Thom gets energized: Feel the power
Geriatric guru points to power play in Western USA
By Thom Calandra
Copyright © 2007, Thom Calandra
ALL RIGHTS RESERVED BY AUTHOR
TIBURON, Calif. -- Good morning, voldy morts!
That's right, it's morning somewhere every moment of the day. It's also my life every moment of the day, and your life, and your puppy's life.My life today and tomorrow and whenever is dotted with that question I keep getting, at the supermarket, from my French friends at the French school, even the grape grower down in Paso Robles who used to be a big fan of The Calandra Report before we crashed and crashed and crashed and ... burned in the fires of anonymity. No-no, not The Question: So When Are You DYEING Your Hair Gold Again, Thommy-boy?
No morts of mine, we're past that. The commodity market we nailed in The Calandra Report, thanks to clever believers who brainwashed me, correctly, into thinking that gold's biggest move, and other stores of physical value, too -- that's right I'm talking to you, copper! -- gold's biggest move comes, always comes, in the arena of financial commodity dragon, as the hard money that replaces some currency or grarly derivatives trade or other.
Hey Rocky, watch me pull ...
I pulled that rabbit out of a hat five years ago, not just with TCR either. I had it in a lot of my reporting at MarketWatch, and before that at Bloomberg, and before that at The San Francisco Examiner, and before that ... OK already! Back then, I was a few hundred dollars an ounce and one earth-seeking, slogged and free-falling geologist too early. Yet I still nailed it, and my thanks go to Nathan Lewis and James Turk and Billl Murphy and Marc Faber and several other folks who kept me on the yellow brick road all that time. Robert M. Friedland too, I have to say, if only because the sinister lord of language, titan of tongue, he was the first voldy mort I'd ever heard publicly declare that all of the gold in the world could fit into one room, the big old hotel ballroom in which he was belting his latest pitch. That was roughly early 1990s and the event was sparsely attended. I remember the cranberry muffins were extremely fresh and delicious, so it must have been the Stanford Court.
Anything that can fit into one room, well, that works for me. I mean, we're not talking a multi-level garage full of Jerry Seinfeld Porsches. One tidy room with all of the planet's discoverable gold. Anyway, the question I get at the market and at the school and when I'm kicking the football on the front lawn is not about gold and China and hard money assets, though I have to say here for the record the prices of gold and platinum and silver and so on, the casino commodities I call 'em, their prices are in double-land and will stay there for a few more years, nicely doubling every 18 months or two years until that safety-deposit box you have downtown, Mildred, it is going to buy you a new house and one of those Seinfeld Porsches.
No, the question I get these days, as I recover from the rightful scolding I endured at the hands of federal regulators, the question I get as I wrap up my niggardly funny (so my librarian says) new novel, Pablo By Numbers, is related to those melt-up days, for sure, and it's almost always something like this: "Hey TC, what's looking good?/What's hot?/What's doing you?" (For more plugs on the new novel, please visit www.ThomCalandra.com.)
You know, I'll be dang-on gazongled and hung out on a line to dry if I am just going to sit here and keep my lips zipped. I mean, I have tried to stay silent these past four years, working on my backstroke at the Strawberry Pool. I get that question and I say, "Hey man, love you ... und I don't do that thing I did, don't do it anymore." It's liberating to feel free of conflict, knowing that whatever I do, there is no way in the world I am going back to a world where eensy footnotes at the close of a newsletter were what I thought were required to keep an audience, my audience, up to date about my personal investments. So much for oversight. I like it now, keeping my investments personal. Our investments. They're locked up safe in that box downtown, Mildred, she who happens to be one of the first seven or nine folks to ever admit to me they were buying gold when it was selling for what, $300 an ounce?
But I do cringe, as we all do, when I get beautiful and warm calls and cards from the audience, filtering into my mornings those memories of the melt-up days. It's like, sure, you saw the ball slide beneath the first baseman's glove and you're a New York Mets fan, or something like that. Good memory. Still, I cringe because once in a while I think about the other team and the other team's fans.
Could it be I am getting soft around the edges? I cringe when I see 90 percent of the folks out there letting their most promising investments slip beneath their gloves, discarding the little engines that could, and way, way before the trains get to the top of the mountain. You know, most Americans, heck, most Londoners and most Berliners and most Torontorians and most eaters of Shanghai hairy crab, most of us have no idea what is happening right now in capital markets, in paper markets that is.
We are getting juiced
We all of us look at the big indexes and think all is right with the world. The big stocks are doing well. The euro is progressing. The currency markets are orderly, harsh if you own American dollars perhaps, but orderly and performing their lubricating magic on ownership baskets. If you're a high-roller in Canada these days, you're a high-roller across the border for the first time in a few hundred years. Oh yeh, the debt markets are a bit screwy, I mean, hey, you can't get a mortgage on a home even if you put down 25 percent cash? Bonkers! And what's with the 10-year yields out there, just pitiful.
Most of us think everything happening out there in Money Land is happening smoothly, like a nice Odwalla blend of almond and coconut and soy milk, with some mango pieces added for mouth feel. I am begging you here to differ. Please, differ! We're getting juiced, most of us, anyway. THE WORLD'S SMALLEST COMPANIES ARE GETTING CLOCKED. THEIR EQUITIES ARE GETTING CLOCKED. THEIR DEBT AND CONVERTS ARE GETTING CLOCKED. THEIR BANKERS ARE TELLING THEM THEY NEED TO REVERSE SPLIT THEIR STOCKS AND HIT THE ROAD TO BEG -- yes beg -- THE MOST RISK-EMBRACING INVESTORS FOR CASH. (Oh, and yeh, the CEOs and CFOs will get their cash, but at fire-sale conditions, diluting existing shareholders by a factor of 5 or 10, sprinkling half-price warrants into the PIPEs, if it's a placement, staying on the road an extra week to visit Minneapolis or Dayton if it's a secondary road show, and so on.)
But guess what? Nothing else has changed. These companies' products are still the best of their class in many cases. Their sales are ramping up. Their drug trials are going forward. Their search for new growth is on track. Their markets -- the markets for the next 10 years -- are opening, finally. And the world is selling their stock and their debt? Go freaking figure. Even the great IPOs of the past two years are withered, paling, near the point where they need serious oxygen. Orphan Annies one and all.
Now, those of you out there who recall the melt-up days of five and four and six and seven years ago, you might remember some of the specialties we got into, I'm sure. One of them was genomic tools. I am not letting the cat out of the bag by telling you that if it were not for one specific genomic tools company, one whose shares four years ago were being distributed by the venture capitalists who owned it at a buck a share or whatever, if it were not for Illumina Inc. down there near San Diego, and if it were not for the fact that Illumina's scientists and CEO and biz development leaders WERE TELLING THE TRUTH about their business, this fiber-optic array spread of future-mongering machines coated in sterility and gleaming through the glass panes of the company's biomedical campus, if it were not for THE TRUTH OF ILLUMINA and Jay Flatley and the education his team are providing about the slicing and dicing of DNA in all of its ger-zillion formulations, well, we would be eating Spaghettios today and living in, I don't know, Dayton. Not that there is anything about Dayton I dislike. The rest of my family, they would HATE Dayton. I take what comes.
The point being some executives tell the truth. Illumina was telling the truth about its biz model of consumable revenue, oh and its technology, which, when compared with competitors' lab machines, is faster, more accurate and provides many more data points when it comes to slicing up a genome, be it human or hedgehog. The company has grown sales and profits and product lines strongly and steadily these past four years, with an acquisition or two along the way. So now Illumina is a $3 billion company and not the $300 million company it was in November or December 2003, when I highlighted it in The Calandra Report. Lucky for me, Jay and his team were telling the truth ... and still are. Anytime you want to learn something from an investor presentation, go see Jay Flatley as he broadcasts his powerpoint in some faceless conference room. I guarantee that if you are a layperson like I am when it comes to biology, you will be looking up a few dozen terms, my favorite being single nucleotide polymorphisms, or SNPs, the DNA variations that separate you from me, just as an entire nation separates Dayton, Ohio, from, say, Tiburon, California.
Lucky for me I believed Illumina's gospel. It's not easy placing investment faith, never has been. I got the story first hand back then, maybe because I was a fairly well known financial scribe. I still believe Illumina is telling the truth about its business, which is growing gangbusters. If it were not for the lawsuit shadow that rival Affymetrix throws across Illumina and its share price, the stock would be15 percent higher right now. Once again, I think Jay and his team are telling the truth, that there is little or no basis for Affymetrix's infringement lawsuit against Illumina. Someone at Illumina, almost surely the CEO, Jay Flatley, made the correct decision four or so weeks ago to provide as much background and explanation as he or she could to the matter of this longstanding patent lawsuit. The Illumina press release was textbook par excellence in its comprehensive acknowledgement of nearly all the facts and circumstances about Affymetrix's complaints, or at least this is how it seems to me, who is a believer.
Don't be a Crazy Eddie
So I believe that Illumina is telling the truth when it says it believes it has never "infringed" on Affymetrix patents for such technology as the assays and bead arrays and scanners that go into making some of the best genomic diagnostic machines on the planet. Funny thing, when companies tell the truth, you and I can make money. There will be a fox in the road, there always is. (Note: I don't care about comma splices these days, so there.) I say fork the foxes. Shtup the duck. Shtick to your truths, the ones you believe are true. Whose story is this anyway?
You know, this is the part where I have to say that anyone thinking about buying Illumina stock here would have to be insane. I say this now, with the shares at $60 almost, but I did not say this back then, when the shares were $6 or so. I say this NOW because my family and I still own the shares, and I do not in any way want to be responsible for someone going out there and buying Illumina at a $3 billion market worth, only to see more lawsuit talk or some other freaking fox in the road come along and fork you. So there, I said it. Shtup the rumors 'cause they're only tumors, and even worse when they call 'em rumours.
Not for all the gold in that big old hotel conference room should you be listening to anyone about the financial markets, not even to me. Forget putting your money with Kenny Fisher or Jimmy Rogers or anyone. Lynch the Peter Pipers. Listen to your own story and believe what you want to believe. This way, you get the credit for being right, and you take the lumps for being wrong. It's the only way to get good at 1) kicking footballs 2) mountain biking and 3) investing. It's OK to scrape your knees. Ask your kids. The ones without knee scabs grow up to be CPAs and massage therapists, although one or two wind up as heavy funked-out drummers, best of class for sure, like the kid next door one day.
What is happening right now in the world of small companies is that their small pieces of paper, their scrip, are becoming even smaller. I'm talking the world of $100 million companies, not $3 billion or $30 billion ones This is my world of small companies with big ideas. Their stock paper is getting ripped to shreds in one of the worst tsunamis to hit small-cap shores in a long time. This massacre would remind me of the early 1980s, when everything in the stock market was selling for a song -- except I cannot for the life of me remember anything about those years except chewing mushrooms just west of Tucson, Arizona, watching the sun set across the Saguaro and then the moon rise like an almost spotless pearly clock over my shoulder.
Seriously (my wife says I need to put that in following anything evoking the Sonoran desert, including mushrooms, buttons, caps and tumbleweed), seriously, the reason you can make money when executives tell the truth is because the financial markets are très cynique, no? Analysts, buy-siders, bankers, sellers, bean counters, they snort the same tired quizzicals at the road shows and the investor shows: "Prove the model, prove it with these conditions, prove it with the fattest gross margins in the history of your business ... and if you are telling the truth ... I might just invest." Something like that.
Don't break my chopsticks
Prove it? Give me a break, please. Prove to me anyone is telling the truth, and the truth is real and reality will happen. Prove to me you will hold the bonds or the stock or the warrants or the whatever for three years, and not flip it in melt-up or melt-down fury. Prove you change the oil in your car every 4,000 miles. Here I am, a believer in the Wi-Max standard for wireless remote Internet, a believer in cancer-treating compounds, a believer in HIV diagnostics and a believer in, well, I am getting carried away, but each of these beliefs is parching my throat, withering my/our portfolio, making me learn what patience really means. Waterboard torture? Bring it on. It's nothing compared with watching these companies get their balance sheets kicked out of them.
By the way, there's a rumor going 'round that the new novel, when it comes out, Pablo By Numbers, the book will offer some kind of golden ticker to its first 500 readers, some precious gift, wrapped in words, somewhat concealed but fairly visible to voldy morts of Dubai, Medellin, Cape Town, Toronto and so on and presented, I might add, to the Mildreds of the world who believe in the magic of small companies, just as if they were some wonked-out willies in a choco factory. Well, my personal policy is never ever to comment on rumors, even if it is about my own novel, which already has been excerpted but will be published in its entirety as soon as we seal the banana peel with the perfect publisher. Nope, I never comment on rumors 'cause most are tumors, but this one, if it's a rumour, welp, I just may have something to say about it. See, I believe in golden tickets, er, tickers, that can melt up and up and up. (For more on the new novel, please visit www.ThomCalandra.com.)
So once again, I believe. I believe there is a company out there that is telling the truth about its business model. I own it. And no this is not the golden ticket or ticker or whatever. That's the novel. This here is the NOT-novel. No way in the world should you buy what is coming down the paragraph pike here, not at the present time. Take the voldy mort oath: I WILL NOT BUY anything that Thom Calandra, superb and sublime slimeballl that he is, will not buy anything TC mentions, especially if he says he owns it. I will not buy anything, not even his favorite album (currently "Hairspray"), until after the furor subsides. In other words, if for some crazy reason people actually care about my due diligence and my deep-knee research and are paying attention to ThomCalandra.com, well, let the crazies go out and buy the stock. Read my chips: I am not buying because I already own the thing. At a higher price than it is now! I am not selling until it triples or goes to zero. Let the crazies run it up, or run it down for the non-believers out there (I love you all, too!).
Then, after you've chilled out and listened to a Ryan Adams tune, my voldys, and you've had a couple of good Will Ferrell guffaws and died and gone to laugh heaven, and the stock is trading no volume, or next-to-no vol, maybe in a week, or a month, or perhaps tomorrow, well then you can buy it if you care. But not because it's my story. Make it your story. Start kicking tires, morts you all!
The CEO who is telling the truth here -- and by the way did you notice I do not give out tickers these days; look 'em up yourself please -- well, you can see for yourself with the FORM 4s that the Securities & Exchange Commish requires of those who have large stakes in publicly held companies. FORM 4s do not lie. Usually. For those who do not know what a Form 4 is, no worries, mates. Here is an example that becomes relevant in the next paragraph or two: http://www.secinfo.com/d12TC3.u1D36.htm. It's an American document, filed with the U.S. Securities & Exchange Commission, that states ownership purchases and disposals for those who own a certain percentage of a company, I think it is 5 percent, and for those who are executives or directors at that company. As a very smart money manager tells me time and again: Watch what they do, not what they say. Always keep a back eye, Shnape shtyle, on Form 4s. They're everywhere these days of electronic distribution, so not to fret. They are easy to find.
And the winner is ...
The company I own is remotely like that Ivanhoe Energy I fell in love with four or five years ago, at the price of a dollar and even less, much less as I recall, a real penny stock that one. Problem with that one is that it never lived up to the promise, the promise of oil exploration in China and the Middle East and points east/west/north/south. This is not about Ivanhoe though, and yes, I got spanked for that one. This revelation, this little look at what I think is exciting out there, and what I expect will go far lower before it goes higher, and what I in no way expect or counsel or even hint any sane person should be buying right here, this energy company is more of a merchant, a New York-based merchant with a couple of California power plants and plans to buy and renovate several more across the western USA, all in the hope that natural-gas fired power plants will find a fresh spot in states where extreme heat and wildfires and power outages and puke politics are increasingly becoming a regular gig.
I met Karl W. Miller, and I believe the CEO of MMC Energy when he says he's investing side by side with the rest of us in his company. His ownership is well documented. Miller owns somewhere around 600,000 shares of MMC, most of it at higher prices than it sells for now. The energy veteran has been buying in the open market when trading windows allow. That's what the Form 4s show. Of course, just because the CEO believes and is telling the truth does not guarantee a successful business. Especially in the cut-throat halls of the utility business, where lobbyists are worse than scum and better than gold. So, ummm, more importantly, Miller, who wins the unlinked-at-birth contest (subject: square-jawed Lee Majors in "The $6 Million Man"), Miller is a 40-something veteran of a good half-dozen energy companies, including ones in Europe and others in America. The merchant model that he and his team are pitching would seem to work well in areas such as California, perhaps Utah, maybe New Jersey, where energy demand is intense and summers are nasty and the power grid is the pits. Oh, and where no one wants a new plant built, and even if the neighbors did allow a new gas-fired turbine in the hood, the thing would take at least 5 years to build. MMC is into the revamping of so-called peaker plants that kick in and get paid to guarantee Americans their right to an uninterrupted Xbox and frosted chardonnay in the frig, that process of building and managing a network of plants is where the growth for MMC comes in.
To say the company is a mini-Dynegy does Miller and his team no favors and little justice. It's much more because it is much less, much smaller in size than the mammoth merchant power vendors. It can maneuver, like I used to be able to at two-hand touch when I was a lad in a schoolyard.
That's all I am going to say, OK? There it is. I own it -- we own it, a lot of it -- and I do not advise anyone to even think about buying it until they spend 16 hours reading up on the subject of utilities and state and federal regulations, power politics and the aging, and greening, of the American power grid. Miller and his MMC still have a lot to prove: how they are going to finance a buildout of current plants in central and southern California and of course the future plants that promise the growth formula its big investors, such as T. Rowe Price, are awaiting; how they are going to have lobbyists for the giant electricity companies silenced permanently or at least neutralized; how they are going to convince new investors they can stick to a growth model with a few dozen imponderables and a few million green activists who might or might not understand that MMC is the good gal in the delivery of clean and efficient energy. (Did I tell you the average power plant these days, gas-fired, the average age in California is something like 50 years?)
Enough from here. I'm energized again! Good morning voldys! Don't forget the oath: I will/I will/I will NOT invest like a robo-bobo.
-- Thom Calandra, best squire
December 2007
