly traded on the stock exchanges and produce complexes in suburbs and small towns all over the country. When times were booming and rents were increasing, one could afford to build a new complex and inevitably, tenants would move in. Well, times are not booming so now we have lower occupancy rates and lower rents. In Indianapolis, its to the point where new apartment complexes sit unfinished, because there are just not going to be any tenants.

The landlords who own multiple homes have a special contribution to the nation's problems. For a long time, one could buy sell and trade houses at will. One could also rent out houses at will. This enticed land lords around the country to skimp on maintenance. Why upgrade this house? Its just a rental. So the stock of houses owned by such landlords have been declining in usability, while the price may have been increasing the whole time. After the bubble burst, the truth has come out of the woodwork. The houses are livable, indeed most are probably still occupied. But the insides have been declining rapidly, more rapidly than the pace of upkeep. So now the landlord has a loan for an over appraised house, which may have been intended as a flip to begin with. If the landlord can't collect rents and the house is declining in value, the landlord is in trouble. One can see how the landlord is running the same course as those in the category of trying to own their own home.

One can tie in old retail and office properties, and in some cases industrial properties, in to the same problem of landlord not keeping up on maintenance. Remember the JcPenny's earlier in this blog and the Big R? Well the roofs leaked in both buildings. Nice way to run a retail business right? The factories as well are in disrepair. The problem throughout is not only the shear number and shear over valuation of the real estate properties, but unless the property was owner occupied the UTILITY of the buildings are declining. More on Utility of a building later...