January, Thursday 05, 2012

DOW – 2 = 12,415
SPX +3 = 1281
NAS +21 = 2669
10 YR YLD -.01 = 1.99%
OIL +.03 = 103.25
GOLD +8.90 = 1622.40
SILV + .21 = 29.47
PLAT – 5.00 = 1421.00

Today we are proud to present Evan Greenberg’s Top 10 for 2012.

10. USHS – U.S. Home Systems =$7.24

9. TGE – TGC Industries =7.16

8. DLA – Delta Apparel = 19.25

7. PESI - Perma-Fix Solutions = 1.56

6. ANIK – Anika Therapeutics = 9.60

5. FRD – Friedman Industries = 11.29

4. CECE – CECO Environmental = 5.67

3. CVU – CPI Aerostructures = 13.03

2. ACET – Aceto Corp = 6.83

1.HURC – Hurco Companies = 21.58

The top 10 List is presented in no particular order. It is small & micro cap stocks only. I’ve given today’s price. We will come back at the end of 2012 and see how we did; no trading during the year to try to manipulate the results. Over the years, the TOP Ten List has proven to be incredibly profitable. You’re welcome.

To contact Evan send email to: Egreenberg@legendcap.com

Data continued to point to a stronger U.S. economy. More than twice the expected number of private sector jobs were added in December while initial jobless claims dropped 15,000 in the latest week. In addition, the pace of U.S. services growth quickened more than expected in December.

Bank stocks were moving generally higher today. This was not based upon great fundamental news, even though the spin-meisters tried to paint that rosy picture. The official line was that investors were taking a closer look at the sector and finding bargains. They tried to claim that as the economy gets stronger, the banks will play an important role. Here is a quote from a bankster shill: "It is a telling sign of the strength of the overall U.S. economy because they provide the raw material for businesses to grow." What garbage. Banks don’t provide any raw materials for business.

The Euro fell to a 15-month low against the dollar. There was decent demand for a French bond auction, but concerns that France might lose its AAA credit rating pushed yields higher. UniCredit, the largest Italian bank, has lost 30% of its market value in the past week. UniCredit is on the verge of collapse. The spin-meisters tried to say that U.S. banks are so far ahead of the European banks in terms of having sufficient capital that it gave investors some comfort. (link) Again, what garbage! If the European banks start to collapse, the US banks might survive but they surely will not thrive. The big banks are interconnected across the globe.

It is foolish to imagine that US banks are not affected by the possibility of a Euro meltdown. The ECB and the Fed are working together and they are now effectively the only thing between Europe’s banks and large scale failures. Since early September 750 billion US Dollars worth of liquidity has been provided to the European banking system of which 100 billion sits on the Fed balance sheet through US Dollar swap lines.

So what propped up the banks today? Well, there was a rumor floating around. The rumor came from a blog written by a guy named Jim Pethokoukis and he cited a guy named Jaret Seiberg, who works for the Washington Research Group – and I’ve never heard of any of them. According to the article, the Obama administration could announce a program that would allow all homeowners with a Fannie or Freddie-backed mortgage to refinance with a new mortgage at a fixed rate of 4.2% or less if they have been current on their payments for at least three months. And the clincher is that the plan imposes no other qualification - no appraisal or income verification.

The typical borrower would reduce his or her principal and interest payments by about $350 dollars, a total reduction in mortgage payments of nearly $100 billion per year. It is expected to help refinance $3.7 trillion in mortgages and would come at an immediate fixed cost of $121 billion to the government.

We’ve talked quite a bit about the HARP 2.0 program. That program sounds like a helpful plan to refinance underwater mortgages. This new plan sounds even easier. Almost anybody and everybody could get a mortgage at a new low rate. This could be a political and economic game changer in this presidential election year. Obama could offer a trillion-dollar stimulus -- as measured over a decade -that would directly and immediately impact tens of millions of Americans suffering from the housing depression. Now before you do anything – it is just a rumor at this point.

Now, the reason this is good for banks: when a mortgage is refinanced, it essentially becomes a new mortgage, and at a lower interest rate, there is a much better chance the mortgage will actually be paid and not become a delinquency. The greatest predictor of delinquency is not a credit rating – it is when the lender charges excessive interest; the more onerous the terms of the loan, the greater the probability of default. With approximately 30% of all mortgages underwater, the banks are looking at a toxic wasteland for their balance sheets.

Again, the new refinance plan is nothing but a rumor, but it got a nice boost because the Federal Reserve coincidentally released a paper entitled “The U.S. Housing Market: Current Conditions and Policy Considerations”. The paper comes to the startling conclusion that the housing, mortgage, foreclosure market is a mess and the problem isn’t going to go away on its own; and Quantitative Easing parts 1,2, and 3 hasn’t helped anybody but the banksters. The Fed takes the position that lenders have been too stringent with mortgage credit. Overall, the Fed research paper is too little, and probably too late; the Fed continues to deny the size and scope of the frauds perpetrated by servicers on borrowers and investors; they fail to recognize the insanity of a system that allows mortgages to be sliced and diced and shuffled through MERS, and then make believe that they can make apples out of apple sauce – essentially spitting on the concept of contract law; Ben Bernanke thinks it would be a good idea to rent foreclosed properties; he thinks it’s important to have people in homes and not leave the houses vacant but the Fed fails to  give serious consideration to loan modification; the paper fails to make the connection between negative equity and defaults; and the paper acts as if the shadow inventory still waiting to hit the market won’t have an impact.

Keep this in mind – the recent little boost for bank stocks has been based on rumors, not fundamentals. Still, any good rumor needs corroborating evidence.

The quote of the day comes from an article in Forbes by Steve Denning, called” The Dumbest Idea in the World: Maximizing Shareholder Value. He says “Instead of the company being dominated by salesmen who can pump up the numbers and the accountants who can come up with cuts needed to make the quarterly targets, those who add genuine value to the customer have to re-occupy their rightful place.”

Also from that same article: “Stock based compensation is a very recent phenomenon, one associated with lower shareholder returns, bubbles and crashes, and huge corporate scandals. In 1970, stock based compensation was less than 1 percent of compensation. By 2000, it was around half of compensation. For the last 35 years, stock-based compensation has been tried. It had the opposite effect of what was intended. We should learn form experience and discontinue it.”

At various times, we’ve talked about the scarcity of the precious metals; there really isn’t much gold or silver that has been mined; it’s a small market. An even smaller market is platinum. More than ten times more gold is mined each year than platinum, and it's often noted that all the platinum ever mined throughout history would fit into the my living room. Typically, platinum is priced higher than gold, however, the price of gold now exceeds that of platinum by the widest margin in more than 27 years, despite platinum's comparative scarcity. During economic expansion, platinum prices tend to outpace gold given its dual role as both a precious and industrial metal. But when the economy wanes, platinum can often stumble. During the 2008 financial collapse, platinum prices fell from $2,252 to $774, a drop of nearly 65%.