What do you really think the bad debt deal that was done in Washington last week has to do with the micro cap markets? How about the S&P Downgrade? Remember S&P had Lehman at a AAA rating just days before they went belly up. I am surprised that anyone gives the S&P any credibility at all. George Will said of the S&P’s action “If you read what they actually said, it’s a kind of half-baked political analysis criticizing the American system of government and how it works now.”

So how does this impact micro cap stocks? Not much in the short term is my opinion. However, unless someone stands up and does something, this will eat away at the micro cap markets as well. Eventually the negative collective consciousness of the financial world will spread throughout the entire market to include small stocks.

Always before when there was a nice market recovery, everyone benefited. Money poured into the markets first at the higher levels and then in due time at the micro cap levels. During this last recovery however, it was far different in my eyes. After the post Internet boom of the late 90s and 2000, the markets sold off in the Spring of 2000 and struggled right through the 9-11-01 terrorist attacks. By early 2003 the market started heading back up and continued higher into 2007. Times were good; stocks and real estate were putting lots of money in investors pockets at all levels.

What struck me as peculiar about the recovery after the cascading crash of 2008 with regard to the markets was that only the people with lots of money to invest turned nice profits. The average Joe hasn’t really recovered and even though they declared an end to the recession some time ago, it is hard to see for me where that end occurred; its still going on. The “recovery” has been selective and has occurred in some places and has not occurred everywhere. In the micro caps, money has remained very tight since 2008. Micro cap companies have had a hard time with investment and getting financed for 3 years now and there is no end in sight.

Here is my new business rule of thumb: When the stock market tanks, everyone gets hurt. When the market recovers, the wealthy and big business make big money while the rest of us struggle. So in reality, until the playing field is leveled it doesn’t matter what the economy is doing or the markets or the government. We will have to continue to work our asses off to be successful.

Last week was a big week here. We had numerous inquiries regarding where to take stock under .10. We are still checking out sources to help small companies out. Meanwhile we did help a few people out with stock placement. And… no, we did not charge them money for it. Another intriguing source has come to light lately and we are going to see if they can help or if it’s just a scam.

We have had a good discussion with the comments to that first article and a few items have been cleared up.

The DTC eligibility problem is beginning to affect more and more companies. Client Company Bebida Beverage’s (BeBevCo) CEO Brian Weber announced in a news release on Thursday of this last week that he is going to get to the bottom of the DTC eligibility problem for BBDA.

Big Week for Client Companies

Daily Chart Courtesy of Yahoo! Finance

Several of our client companies had big weeks. ProtoKinetix (OTCBB: PKTX) traded bigly on Friday. The stock was up .0225 to close at .05 on volume of 3,526,292 shares. Average daily volume (20 day average) on PKTX is 254K shares.

Earlier in the week (Wed, 20 July), IBRC traded 73,548,460 shares which was a bit more volume than their average of 171K shares a day. The stock was up .001 after opening at .0009.

We will be watching SLLN, IBRC and PKTX for moves this upcoming week. I also expect to complete another interview with Brian Weber, CEO of BeBevCo which should be interesting given the news on Thursday of last week. He says business is going extremely well; now, if we could just get the stock problem resolved.

Rapid Fire Marketing (OTC Markets: RFMK) which has been trading really good volume over the last 2-3 months is expected to continue to build out their marketing program and expand their business. We will see how they do with it.

Disclaimer: BBDA, PKTX, IBRC and RFMK are client companies. We do not buy, sell or own stock in client companies. See our disclaimer page.

The article I wrote last week has received a lot of attention regarding the problem with Penson and their .10 policy as well as DTC eligibility. It is amazing how many calls and emails I have received. Many of those calls are from people that may be able to help. I need to screen these service providers because, as with all things micro cap, there are scams a’plenty and will need to be weeded out.

One of the big issues I have had to work through is the fact that these trading and clearing firms think I am setting up a money making enterprise and want finder’s fees for hooking companies up with them.

This is absolutely not true!

I simply want to help companies find the help they need to keep their stocks trading and their business moving forward. This is in the best interest of everyone involved with micro caps (OTCBB, Pink Sheets)

If many of these stocks end up in no-man’s-land then there will be far fewer companies on the micro caps which is good and bad depending on your perspective.

There is obviously much more to discuss on this issue but at least the conversation is getting bigger and more people are looking for solutions.

Let’s face it: There will always be a market for sub .10 stocks and if all the big online firms decide they want to move away from trading these stocks, they are going to lose a lot of money in commissions. So, it is my feeling that sooner or later, a solution will come about.

On the other hand, the DTC is a different situation altogether with regard to DTC eligibility.

Here is a video from xbigshot1 on YouTube: He covers this situation in some detail, some good info here. Participate in the discussion and let’s put our brains together and come up with some answers.

Here is the LINK for the latest on DTC eligibility (everything is listed there but you can find the ones that have lost eligibility.

How about your ideas? Comments?

Over the last few weeks a lot has happened in the micro cap world. Probably the biggest thing is the fact that one of the largest clearing houses, Penson Financial Services, will no longer clear stocks under a dime.

A few weeks ago, Penson put in place a new policy that essentially paralyzed all stock deposits, clearing and what have you for sub dime stocks. This new policy is across the board meaning no certs, no DWAC, DRS, ACAT or any other method for any stock under a dime.

Obviously this does not affect companies that clear elsewhere… yet. Rumor has it that other big houses will follow suit.

There are two big impacts of this policy…

The first is self explanatory and we have already covered it; no more stocks of any kind under a dime through Penson. The second however is that many of the bigger online trading firms clear through Penson. This means that if a trader or investor who uses one of the big online brokers and they clear through Penson, that trader or investor cannot purchase shares of any stock trading under a dime.

How to get around this?

For the big online trading firms, if they expect to keep all those commissions they earn on the numerous daily trades on the thousands of Pinks and OTCBBs that are under a dime, they are going to have to clear these elsewhere. This may or may not happen and if it does, it will take a while. The only way to buy and sell stocks under a dime is through smaller firms and full service firms. Being that most of the action on these low priced stocks are by traders and especially day traders, that will not work well. Day trading and having to use a phone is like asking a neurosurgeon to do a delicate procedure wearing welding goggles and gloves.

I have spoken to individuals at many of the big Financial firms in NYC over the last several weeks. They are already moving to smaller clearing firms or setting up their own clearing in-house. It might surprise many to know how many big financial firms in the Big Apple deal with small stocks. There is too much money to be made to let the sub dime stocks fall by the wayside.

There is a caveat however… and here is the biggest point I will make in this article:

They will only take stock of companies that are FULLY REPORTING and DTC eligible. They do not care what the price is as long as the company is fully reporting.

In other words, there is a big weeding out underway right now.

Speaking of DTC eligible, those companies that have lost DTC eligibility are going to get weeded out too. Why?

Stocks that are not DTC eligible run a strong risk of having trading of their stock suspended by trading firms because of the expensive administrative nightmare it causes. What makes this even more painful is if the stock suddenly gets good volume. That volume will dry up as trading firms suspend trading in that security.

When a stock is not DTC eligible, all the week’s trades have to be settled through PAPER CERTIFICATES; it is expensive and time consuming and most trading firms do not have adequate resources to handle this especially on high volume stocks. To compound the problem, the traders of that stock receive an unpleasant statement the following month because the costs of the administration of non-DTC eligible stocks are passed on to the people who bought and sold the security. This can amount to several hundred dollars for each trader/investor.

If a stock is DTC eligible all transactions are handled automatically and electronically.

More on DTC eligibility…

One of the best ways to lose DTC eligibility is to register stock in any other form than an S-1. Many Pink Sheet and OTCBB companies are still doing things like 504s which is severely frowned upon by the DTC.

Many companies that have done a reverse split over the last year or so have had their stock “chilled” (non-DTC eligible) by the DTC. The reason they are getting chilled is because right after the reverse split takes place, the company registers more shares (usually through a 504) for sale. This pisses the DTC off and they chill the stock and no matter how many resources the affected company throws at the DTC, they continue to be chilled and the DTC becomes less responsive.

So the conclusion I have drawn is simple:

If you want the stock of your company to keep trading, become a fully reporting company and register new stock the way the DTC wants it done.

While these issues have caused much grief lately, I think for the marketplace overall it is going to be of great benefit to both the surviving companies, investors and traders.

We all know that many if not most of the Pink Sheet and some OTCBB companies out there are nothing more than ATM machines for the management team and their “investors”. Those companies that have no money and no business will be left in “no man’s land”. Those companies that do clean up their act and become transparent will stand a much better chance of succeeding in business and in the marketplace. The pool of investors and traders will remain the same or grow while the companies to select from will be far fewer in number.

There will always be sub dime and sub penny stocks to trade and invest in, there will just be fewer and the companies will be more transparent.

Do you have anything to add to this discussion?

Bebida Beverage Company (OTCMarkets: BBDA) key to success is quite simply: Put products in stores, sign deals to distribute more beverages and let the investment community and let the world know about it. This is what they are doing.

You see, it doesn’t take an expensive stock promotion program to make a company work in the marketplace… It takes a real product or a real service and executing on the business plan. Shortcuts are expensive and provide no lasting effect; delivering more and more products to the market is what makes for a successful company.

I still believe a company’s success is much more closely tied to performance of the company and not the stock.

I am proud that BeBevCo is our client and we are expecting a lot out of them over the coming weeks and months…

Disclaimer: BBDA is a client company; see our disclaimer page.

Not only are small companies (OTCBB, Pinks … uh I mean OTC Markets) under pressure because their stock is increasingly difficult to use as a currency, but now a new website has popped up that will add to the misery of small companies. Well, not for all small companies but many of them.

PumpsandDumps.com is a fairly new site but is getting a lot of attention. I wish them luck with what they are doing to expose the stocks that are spoiling the entire market. This is why business has come to a standstill in the micro caps… The good companies are grouped in with the bad and the baby is thrown out with the bathwater meaning that the perception is that all stocks on the micro caps are a scam.

Maybe the next step is to set up a clearing house which categorizes every micro cap stock into two classes – legitimate companies and illegitimate companies.

Lets face it… there are a few legitimate companies in the micro caps but the rest are ATM machines for company management team members, their financiers, seedy middlemen and all sorts of other bottom of the swamp dwelling individuals. These companies use pump and dump promotional services which are expensive and for the most part illegal. What is the difference between an “above board” promotion and a pump and dump promo (in my opinion)?

Above Board (legal):

• Only real companies with real products or services are promoted
• Only publicly disclosed material is used in the promotion which means NO opinions and NO price targets and no HYPISH, OVERBLOWN, OUTLANDISH or OUTRIGHT UNBELIEVABLE language is used in the promotion
• Promotions are paid for in cash (stock is legal but messy from a conflict of interest standpoint)

Pump and Dumps:

• Any “company” or third party that has the means to pay will be promoted even with no revenues, no product and no services
• Writers for the promotion are professional hype artists that specialize in things like putting in flat-out unbelievable (and totally unsubstantiated) facts, figures etc which is laced with hypish, overblown, outlandish and unbelievable language
• Payment methods vary but many of the emails/sites pumping these stocks do not disclose compensation

I still cannot believe that in this day and age things like this still come to me in the email:

I blacked out the ticker symbol in this one to avoid a time consuming and expensive lawsuit...

The fact of the matter is that many of the pump and dumps are organized and put together by individuals and entities that have great legal representation. These individuals and entities are hard to catch and convict. For every P&D artist the SEC puts out of business it seems that 2 or 3 pop up in their place.

I really do believe that the solution to the problem is exposure and that “clearing house” I mentioned above. That way, investors will know which companies are real companies and which ones have a history of seediness. This is a simplified solution but it has to start somewhere for the overall and long term health of micro cap companies that really are trying hard to grow in a legal and legitimate way.